Published on August 9th, 2015 | by Jim Lee0
Ryanair’s ‘Enhanced customer experience’ translates into a 25% Q1 Profit of €245 million and traffic growth of 16%
On 27th July Ryanair, reported their first quarter (Q1) results for the period to 30th June. These showed a profit of €245 million, up 25% on last year, as traffic grew 16% to 28 million due to stronger load factors, up 6% points to 92%. Michael O’Leary attributed the strong performance to the airline’s mix of “low fares, best on time performance (91% in Q1) and enhanced customer experience.” Being nice is obviously paying off, as he confirmed that under their ‘Always Getting Better’ (‘AGB’) programme, they have continued to attract “millions of new customers”. He was also quick to point out that due to their focus on cost, unit costs fell 7% in Q1, which enabled them to pass on lower fares to customers. Q1 average fare fell 4% to just €45, due to the timing of Easter, weaker April yields and what he described as “lower checked bag penetration”, as more families and business customers enjoy discounts on their luggage, or now benefit from Ryanair’s free 2nd carry-on bag policy.
The key figures are summarised in the table below:-
|Q1 (IFRS)||30th June, 2014||30th June, 2015||% Change|
|Profit after Tax (m)||€197||€245||+25%|
|Basic EPS (€ cent)||14.22||17.90||+26%|
Further expansion as fleet grows
Ryanair say that they continue to be inundated with growth offers from primary and secondary airports, whose incumbent carriers are cutting capacity and traffic. It adds that these new airports, along with its 72 existing bases, offer significant growth opportunities as they embark on their new Boeing 737-800 programme. This winter Ryanair will take delivery of 31 aircraft which (net of lease returns), means that the fleet will increase to 340 Boeing 737-800’s by year end. These additions should, Ryanair say, help meet surging demand with over half of its growth taking place at primary airports such as Brussels, Lisbon, Rome, Athens, Copenhagen, Berlin, Cologne, Dublin and London Stansted.
When we last reported on the Ryanair fleet, they had taken delivery of EI-FIK on 12th May. Since then a further six aircraft have been added as follow:-
Four were added in June, EI-FIL Boeing B738-8AS-W on 3rd June, EI-FIM on 5th June and EI-FIN and EI-FIO on 13th June. The remaining two, EI-FIP and EI-FIR, were added on the 2nd and 3rd July respectively. These six aircraft bring the total number of aircraft delivered to Ryanair to 369. 51 aircraft have left the fleet and another one, leaving the active fleet at 318.
Ryanair have 268 on order. 175 Boeing 738-8AS(W)s were ordered in June 2013, five ordered in April 2014 and an order for a further three was confirmed on 4th March 2015. From these orders for 183 aircraft, five were delivered in 2014 and 16 have already been delivered so far in 2015. The remaining 162, 33 will be delivered in 2015/6 (41), 2017 (50), 2018 (50) and 2019 (29). The remaining 100 aircraft are from Ryanair’s order for the 737 MAX 200, which was finalised last year, with options for a further 100.
As in summer 2014, Ryanair is leasing in additional capacity for the summer. Four Boeing 737s are being wet-leased from Slovak carrier Air Explore, two Boeing 737-800s. OM-FEX, a model 8Q8 (W) and OM-HEX a model 81Q (W), configured with 189 all-economy class seats, and Boeing 737-436, OM-CEX and Boeing 737-4Q8, OM-EEX, configured with 168 all-economy class seats. The later aircraft is based in Bratislava while other three are Stansted based. Two A320-200s, YL-LCM and YL-LCN, leased from SmartLynx Airlines, are based in Madrid Barajas.
Finally, a Boeing 737-73S/W acquired from Killick Aerospace as N278KA and ferried Shannon-Glasgow Prestwick on 5th May, was noted two days later with EI-SEV applied on a decal. It was formally registered as EI-SEV on 5th June and was ferried Prestwick – Maastricht 23rd June for painting in full Ryanair colours. On 30th June it was ferried Maastricht – East Midlands. It is based there and used for crew training purposes, although its mission frequently takes it back to Prestwick. The aircraft can be used as a backup as it is equipped with 155 seats. On 17th July, the aircraft paid its first visit to Dublin, arriving as the RYR69 from East Midlands. It took part in Bray Air Show on Sunday 19th July, before returning to the UK.
