ANALYSIS: IT MAY not always keep its customers 100 per cent happy, but Ryanair has unquestionably delivered for investors.
Yesterday, Ireland’s low-cost airline announced a proposed second special dividend of €0.34 per share. This means the airline has rewarded its shareholders with €1.53 billion over the last five years in dividends and share buy-backs (the airline last year bought back €125 million in shares, and €68 million since year-end).
It is an impressive result for the company which has grown its profits by at least 25 per cent since 2009, despite recession across Europe. The big question, however, is whether these kinds of profit levels are sustainable. Ryanair itself warned that the last four years of record profit growth may be at an end. The airline’s chief executive and senior management were on message yesterday, predicting profit falls of up to 20 per cent in the current financial year.
We have been here before, it must be noted. Last year’s results were delivered with the same caveat on full-year outlook. Even brokers yesterday noted the “extremely cautious guidance”.
Nonetheless, as the airline indicated yesterday, it is difficult to see how Ryanair can pass on the same level of fare hikes next year to hard-pressed consumers, as it continues to offset high fuel costs.
While Ryanair may find it difficult to match the past few years’ performance in the short term, analysts and the company remain confident about the Ryanair story.
Deputy chief executive Michael Cawley was quick to pooh-pooh the doomsayers who question whether Ryanair has any room left to grow, pointing out it has only 11 per cent of the European market. “I’ve never been as confident about our growth prospects as I am now,” he said, noting the airline is in demand by new airports and countries. Ryanair may also benefit from more consolidation in the European airline industry.
Nonetheless, analysts did get an insight into some of the smaller challenges facing the airline.
Performance this year has been “geographically split”, Mr Cawley said, pointing out that some markets had outperformed others. While Germany had been very strong, London had been “not that strong”. Similarly, Italy had held up well, whereas Spain had been weaker than expected.
However, Ryanair’s lightning response to sluggish trade is key to its success. As Mr Cawley indicated, its readiness to cut routes or curtail capacity makes good business sense and is just as important as continuing expansion.
While not good news for potential passengers in areas such as Kerry or the southwest which have seen cuts to routes, for shareholders, Ryanair’s hard-nosed business model has delivered, where many other listed companies have failed. With dividends and profits thin, investors should be happy.