Ryanair makes the most out of lower costs to drive up figures

Ryanair’s optimistic forecast for its 2015 profit is down to two things: more passengers and lower costs. The airline yesterday predicted that profits would come in between €750 million and €770 million at the end of its 2015 financial year on March 31st.

That is 20 per cent ahead of previous guidance that had forecast a figure in the €620 million-€650 million range.

Bookings for the second half of its financial year, which ends on March 31st, indicate it will carry 5.3 million more passengers over those six months than during the same period in 2013/14. That is 2.2 million more than it expected when it released results for the first quarter of its financial year during the summer.

Key driver

Incoming head of finance,

Neil Sorahan

says those extra passengers are a “key driver” of the revised figures. It now expects total traffic for the 12-month period to be 89 million.

Costs will remain flat, but Sorahan says the airline will recover them through more passengers, so its actual unit costs will fall. Alongside this, a drop in oil prices means it is paying less for fuel and it hopes further hedging will cut this bill by 2 per cent over the next 12 months.

Strong advantage

In the six months to the end of September, Ryanair’s net profits rose 32 per cent to €795 million from €602 million during the same period in 2013. Its plans for the second half essentially involve using its lower cost base and financial strength to press home any advantage it has over rivals by cutting fares and adding seats during the winter months.

Ryanair intends growing capacity by 16 per cent in the second half. Much of it will be directed at primary airports, where it wants to cash in on the fact that Europe's big flag carriers are retrenching. It will cut fares by up to 10 per cent in the new year and 5 per cent during the rest of 2014.

Its average fare for the year as as whole is likely to be €47. Sorahan argues that against an average cost per passenger, excluding fuel, of €29, this and its €4 billion cash reserves give it very strong advantages over its rivals.

This day last year, the airline issued the second of two profit warnings that combined to wipe €2 billion off its value. It was just weeks after chief executive Michael O’Leary announced a new strategy that would see it focus on customer service and attracting more business travellers and families.

O’Leary and his lieutenants argued yesterday that the strategy was working. One point in their favour is that Ryanair was worth €8.181 a share, or €11.32 billion yesterday, 53 per cent more than this day last year.