Investor/An insider's guide to the market: Ryanair, now capitalised at €5.8 billion, delivered a strong set of financial results for its third-quarter accounting period (October-December 2005). Net income for the period of €36.8 million was 6 per cent higher year on year and was in line with the consensus of broker forecasts.

For the full year brokers' forecasts are in a narrow range around €300 million, with the company maintaining its long-standing guidance of €295 million.

Revenues were boosted by ongoing buoyant growth in passenger numbers and ancillary revenues.

Costs, excluding fuel, were kept under tight control and, in fact, unit costs excluding fuel decreased by a very significant 6 per cent during the quarter.

However, the company has no control over fuel costs, which rose by 59 per cent to €115 million. As a result, fuel costs accounted for approximately 36 per cent of total costs in the third quarter.

Of course, company management can exert some control over its fuel bill through hedging strategies. Companies in the transport sector adopt a variety of policies towards hedging. Some, such as EasyJet, do not hedge their fuel costs, presumably on a view that over the long term, the costs of hedging do not bring adequate benefits.

In contrast, Ryanair has adopted a policy of hedging its fuel costs on a pragmatic basis and this policy has benefited the airline over the past two years of rising oil prices.

Unfortunately, Ryanair's hedges, which have kept its oil price costs below $50 (€41.8) per barrel, will have all expired by the end of next month. If the oil price remains above $60 per barrel, it will exert a significant upward thrust to Ryanair's costs in 2006.

Of course, a persistently high oil price will adversely affect all airlines.

Most of the flag carriers have responded by imposing fuel surcharges on their airfares and presumably these surcharges will be increased if oil continues to rise in price.

This will open the door to low-cost carriers to raise fares whilst maintaining their relative price advantage over the flag carriers. Excluding fuel, Ryanair is targeting further savings and in particular, the recently announced web check-in initiative is expected to yield considerable savings.

In terms of passenger numbers, Ryanair will continue to grow at a much faster pace than its rivals for the foreseeable future. It continues to open new bases and those recently established at Luton, Liverpool and Pisa are performing well in their first winter.

At Shannon, passenger numbers have been up to expectations, but revenue yields have fallen short of the original projections.

Ryanair's point-to-point routes now cover well over 100 destinations across 21 countries and it is set to carry in excess of 35 million passengers this year.

Despite the headwind of higher fuel costs, Ryanair remains a highly attractive growth stock on a medium-term view.

It will be many years before growth opportunities in Europe are exhausted and Ryanair's pole position as the lowest-cost operator looks to be unassailable. The share price has performed well over the past year, where it has traded in a range of €5.60 to €8.30.

Over the past 12 months, it has risen by 18 per cent and is now 36 per cent above its 12-month low of €5.60.

The shares have therefore recovered well from their last period of weakness, which occurred during the first quarter of 2005.

Rising oil prices were a factor in that period as investors sold their shares on worries that profits would be hit hard. Subsequent events showed that through a combination of astute hedging and an increase in average revenue per passenger, Ryanair was able to continue to deliver profit growth.

A review of stockbrokers' reports post the results announcement shows that the majority of analysts take the view that the share price can continue to advance from current levels.

Investor takes a different view and expects the share price at best to mark time in the short-term as investors defer purchasing shares until there is greater clarity regarding the magnitude of the negative impact on profits of the high oil price.