Airlines

Published on May 31st, 2015 | by Jim Lee

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Ryanair’s Full Year Profit jumps 66% to €867 million

Hot on the heels of our last report on Ryanair entitled, ‘Ryanair responds to Aer Lingus challenge as it seeks more business passengers’, posted on 25th May, Ryanair announced, what can only be described as, extraordinary full year results, for the year ended 31st March 2015. In a year when Ryanair celebrates its 30th birthday, it is a measure of the huge change in that period, that it is now able to reporting a 66% increase in net profit, to €867 million.

Not only was this ahead of previous guidance, it demonstrates, not only the enduring strength of Ryanair, but its ability to transform itself from a small time competitor flying turboprops, to the pioneer of the low fare/low cost model and more recently the transformation to its improved customer experience model.

Who better then, than Ryanair’s CEO, Michael O’Leary to take us through the results (see video) assisted by Neil Sorahan (CFO). The Ryanair results presentation in a PowerPoint/PDF format can also be found here.

The main figures are summarised in the following table:-

 

Full Year (IFRS)

31st March 2014

31st March 2015

% Change

Customers

81.7m

90.6m

+11%

Revenue

€5,037m

€5,654m

+12%

Profit after Tax

€523m

€867m

+66%

Basic EPS(€ cent)

36.96

62.59

+69%

 

Other highlights in the results include:-

  • Traffic up 11% to 90.6 million as load factors rose from 83% to 88%
  • Unit costs ex fuel were flat (including fuel they fell 5%)
  • Net profits rose 66% as net margin jumped from 10% to 15%
  • Earlier loading of schedules led to materially stronger forward bookings
  • AGB Year 1 programme delivered, Year 2 improvements rolled out
  • Ryanair Labs is transforming both digital and mobile platforms
  • Lead customer order for 200 x Boeing 737 Max 200 aircraft
  • 2nd Eurobond issue (€850 million @ 1.125% coupon) lowers its finance costs.

New Business model yields results

The ‘Always Getting Better Programme is credited not only with the rise in profits, but also in passenger numbers, which were up 11%, compared with an original estimate of 4%. “Even we have been surprised at how customers have responded to the customer improvements,” Michael O’Leary conceded. Over the past year, Ryanair has relentlessly improved its lowest fare/lowest cost model, not only by the improvements in customer service, but through the expansion into primary airports and with added business schedules. Ryanair has also extended long term low cost growth deals at major bases including London Stansted and Dublin, where the Irish Government has played its part in “rebooting tourism”, by abolishing the travel tax.

Ryanair has also made huge strides in competing with other low cost rivals and has focussed particularly on easyJet. “Increasingly we are competing and beating easyJet on service, both in terms of frequency, punctuality and customer experience, and going after that key business market,” according to the Ryanair CEO. It was easyJet’s high profitability in 2013 that was the catalyst for Ryanair to change its business model and move away from low yield customers. While Ryanair and easyJet only compete directly on less than 5% of routes, when you look at city pairs the number rises to closer than 30%. Already Ryanair has claimed to having “poached passengers” on a number of London routes, including to Edinburgh, Glasgow, Lisbon and Cologne.

By transforming its customer experience, and service, and the way they listen and respond to customers, Ryanair has won substantial traffic and share gains in all markets. They are now the No.1 or No.2 airline in most EU countries except France and Germany (where they are a rapidly growing No.3).

With higher load factors and double digit traffic growth, Ryanair has ordered 183 Boeing 737-800’s, for delivery from 2014-2018, and 200 Boeing 737 Max 200’s from 2019-2023 (including 100 option aircraft), to facilitate this growth. These aircraft will be delivered at lower $ rates and much lower Eurobond finance rates which (with eight extra seats and 18% more efficient engines), will have a marked effect on Ryanair’s costs, and allow it to maintain a competitive edge on fares.

 

Ryanair tails (Ryanair)

Operations

Ryanair began its summer schedule with a fleet of 312 Boeing 737-800s, supported by an additional six aircraft, leased-in for the peak period, with a further eight new Boeing 737-800s due by the end of the year. These additions should help meet surging demand, and Ryanair expect that over half of its growth to occur at primary airports such as Brussels, Lisbon, Rome, Athens, Copenhagen, Berlin, Cologne, Dublin and London Stansted.

Ryanair continues to deliver what it describes as “industry leading punctuality” despite the occasional and repeated damage inflicted on its operations by ATC strikes and airspace closures, or by adverse weather in different European regions, during the winter schedule. The high levels of punctuality can be seen in the following table:-

 

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Ave

FY14

93%

94%

92%

92%

94%

92%

91%

93%

85%

92%

90%

92%

92%

FY15

91%

89%

87%

86%

90%

90%

92%

91%

84%

85%

91%

92%

90%

Revenue and Costs

Ryanair’s traffic growth of 11% to 90.6 million customers has generated higher revenue growth of 12% to over €5.6 billion boosted by ancillary revenue. Unit costs which benefited from lower un-hedged fuel prices (10% of volume), fell by 5%. Excluding fuel, unit costs were flat, which was an impressive performance in a year where Ryanair made a substantial move to more expensive primary airports. This was achieved without compromising its 25 minute turnarounds. The fact that Ryanair maintained flat unit costs (ex-fuel), while many competitors saw their unit costs rise, means that its cost leadership over competitors, has widened during the last year. This price advantage has helped Ryanair win substantial market share from competitor airlines in Dublin and London Stansted, in particular.

