Ryanair Profits Suffer After Oil Prices Spiral

Ryanair's profits slumped by almost half in the first six months of the year thanks to the spiralling oil price, the company said yesterday.

Passenger numbers in September were up by 19 per cent to 31.6 million, compared with 26.6 million the year before. But the group's massive fare-cutting programme, alongside a ballooning oil price that hit an unprecedented $147 per barrel in July, pulled down profits by 47 per cent to ?215m (£172m), compared with ?407.6m in 2007.

Michael O'Leary, the Ryanair chief executive, remained bullish yesterday, slating his airline's "crappy" rivals and emphasising the chances for expansion.

"Given the fact that oil prices doubled in this half year, it is remarkable that Ryanair still made a profit," Mr O'Leary said. "We are still growing enormously strongly despite the recession, and we are growing even faster now because more opportunities exist at a time when other airlines are going bust."

Notwithstanding the fall in profits, the low-cost Irish carrier is not in bad shape. It has ?2bn in cash, has reduced operating costs by 6 per cent, and has finance in place for the delivery of 58 new aircraft by next September, as part of plans to take its whole fleet to 279 by 2012. But even with planned promotional fares, Ryanair's winter yields – that is, the money made per passenger – are predicted to fall by 15 to 20 per cent.

Mr O'Leary paints a grim picture of the future for Europe's beleaguered aviation sector. Another five or six European airlines will go to the wall before Christmas, he says, and within three years only four large carriers will remain – British Airways, Lufthansa, Air France-KLM and Ryanair.

"The recession is going to last at least 18 months and be deep and dark," Mr O'Leary said. "But we need a recession after 10 years of growth, and it provides Ryanair with enormous opportunities because it gets rid of the crappy loss-making airlines, drops oil prices and lets us buy our aircraft fleet cheaper."

Having been hit so hard by the rising oil price, Ryanair is taking fewer chances in future. The company is hedging 25 per cent of its fuel requirements for 2009/10 at $77 per barrel.

"If oil is at $80 per barrel in 2009, we will have ?420m over the cost we have paid this year," Mr O'Leary said. "We will return to very significant profitability if oil prices stay down at these levels."

With airlines across the world suffering, Ryanair is hoping to screw bargain prices out of starving plane manufacturers, as it did to such effect after 9/11. Mr O'Leary is also considering the launch of a sister company offering £10 transatlantic fares – but only if aircraft prices collapse.

It is in Ryanair's interests to talk up the problems in the sector, according to Gert Zonneveld, at Panmure Gordon. "Ryanair would like the recession to be as bad as possible," he said. "In any event the share price will suffer, and if it is worse it can step in where its competitors fail."

Ryanair shares closed up 4.97 per cent at 285p.

Author: Jo Amey