New Routes and Bases
In September Ryanair will open its sixth German base in Berlin, where they have a 5% share of the German market and they expect to grow this strongly over the next five years. Gothenburg (the 2nd Swedish base), with one based aircraft, will also open in September, with 13 routes in total. In November, Israel will become the 31st country served when Ryanair start flights to Eilat Ovda Airport from Budapest, Kaunas and Krakow commence. Services from Dublin to Birmingham, Manchester and Liverpool are also being expanded.
Danish union row
On 21st April Ryanair announced its 2015 winter schedule at its Copenhagen base with three additional routes (Alicante, Budapest and Malaga). These were added to complement its existing nine routes from Copenhagen to Brussels, Cologne, Dublin, London Luton, Madrid, Milan, Rome, Stockholm and Warsaw and are expected to deliver almost 2 million customers. On 4th June, it announced an increase in its London Luton to Copenhagen service from three to four times daily, due to what it described as “overwhelming demand”. On 3rd July Ryanair, announced further extension an additional three times weekly service from Edinburgh to Copenhagen, which will operate from 6th November.
However, in the background an industrial relations row was brewing and for Ryanair, it was being fought in a county with one the strongest set of legal protections for workers, than most others that the airline serves. As usual, the row ended up in the courts, having also featured in the political arena, when it became an issue in the countries election campaign. Copenhagen’s Social Democrat mayor banned municipal workers from using Ryanair for official travel. Unfortunately the court ruled that Ryanair had to sign a collective agreement with local staff or face a blockade from trade unionists. Although it is not the first time that Ryanair has lost a case over the use of Irish contracts for staff hired in other countries, it was the scope of the Danish court ruling which permitted a blockade of its services that was the most serious threat so far. Typically, Ryanair immediately said it would appeal the decision, but also threatened to close the whole Copenhagen base. John Dybart of the Danish Unions responded by saying that “Ryanair was bluffing”.
On 10th July responded, confirming that its single based aircraft in Copenhagen, would transfer to Kaunas on 14th July. This was directly in response to the Danish Unions refusing to suspend threatened sympathy action at Copenhagen airport from 18th July. It also decided to close its base at Billund. By moving the aircraft from Copenhagen and Billund to airports outside Denmark, Ryanair believe that the unions have no legal basis for imposing any disruptions. Services will be maintained but operated by aircraft and crews based outside Denmark.
In a comment Ryanair’s Eddie Wilson said: “This is the latest failure of the Danish Unions, who continue to operate an anti-competitive “closed shop” where Danish citizens (Ryanair pilots) and other European Nationals (Ryanair cabin crew) see their jobs exported outside Denmark by the actions of Danish Unions (who don’t represent them) who have previously destroyed other Danish airlines (Sterling and Maersk) because they are inflexible and unable to adapt to modern air travel where customers want low fares and efficiency not high costs, unionised inflexibility and inefficiencies”. He added that the Danish Unions have admitted they don’t have any members in Ryanair and although it was “a black day for the Danish economy”, moving the operation outside the country allows Ryanair to continue to grow strongly in Copenhagen, “without union interference”.
Since we last reported on Ryanair’s customer and load factor statistics which were for April, traffic growth remained strong, with the latest traffic figures for July showing traffic growth of 11% to 10.1 million customers, a load factor rise of 4% points to 95%, The rolling annual traffic figure to July was 95.3 million customers, a 15% increase. A summary of the figures for the three months May – July are given below:-
|Customers||Load factor||Rolling annual traffic|
|Month||This year||Last year||Change||This year||Last year||change||Total||Increase|
|May 2015||9.5 m||8.2 m||+16%||92%||85%||+7%||93.1 m||13%|
|June 2015||9.5 m||8.3 m||+14%||93%||88%||+5%||94.3 m||14%|
|July 2015||10.1 m||9.15 m||+11%||95%||91%||+4%||95.3 m||15%|
Commenting on the latest figures for July Ryanair’s Kenny Jacobs said: “This is the first time ever that any airline has carried over 10 million international customers in one calendar month. For example we carried more customers in one month (10.14 million in July) than Aer Lingus carried in a whole year (9.77 million in 2014)”.