Hedging

Ryanair said that they had taken advantage where possible of currency and fuel price weakness over the past year. They have established a very favourable hedge position as follows:

  • oil is 90% hedged for FY16 at $92 (€83.70) per barrel,
  • oil is 36% hedged for FY17 at $69 (€62.77) per barrel
  • US$ OpEx is 90% hedged for FY16 & FY17 at $1.33 (€1.21) and $1.19 (€1.08) respectively
  • US$ CapEx is 100% hedged for FY16, FY17 & FY18 at $1.37 (€1.25), $1.34 (€1.22) and $1.23 (€1.12) respectively

This favourable US$ hedging will deliver significant aircraft, maintenance and fuel savings over the next two years. This is before Ryanair engage in further oil hedging during what it describes as “periods of price weakness”. 

Balance Sheet and Shareholder Returns

Ryanair’s rising profits are generating significant free cash flows, which has enabled them to deliver substantial returns to shareholders. In February 2015, they paid their third special dividend of €520 million (€0.37 per share). They then launched their sixth share buyback, under which they hoped to buy and retire €400 million of ordinary shares, by the end of August. This will bring the cash returned to shareholders over the past eight years to almost €3 billion. Nevertheless, Ryanair still finished the year with €364 million in net cash and a balance sheet rated BBB+ by both Standard & Poor’s and Fitch Ratings, the highest rating of any airline worldwide. Ryanair expect that its Eurobond programme, (under which they have raised €1.7 billion unsecured at blended rates of 1.50% per annum), will lower its financing costs, boost profitability and continue to strengthen the balance sheet.

Ryanair  (Ryanair)

Michael O’Leary & Neil Sorahan of Ryanair

Regulation and other pet hates!

Ryanair believes that Europe’s airline industry continues to be blighted by over-regulation, which it says, “frequently places producer monopoly protection above the interest of consumers, or growth in tourism and jobs”. By way of examples, it cites the EU’s Emissions Trading System, (which it describes as “discredited”), the single sky project, (described as “a shambles”) and the failure to prohibit ATC strikes (either by “no strike” legislation, or binding arbitration), which it says “allows the ATC Unions to regularly and repeatedly close Europe’s skies”. 

It is particularly critical of the UK Competition and Markets Authority’s 2013 divestment ruling, under which this UK regulator ordered Ryanair, an Irish airline, to reduce its minority stake in another Irish airline, Aer Lingus, solely on the basis of what it describes as “secret evidence that no other airline would bid for Aer Lingus while Ryanair held a minority 29.8% shareholding”. This it says has now been hopelessly disproven by the IAG’s offer. Ryanair have written to the CMA calling on them to reverse this ruling. However, the CMA in their provisional decision have claimed that the IAG bid for Aer Lingus, (which they predicted would not happen), is not a “change of circumstances”. This has led to Ryanair claiming that the CMA will be totally discredited if they do not reverse this ruling.

In the meantime Ryanair’s approach to the IAG offer remains unchanged. The Board of Ryanair will consider any offer (should we receive one) from IAG on its merits, if or when it is received.

Finally, Ryanair strongly supports the development of additional runway capacity in the London market. They believe that the market should be free to develop three new runways, one each at Heathrow, Gatwick and Stansted, which they believe is the only long term solution to the capacity crisis in the South East. They are encouraging all three airports to deliver additional capacity quickly and cost efficiently.

Outlook

Last year Ryanair set out a strategy to drive stronger forward bookings, encourage customers to book earlier to deliver higher load factors. These higher load factors have helped to reduce unit costs and boosted ancillary sales. Forward bookings, this year as Ryanair enters the 2015 summer peak (June to September), are on average 4% ahead of last year, and Ryanair expect this will lead to a 2% rise in load factors from 88% to 90% in the 2016 financial year. Average load factors in the first four months of 2015 grew by 10% and while this will slow to 1% or 2% over the peak summer months, Ryanair is still targeting 100 million passengers for the current financial year. Passenger numbers increased 11% to 90 million in the year to 31st March and Ryanair expect that half of the targeted additional 10 million passengers this year would be flying from primary airports.

Ryanair has said that this growth would not come at the cost of lower fares this summer, but Michael O’Leary has also said that he is not afraid to cut fares if necessary. “We’ll take whatever price they’ll pay us, as long as we fill our flights to 90%,” he said, a policy summed up as “load factor active/price passive”. He believes fares would be “broadly flat” in the six months to September (H1), which he later clarified as falls of between zero and 2%. In the second half of the financial year (H2), during the winter season, even with the benefit of lower oil, aircraft and financing costs Ryanair may suffer periods of fare/yield weakness and yield down by between 4% and 8%. It is therefore forecasting a full financial year yield decline of 2%. Even if this decline proves accurate, Ryanair believes that lower unit costs in 2016 financial year (FY16), will still provide a 10% improvement in profits, which should (subject to H2 yields) rise to a range of €940 million to €970 million for the full year to March 2016. Mr O’Leary has described the profit guidance as cautious.

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About the Author

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Jim has had a life-long interest in military matters and aviation. Initially, he fused both of these interests together with a passion for military aviation, initially as a photographer. He has travelled extensively over the years and has been the guest of many European air forces, plus the air forces of the United States, Russia and others throughout the world. His first introduction to journalism coincided with an interest in the civil aviation industry was when he initially wrote for and later edited, ‘Aviation Ireland’, the club magazine of the Aviation Society of Ireland. Jim was a contributor to Flying in Ireland since its inception over 10 years ago and is now a key contributor to this site. He has also contributed items for a number of other aviation magazines and has produced a number of detailed contributions to Government policy documents, most recently the Irish Government’s White Paper on Defence. He is also deeply involved in the local community and voluntary sector and has worked both in local government and central government.



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