Ryanair warns of 'bloodbath' in airline industry

 

Ryanair has reported slightly better-than-expected results and has warned of a "bloodbath" in the industry next winter that will yield casualties among European airlines.

The Irish-based low-cost airline reported a 14 per cent fall in pre-tax profits to €228 million in the year to the end of March and suggested that, at best, it would bring in profits of just over €200 million in 2005.

This was the first slump in profits since the airline floated on the Irish Stock Exchange in 1997. After-tax profits fell 5 per cent to €226 million, slightly ahead of market expectations.

Presenting the figures in Dublin yesterday, Ryanair deputy chief executive Mr Michael Cawley predicted that the woes of the airline industry would continue for the rest of the year and that air fares would fall further.

"We think there's going to be an absolute bloodbath next winter. Fares are only going one way and only the airline with the lowest costs will win. Ryanair will be the last man standing," he said.

Ryanair shares were weaker in Dublin yesterday, ending the day four cents lower at €4.34. The airline's chief executive, Mr Michael O'Leary, has previously said that he expects the shares will remain at around these levels for the next one to two years.

The company reported a 28 per cent increase in revenues to €1 billion. Earnings per share fell by 6 per cent to 29.91 cent.

Mr O'Leary said the year had been characterised by weak sterling, the war in Iraq, the threat of terrorist attacks, higher oil prices and intense competition amongst European airlines. These factors continue to overshadow the company and will have a bearing on profitability in the year ahead.

The increase in oil prices does not pose any imminent threat to Ryanair's cost base as it has hedged the cost of its fuel until the end of October but remains a concern as it accounts for more than 20 per cent of its cost base.

Mr O'Leary, speaking to investors, stressed that the airline would still be profitable even if oil prices doubled from their current high levels and would wait until further this year to hedge the costs of its future supplies.

He said the company expected oil prices to ease in the run-up to the US presidential elections in November.

The airline said that almost 50 per cent of its seats had been sold for the summer season but is prepared for difficult market conditions over the winter months.

Ryanair has said that the average yield per passenger will fall by 5-10 per cent over the coming months and that fares will fall by 10-20 per cent in the winter as airlines grapple to dominate in Europe.

Ryanair's average fare last year was €40.

During last year, the airline incurred exceptional costs totalling €14.9 million which arose from the retirement of six of its Boeing 727-200 aircraft that were found to have scratches.

A further €2.7 million was incurred as a result of the re-organisation of Buzz and there was a goodwill charge of €2.3 million.

Mr O'Leary has said that Ryanair would not be imposing a fuel surcharge on its customers although the airline has said it was considering introducing reduced fares for customers who travel with little or no baggage. This is one of the initiatives considered by the airline since January following its shock profit warning.

The airline is also considering introducing in-flight entertainment to generate revenues on board and will continue to focus on other ancillary activities.

Overall Mr O'Leary said the outlook for the coming 12 months remains very conservative.