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Investors savaged Ryanair shares, after the LCC recorded its first quarterly loss since 1997, due to soaring fuel costs (+91.5% year-on-year, as the carrier flew unhedged) and massive write-downs on its speculative investment in Aer Lingus. By the end of the day, almost 23% of the airline’s share value had evaporated as CEO, Michael O’Leary, warned that the carrier could be headed for a full-year loss of up to EUR60 million.
Mr O’Leary stated that consumer confidence is “plummeting” in the UK and Ireland, which is experiencing an “emerging economic recession”. Passenger numbers for the full financial year are expected to rise 14% to 58 million – down from a previously expected 16% increase. The carrier also appears to have downgraded it passenger growth forecast for 2010 through 2012, based on previous growth forecasts, with Mr O’Leary adding that the slowing economic conditions would have an “adverse impact on fares for the rest of the year”.
This contrasts with easyJet’s statement on 25-Jul-08 that it still expects yields to rise going forward (following a creditable third quarter 4% increase in yield). easyJet’s optimism stems not only from its greater focus on premium routes, but also as a result of new initiatives to increase ancillary revenues.
A big part of the shock-factor in Ryanair’s result was the reduction in ancillary revenue, as a portion of total revenue, in the quarter. However, Ryanair’s ancillary revenue did grow by 25.4% year-on-year to EUR146.8 million, again faster than the rate of traffic growth rate, to represent 18.9% of total revenue. (By contrast, easyJet reported a 124% surge in ancillary revenue in the same period, to represent 16.1% of total revenue).
Ryanair’s response to the rising pressures has been to (belately) hedge some of its fuel requirements (at very high levels) and introduce some cabin-baggage only flights.
But the core response is the usual Ryanair manta of “lower fares and aggressive pricing to keep people flying” looks increasingly risky. Having been significantly caught out by rising fuel prices, investors may demand a more sophisticated approach from the management of Europe’s leading LCC in the future.
Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales. She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.
