Ryanair must cut fares to fill 52 extra aircraft

Ryanair intends that fuel and cost savings will give it the scope to cut fares as it bids to fill the extra aircraft that will join its fleet through the current financial year.

The airline is taking delivery of 52 new Boeing aircraft in coming months, bringing its fleet to 380 planes when its financial year ends on March 31st 2017.

Chief marketing officer Kenny Jacobs said yesterday Ryanair would increase capacity by 9 per cent and wants to grow passenger numbers at the same rate to 116 million from 106 million.

To hit those targets it must sell the same proportion of seats on its enlarged fleet as last year: 93 per cent. It will have to do this in an environment where many of its rivals, buoyed by cheap fuel, are also boosting their capacity.

In response it will have to cut fares, by between 5 per cent and 7 per cent in the traditionally busier months up to the end of September and by 10 per cent to 12 per cent in the quieter second half of its financial year.

Overall, on the limited information available to it at this point, the airline believes it will have to cut overall average fares by 7 per cent this year. Yet profits will still grow. Chief executive Michael O’Leary said yesterday they would increase by about 13 per cent to between €1.375 billion and €1.425 billion, depending on bookings, sterling’s strength and the absence of shocks and air traffic control strikes.

An overall fall of 6 per cent in costs will play a big part in this. Ryanair expects to save €200 million on its fuel bill this year because of falling oil prices. Outside of this, its other expenses were down 2 per cent.

According to yesterday’s figures, advance summer bookings are 2 per cent ahead of where they were last year, although customers are paying less for their seats than they did 12 months ago.

Savings

Jacobs says the airline would pass cost savings back in the form of lower fares. It will also stick with its policy of focusing on selling seats on its craft at whatever price simply to hit its 93 per cent target.

Thus it is cautious about guidance. Ryanair is prudent about predictions, partly because public companies have to be and partly because its industry is prone to shocks. Anything from volcanoes to striking air traffic controllers can hit the bottom line.

Twelve months ago , it predicted 10 per cent passenger growth, to 100 million, and profits of €940 million to €970 million. That changed. The actual figures comfortably beat original guidance and were marginally ahead of its most recent outlook. Ryanair may not outperform so dramatically this year, but recent form says there is a chance that growth will overtake its initial forecast.