Fuel Costs Hit Ryanair Profits

Ryanair has reported a 29% slide in profits for the second quarter of the year due to high fuel prices, the recession and austerity measures. The carrier, which is the biggest budget airline in Europe, said that further growth for the remainder of the year could be restrained due to the week outlook on the European economy.

Ryanair maintained a forecast profit of between €400 million and €440 million for the year to March. Net profit for the three months to June was €99 million – down from €123 million forecast by some analysts. The carrier says it had hedged 90% of its fuel needs for the 12 months to March at about $1,000 per tonne – which is 21% more than last year, but less than current market prices. The other 10% of needed fuel will be lower than expected at the beginning of the year, but the savings will be more than offset by the worse exchange rate between the euro and the dollar.

Ryanair chief financial officer Howard Millar says there’s no sign of economic recovery across Europe. There doesn’t even look like any light at the end of the tunnel. Average fares during the last three months were up 4%, which is in line with the mid-single digit growth it predicted in May and is on track for an average 3% growth in the year to March. The carrier will go ahead with plans to ground 80 of its 270 aircraft during the winter season due to high fuel prices. With oil at $100 per barrel, it doesn’t make sense to fly the planes – as they lose more the more they fly.

However, Ryanair sees potential to further increase capacity in the key summer season. It’s bid for rival Aer Lingus aims to take advantage of the airline’s European airport network, which complements its own budget regional network. The Competition Commission said last week that it would decide on August 29 if the $841 million offer would be approved. The company says it’s ready to represent a series of remedies to authorities in an effort to east anti-trust concerns.

As of late, Ryanair has been in a row with the Spanish government for raising airport taxes at the beginning of July. Chief executive Michael O’Leary says the move has prompted carriers to reduce winter capacity, which will have a knock-on effect with the nation’s tourism industry. The government needs to reverse the unjustified increases if they want tourism to grow and to generate new jobs, he added.

Millar also repeated the carrier’s interest in Stansted Airport, which the commission has ordered owner and operator BAA to sell. The finance chief says Ryanair has been approached by several consortia about joining a bid for the airport, and they are interested in taking a 25% stake in the property, which is valued at around £1 billion. Millar says the consortia want them to be the anchor tenant. The carrier believes it can increase traffic at Stansted, despite passenger numbers sharply declining since 2007.

Meanwhile, Ryanair isn’t the only airline to have seen profits fall due to fuel prices, recession and austerity measures. Air France-KLM and Lufthansa have seen declines in their financial results, with Air France-KLM reporting a €66 million operating loss during the second quarter on revenues of €6.5 billion. However, one carrier has seen a boost in sales. Budget rival easyJet saw revenues rise 10.5% during the period.