No delays in returns for Ryanair shareholders

Ryanair may be in trouble with some of its customers again but it's not hurting the airline's bottom line and its shareholders are doing very well.

Following a briefing on imminent second-quarter results from chief executive Michael O'Leary, analysts have been upgrading their forecasts. Flagging that the results due next week for the three months to the end of September would be ahead of expectations, Mr O'Leary reported strong growth in passenger numbers and a better-than-expected performance from its new routes in the period. Analysts have raised their earnings forecasts to about 27.1 cents (21.3p) per share for the year to the end of March 2001 and 33.5 cents for the year to the end of March 2002. This compares with 21.6 cents for the 12 months to end of March this year. The shares have reflected the strong growth. At €9.40, they are close to their year high of €9.70 and well up on their low of €5.22.

Ryanair has a strong business model based on a low-cost, low-fares service. Strict cost control with an increasing number of routes and services ensures growing revenue and profits.

There are risks to be managed - volatile fuel costs, a possible weakening of sterling and increases in staff costs - but the Ryanair model revolves around big growth in passenger numbers, and there is great potential here.

Low-fares services account for 1.5 to 2 per cent of all air traffic in Europe. This compares with 12 to 13 per cent of air traffic in the United States. Growth in low-cost services suggests they could move quickly towards US levels of market penetration. What about the negative publicity surrounding last weekend's events at Beauvais? Unhappy customers venting their annoyance create a perception liability.

However, there should be little impact on growth in passenger numbers as long as Ryanair continues to differentiate itself from other airlines by its fares . The one-day stoppage of all Aer Lingus flights last week must have had a far greater negative impact on the loyalty of its passengers, many of whom were paying business fares, than delays, even if they were badly handled, for Ryanair passengers in Beauvais.