Ryanair continues to improve its customer experience as the second year rollout of AGB continues. In April it cut fees for sports equipment, while in May it upgraded it’s our mobile app. On 2nd June, it announced that it had added the Sabre Corporation as its third GDS partner. The agreement with Sabre and the link to Sabre-connected travel agencies and corporations across Europe will enable Ryanair to further improve its business travel offering. Its launch with Sabre follows the introduction of Ryanair Business Plus last year and a dedicated corporate and group service. An enhanced Groups travel service was launched on 16th June and is designed to make it easier for groups of 20 or more to book via an online booking form on a dedicated Groups section on the homepage of the Ryanair.com, This offers all group members the same set low fares, flexibility on name changes and lower sports bag fees.
Ryanair also joined Facebook in July, which provides another channel to communicate with, and listen to its customers. As part of the Facebook launch on 8th July, Ryanair announced a ‘30 Names 30 Planes’ competition, offering 30 people the chance to have their name and face pictured on one of 30 Ryanair aircraft. Through the Facebook page ‘fans’ can upload their photo and download a CGI video of their own Ryanair aircraft bearing their name and face. The winners will be announced in September. Even more gimmicky, was the launch of a special birthday seat sale on 7th July, marking the 30th anniversary of its first flight. One million seats across its European network were offered at €19.85. In a similar vein, it’s ‘Keep Greece Flying’, campaign announced on 10th July, dropped prices on Greek domestic routes to just €4.99 one way, while also cutting fares on international routes to/from Greece by 30%.
Ryanair’s on time performance is amongst the best in the industry, and it further improved in Q1 despite the impact of the French ATC strikes, and the closure of T3 in Rome Fiumicino.
|Apr||May||Jun||Jul||Aug||Sep||Oct||Nov||Dec||Jan||Feb||Mar||Ave for Year|
Apparently Ryanair customers can look forward to more service enhancements in the autumn, as the airline continues Year 2 of its AGB programme. This will include a new website, new app, new cabin interiors, new crew uniforms, improved inflight menus, reduced fees, and great new digital features such as ‘hold the fare’.
Ryanair end exclusive car hire agreement with Hertz
On 2nd July, in a surprise announcement, Ryanair confirmed that it had received what it described as “a notice from Hertz purporting to terminate Hertz’s exclusive car hire supply agreement with Ryanair with effect from 12:00hrs 2nd July”. The statement adds that “Hertz allege that Ryanair’s agreement with GDS distribution companies represents a breach of contract”. Ryanair disputes that given that it has been distributing through GDS’s since April 2014 (a period of over 15 months), with what it says is “Hertz’s knowledge and support”. In their statement Ryanair add that “Hertz have confirmed in their notice that all existing bookings will be honoured and customers will still be able to modify their bookings on the microsite following its decommissioning at 12:00hrs (2nd July)”.
Court Battle looms as Ryanair say they will Pursue Hertz for Breach of Contract
Ryanair believes the Hertz termination is in breach of its long term exclusive contract with that company, which was recently extended for a five year period to 2020. It will now pursue Hertz for breach of contract and damages. Although Ryanair has issued a Request for Proposals (RFP) for a replacement car hire provider, in the interim it will be unable to offer its customers car hire services through the Ryanair.com website. It expects this to be for a period of approximately three months while it seeks a suitable replacement supplier. This should coincide with the launch of Ryanair’s new and radically improved personalised website and mobile app due to be introduced by October 2015.
Commenting on the Hertz decision, Michael O’Leary said he regretted their decision to end the agreement “at such short notice” and “at a time that will cause maximum inconvenience to our customers during the peak travel period”. “We have had a long and successful partnership with Hertz, and it’s a pity that this has ended in such an unfortunate and untimely manner” he added.
