Ryanair hopes to break even
[September 19th 2008]
Low cost airline Ryanair says it hopes to break even for the year ending March 31st, 2009 providing the price of oil remains at $100 per barrel.
In its previous profit forecast the budget carrier predicted “breakeven to minus €60m”, so this new forecast is an improvement on that. However, any increase in oil prices or lower than expected passenger demand this winter would make it difficult to achieve break even.
One of Ryanair’s problems, in common with most airlines, is that it ‘hedged’ most of its oil requirements for the third quarter of the year at $124 per barrel, but now finds the price nearer $100 per barrel. It says it remains unhedged for the fourth quarter, so if oil prices rise it could lose out again.
“While the recent fall in oil prices is welcome, it won’t have much impact on our full year results because we have already hedged Q3 at $124 per barrel and any Q4 fuel savings may be absorbed by lower fares and yields as we stimulate growth in a recession this Winter,” says Ryanair CEO, Michael O’Leary.
To try to stimulate growth and get people to take holidays and city breaks this winter, the low fares airlines has released five million seats for €5 one way including taxes and charges for travel in October and the first two weeks of November.
“Ryanair continues to grow strongly, with last month’s traffic up 19% on August 2007. We expect that our continuous stream of seat sales and price promotions … will continue to stimulate air travel, to take market share from competitors and offer Europe’s consumers a real choice of low fares and on-time flights, when increasingly their only alternative is high fare, fuel surcharging, regularly delayed flag carrier services,” O’Leary states.
Ryanair also says it expects more airlines to go bust. “We believe there will be further airline bankruptcies in Europe over the coming weeks, as more of Europe’s non-viable, loss making airlines run out of cash or their credit facilities are withdrawn,” comments O’Leary.
Airline consolidation is also likely, thinks O’Leary. “There is no doubt that most of Europe’s flag carrier airlines will merge into three large high fare groupings led by BA, Air France and Lufthansa this winter,” he says.
“We expect that the European Commission will rubber-stamp approval of these mergers, which will help Ryanair’s appeal against the EU’s prohibition of our 2006 much smaller merger with Aer Lingus. Aer Lingus, which is again losing money, is far too small to survive as an independent regional airline, and we believe its future can best be secured as part of one strong Irish airline group,” O’Leary concludes.
Written by: Nick Purdom
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