Europe’s top low-cost airline Ryanair said yesterday high fuel costs and a lack of growth in capacity would mean flat earnings in the coming year.
The Irish airline, which operates more than 1,500 flights a day, said it expected traffic growth to slow to 4 percent next year from 8 percent last year and that increases in average fares would be eaten up by higher fuel costs.
Longer, more lucrative routes and growth in France and Germany will help drive up fares, but this will be offset by higher costs and weakness in southern Europe and the Irish domestic market, chief executive officer Michael O’Leary said.
“Higher fares will only help us to finance higher fuel and rising sector length related costs, and accordingly, we expect profit after tax for FY12 to be similar to the FY11 result of 400 million euros [US$560,370,140],” O’Leary said in a statement.
O’Leary said he hoped the latest ash cloud would be less problematic than the last year’s when European airspace was closed for six days.
“We can have some confidence there won’t be any disruptions this year,” he said in an interview with Sky. “At least I hope there won’t.”
Johannes Braun, an analyst with Commerzbank, said that while markets were concerned by the new volcanic eruption in Iceland, the company’s outlook was more worrying.
“The results were okay, but the focus is on the outlook. Given that Ryanair is already fuel hedged by 90 percent, the very cautious outlook came a little bit as a surprise,” Braun added, saying Ryanair’s net profit guidance for next year was around 100 million euros below his forecast.
The airline has 90 percent of its next year’s fuel needs hedged at a cost of US$820 per tonne, a level it said would give it an advantage over competitors.
“We are certainly better hedged than our competitors, so it is an advantage,” deputy chief executive officer Howard Millar said.
Costs will increase 13 percent next year, but would have increased just 2 percent without rising fuel costs, Ryanair said.
The airline posted a 26 percent surge in net profit for this year to 401 million euros, at the top end of the company’s guidance and above the 382 million average forecast by analysts polled by Thomson Reuters.
However, Millar also warned it was difficult to see how Europe would emerge from its current economic problems. Traffic growth of 10 percent in the six months to end-September is expected to slow to 4 percent in the following six months.
“We have concerns about some countries like Ireland and Greece, Spain and Portugal,” Millar said. “It’s difficult to predict beyond the near future.”
Meanwhile, Ryanair shares fell yesterday after the airline said it would ground 80 aircraft this winter and suffer reduced passenger traffic. It said weak winter demand meant it would cost less to ground 80 jets — more than a quarter of its fleet — than to operate them at a loss from October to March.
Ryanair said the seasonal grounding would mean the airline carries 4 percent fewer passengers than in the previous winter, the first such drop since Ryanair’s creation in 1985.
For the full fiscal year Ryanair said it still plans to carry a record 75 million passengers, versus 72.1 million in the year up to March.
Previously, Ryanair has transferred aircraft from loss-making winter routes to growth markets in the Mediterranean, keeping winter groundings to a minimum and passenger numbers consistently on the rise.