The Ryanair statement concluded; “Since we expect that any losses arising from this interruption to our car hire services will be recovered from our legal proceedings against Hertz, we do not expect this interruption to have a material impact on current earnings.”
Looking at Ryanair’s Fuel hedging position, the first Q1 results presentation show that 90% of its fuel for FY16 is hedged at approximately $91 (around €83) per barrel and Ryanair have taken advantage of recent lower oil prices to increase its FY17 fuel hedging to 70%, at an average rate of just under $66 (around €60.2) per barrel. This should deliver significant fuel bill savings in FY17 of up to €250 million (based on current hedging). The airline’s advantageous US$ CapEx hedging, along with its low cost Eurobond financing, helps them to continue to purchase and operate aircraft at very low costs.
Ryanair’s balance sheet remains one of the strongest in the industry. In Q1, despite CapEx of €324 million and share buybacks of €195 million, its net cash increased to over €550 million (from €364 million in March). Ryanair has completed almost 90% of its current €400 million share buyback programme. This means that when it closes in August Ryanair will have returned almost €3 billion to its shareholders via special dividends and share buybacks since 2008.
IAG – Aer Lingus:
On 10th July, the Board of Ryanair voted unanimously to accept the International Consolidated Airlines Group S.A. (IAG) offer through AERL Holdings for its 29.8% stake in Aer Lingus. While many see this decision as a loss of face for Ryanair and it’s bids to acquire Aer Lingus to some extent a waste of time and resources, Ryanair say that the “timing of this sale is appropriate” It added “our original plan for Aer Lingus (to use it as a mid-priced brand to offer competition at primary airports) has been overtaken by our AGB programme under which Ryanair has successfully entered many of Europe’s primary airports opening new routes and bases but offering competition and consumer choice”. “As the Ryanair brand develops and continues to grow strongly, the original rationale for acquiring Aer Lingus no longer exists” its statement concluded.
In its first Q1 results presentation Ryanair added “If the IAG offer is successful, then we would expect to receive these proceeds in mid/late September and the Board will consider our use of the proceeds around the time of our AGM”. This of course meant that Ryanair does not intend to formally accept a bid for its stake in Aer Lingus until mid-August, weeks after the offer by IAG was due to expires. IAG had already extended the deadline for the offer to midday on 30th July, saying it needed 90% of Aer Lingus shareholders to accept. By that deadline it noted it had received valid acceptances of the offer in respect of 333,702,888 Aer Lingus Shares, representing 62.48% of the existing issued share capital of Aer Lingus.
In a statement on 31st July, Aer Lingus noted that IAG and AERL Holding had waived the 90% acceptance condition and confirmed the Offer was now unconditional as to acceptances. It further announced that the Offer will remain open for acceptance until 1300 (Irish time) on 18th August 2015 and that there will be no further extension of the Offer unless the Offer has become wholly unconditional at that time and date. “The Offer remains subject to the conditions that have not already been satisfied which are set out in Appendix I of the Offer Document, in particular acceptance of the Offer having been received in respect of the Aer Lingus shares held by the Ryanair Group” the statement added.
The 62.48% acceptances plus the Ryanair holding exceed the 90% in the acceptance conditions and would be sufficient to allow IAG to buy out any shareholders who do not submit acceptances. Those shareholders would still get the same offer price but their cheques would arrive a little later.
Analysts were at a loss to identify any logic to the Ryanair delay in accepting the Offer and there has been no public statement to the Stock Exchange or to the media.
UK Competition and Markets Authority
On 11th June, the UK Competition and Markets Authority (CMA) published the final order requiring Ryanair Holdings plc (Ryanair) to reduce its 29.8% stake in Aer Lingus Group plc (Aer Lingus) down to 5%. Its statement added that “in the light of IAG’s current bid for Aer Lingus, the CMA will ensure that implementation of this remedy interacts effectively with the bid process and the assessment of the bid by the European Commission”.
