Analysis: Ryanair is trying to persuade the world that despite the uncertainty of the markets, it is taking firm control of its own destiny, writes Siobhán Creaton
Ryanair is limbering up to take advantage of the difficulties being experienced by many of its struggling competitors and only time will tell whether its gamble pays off.
Yesterday, the Irish-based low-cost airline produced the most robust set of figures seen in the airline industry so far this year. It is facing what everyone in the industry believes will be another tough year with an exceptionally strong balance sheet and is showing no signs of wavering from its business model.
Yesterday, chief executive Mr Michael O'Leary said Ryanair would "really go for it" this year.
By that he means that while the major flag carriers are abandoning unprofitable routes and generally reducing the number of flights in response to weak consumer demand, Ryanair is preparing to increase its capacity by 60 per cent.
In the coming months it will add another three million seats and continue to launch new routes from its hubs in the UK and Europe.
The strategy has spooked some investors, particularly as the airline cautioned that yields will slide by up to 15 per cent, as it continues to reduce air fares and as its business is affected by currency movements.
Mr O'Leary told analysts that its cautious stance on yields had triggered an overly negative reaction and that the airline would still deliver very solid growth in profits in 2004.
"Hopefully, this is going to be the year when the going gets tough and the tough will be left standing.
"This is the time when our competitors are continuing to lose money. This might be the year for a shake-out."
Most analysts who had been expecting Ryanair to deliver 20 per cent growth in profits were preparing to reduce their figures down to around 10 per cent following guidance from the company.
Mr Shane Matthews, an analyst at NCB Stockbrokers, says he still remains quite comfortable with Ryanair's prospects despite the difficult conditions.
"It is a more difficult market out there but these are clever people. They have made a tactical decision to fill planes now," he said.
Goodbody Stockbrokers analyst Mr Joe Gill said this was another big risk for the airline. "It still has the strongest balance sheet of any airline at the moment.
"The weakness of the dollar will also reduce the cost of new aircraft from Boeing over the last six months by 30 per cent."
Mr Dominic Edridge of Commerzbank Securities in London was most bearish, questioning whether this was the right time for Ryanair to be so aggressive.
"There are some worrying signs. Some people are feeling whether a good thing can last forever," he said.
By offering a huge seat sale for the summer months and by declaring that it will run down yields, rather than wait for a competitor to force it to, Ryanair is trying to persuade the market that despite the uncertainty it is firmly controlling its destiny.
If it is right, it will have managed to build huge market share and steal a march on its rivals.
