Ryanair’s profits rise 10% in FY18 despite rostering failure

posted on 21st May 2018 by Justin Burns
Ryanair's profits rise 10% in FY18 despite rostering failure

Ryanair’s full-year profits rose 10 per cent to €1.45 billion in the 2018 financial year (FY18) despite a rostering failure in September that caused it to cancel a raft of flights which it said it “recovered quickly” from.

For the period from 1 April 2017 to 31 March 2018, the low-cost carrier’s traffic grew nine per cent to over 130 million passengers (2017: 120 million), despite grounding 25 winter aircraft. The average fare fell three per cent to €39.40 and the average load factor was 95 per cent.

In the financial year, Ryanair took delivery of 50 Boeing 737 aircraft, bringing the fleet to 430 aircraft, and it created 1,500 new jobs, and made over 600 promotions.

The airline also said it agreed new five-year pay deals with most of our pilots and cabin crew and returned over €800 million to shareholders via buybacks. Overall revenue was up eight per cent to €7.15 billion, up on the €6.64 billion.

Ryanair’s chief executive officer, Michael O’Leary said: “We are pleased to report a 10 per cent increase in profits, with an unchanged net margin of 20 per cent, despite a three per cent cut in air fares, during a year of overcapacity in Europe, leading to a weaker fare environment, rising fuel prices, and the recovery from our Sept. 2017 rostering management failure.”

The three largest traffic growth markets in FY18 were Germany, Italy and Spain and the carrier expects above average EU capacity growth to continue into FY19, which it says will have a downward effect on fares. This it adds it may be partly it said by the switch of some charter capacity back to previously security challenged markets such as Turkey and Egypt.

The carrier said it expects later in the year, some upward pressure on pricing as significantly higher oil prices impact margins, especially those EU airlines who continue to expand despite having no prospect of achieving profitability, but it will continue to pursue its load factor active/yield passive strategy, adding: “No other EU airline can compete with Ryanair’s prices.”

During FY18 it took delivery of 50 new B737s, and increased its Boeing order to 135 firm MAX-200, with a further 75 under option (210 in total), it opened four bases in Burgas, Memmingen, Naples and Poznan and launched over 260 new routes. This summer, it announced over 200 new routes including markets in Jordan, Turkey and the Ukraine.

O’Leary said: “We continue to grow strongly in Germany, Italy and the UK, and our Polish charter airline, Ryanair Sun, operated its first flights in April 2018.”

Over the last year, the carrier’s on-time performance has declined by two per cent from 88 per cent to 86 per cent. All of this decline was accounted for by increased ATC delays due to strikes and staffing/capacity shortages mainly in France, Germany and Italy.

O’Leary said: “We are working hard to increase staffing at our larger bases, re-designing boarding procedures, and providing additional spare aircraft in S.18 to improve our punctuality to our 90 per cent target, which is a key AGB target for the coming year.”

In April, Ryanair acquired 24.9 per cent of LaudaMotion, and it says it is working to increase that stake to 75 per cent (subject to EU merger approval) so that it can work with Niki Lauda and his team to re-launch LaudaMotion as “Austria’s No.1 low-fares airline, serving markets from Austria and Germany to sun destinations primarily in Spain”.

O’Leary said: “LaudaMotion is an attractive opportunity as it is an Airbus operator, and we are looking for opportunities to grow its Airbus fleet to 30-50 aircraft over the next  five years. LaudaMotion has a valuable portfolio of slots at many congested airports in Germany, Vienna, and Palma de Mallorca.

“We believe that by investing in these separate airlines, we can build a substantial and profitable group of EU airlines under the Ryanair Holdings banner over the next 3 years, when it is likely that further M&A opportunities will arise.

“LaudaMotion will require almost €100 milliin in start-up costs, and operating losses over the next two years in large measure due to expensive aircraft leases from Lufthansa. Once these leases expire, we expect LaudaMotion to be modestly profitable and self-sustaining as it grows its low fare offerings in Germany and Austria.”

As for Brexit, he said: “We remain concerned at the likely impact of a hard Brexit. While there is a general belief that an 18 month transition agreement from March 2019 to December 2020 will be implemented and further extended, it is in the best interest of our shareholders that we continue to plan for a hard Brexit in March 2019.

“In these circumstances, it is likely that our UK shareholders will be treated as non-EU and this could potentially affect Ryanair’s licencing and flight rights. Accordingly, in line with our Articles, we intend to restrict the voting rights of all non-EU shareholders in the event of a hard Brexit, so that we can ensure that Ryanair is majority owned and controlled by EU shareholders at all times to comply with our licences.

“This would result in non-EU shareholders not being able to vote on shareholder resolutions. In the meantime, we have applied for a UK AOC which we hope to receive before the end of 2018.”

As for the future, O’Leary said said the outlook for FY19 is on the “pessimistic side of cautious”. He said: “We expect to grow traffic by seven per cent to 139 million, at flat load factors of 95 per cent. Unit costs this year will rise nine per cent due to higher staff and oil prices which will, when adjusted for volume growth, add more than €400 million to our fuel bill.

“Ex-fuel unit cost will rise by up to 6% as we annualise pilot and cabin crew pay increases, and invest in our business and our systems to facilitate a six-year growth plan to 600 aircraft and 200 million guests p.a.”

O’Leary said the carrier expects FY19 profits will fall to a range of €1.25 billiin to €1.35billion, adding: “This guidance is heavily dependent on H2 fares, a ‘normal’ level of ATC disruptions for S.18, the absence of unforeseen security events, and no negative Brexit developments during this period.

“We have not included our investment in LaudaMotion in the above outlook as any increase to a 75 per cent share ownership remains subject to EU Competition approval. We expect approx. €100 million of start-up costs, and operating losses for LaudaMotion if and or/when our proposal to take majority ownership receives regulatory approval.”