In response Ryanair said it’s to the CMA to request to review its order to divest its stake in Aer Lingus was manifestly wrong and “flies in the face of the current IAG offer for Aer Lingus”. It added “when the only basis for the CMA’s original divestment ruling was that Ryanair’s minority shareholding was or would prevent other airlines making an offer for Aer Lingus, the recent offers by IAG for Aer Lingus totally disprove and undermine the bogus theories and invented evidence on which the CMA based its untenable divestment ruling”.
According to this great explanation by Leppard lawyers, Ryanair went on to say that it had “instructed its lawyers to appeal today’s ridiculous decision to the Competition Appeal Tribunal, given that it is factually unsustainable and legally flawed as the IAG offer for Aer Lingus proceeds”. In parallel, it added “Ryanair’s lawyers are currently seeking permission to appeal the unsustainable 2013 report to the UK Supreme Court.”
Again it is unclear what purpose these protracted appeals will have given Ryanair decision to sell its shareholding in Aer Lingus to IAG.
In statement on 1st July, Ryanair’s Kenny Jacobs said that Ryanair believes that the proposed Heathrow runway – which won’t be delivered for 10 or 15 years – won’t solve the runway capacity crisis in the South East. He added “Ryanair strongly advocates taking politicians out of runway decision making and allowing each of the three London airports, Heathrow, Gatwick and Stansted, to build 3 competing runways which will solve the capacity crisis in the South East for the next 100 years, while at the same time allowing competition between the airports to deliver this capacity efficiently. It remains a fact that additional runways in Stansted and Gatwick can and will be delivered much earlier than any Heathrow third runway.”
Ryanair has also launched an EU wide online petition to prevent Europe’s consumers having their travel plans disrupted or holidays cancelled by tiny groups of Air Traffic Control (ATC) unions going on strike and closing skies over Europe.
In a statement it noted that since 2009, French ATC unions have staged 39 days of strike action, causing cancellations for millions of people across Europe. With French ATC unions having called another closure (2nd – 4th July) it believes that this will again result in thousands of flights being cancelled and hundreds of thousands of consumers having their flights cancelled and/or delayed. “The last closure of French air-space on 12th & 13th of April this year forced Europe’s airlines to cancel over 3,600 flights and disrupted over 500,000 consumers” it added.
As noted above, Ryanair believe that further growth opportunities exist and have expanded their Winter 2015 business schedules. This has led them to increase their 2016 Financial Year traffic target from 100 million to 103 million. This will be achieved through a combination of strong load factor (90%) and fewer winter groundings (approximately 40). This should see traffic increase by 13% in the first half (H1) and slightly faster at 15% in the second half (H2).
Based on their Q1 performance and reasonable visibility into Q2 (which they caution “is heavily dependent on late bookings in August and September) Ryanair now believe that average fares for H1 will be broadly flat (their previous guidance was 0% to -2%). Adding they “have very little visibility into H2”, nevertheless they expect that faster capacity growth (up 15%) and lower oil prices may lead to an aggressive pricing response from competitors. They therefore remain “very cautious about weaker prices and yields this winter”. Since Ryanair’s policy is to be load factor active/yield passive they expect that H2 fares “will be towards the higher end of our -4% to –8% guidance range”.
Ryanair will continue to have a strong focus on unit costs and they expect that unit costs will fall by approximately 3% (aided by higher traffic). Fuel will deliver a saving of close to 7% and unit costs ex-fuel will be broadly flat. Ancillary revenue will be well ahead of our long term target of 20% of total revenue but will track behind the 14% growth in customer numbers in FY16.
These factors lead Ryanair to conclude that “it is too early in the year” to alter their year profit guidance, although the slightly H1 yields will push it towards the upper end of its previously guided range of €940 million to €970 million net profit. They caution however that this guidance, which is 12% ahead of last year’s profit, is heavily reliant on the final outturn of H2 fares over which they “currently have almost zero visibility”. Ryanair say that they “will continue to pursue its strategy of being load factor active and yield passive for the benefit of our customers, our people and our shareholders.”