11th June 2009

RYANAIR MOVE INTO THE RED

Ryanair's  attempt to buy Irish rival Aer Lingus backfired today as Europe's largest budget carrier reported its first loss in 20 years.

The budget carrier, one of the world's most profitable airlines, was dragged millions of pounds into the red by a writedown of its 29.8% stake in struggling Aer Lingus and further charges related to disposals from its rapidly growing fleet.

Ryanair's outspoken chief executive, Michael O'Leary, launched a second takeover bid for  last year but was rebuffed by the Irish government and trade unions, who together control about 40% of an airline that they are adamant will not be sold to one of the most aggressive operators in the business. The rejection left O'Leary a powerless onlooker as Aer Lingus's performance deteriorated rapidly over the past year.

Despite recording a full-year loss that placed Ryanair in the same bracket as many of its competitors, O'Leary was bullish today about the airline's prospects for the year. He said the outlook for the year was "bloody brilliant" and said that he aims to treble the customer base to 150 million by 2016.

Ryanair's underlying performance was still profitable once the Aer Lingus foray is stripped out of earnings, but it bore the scars of the recession. The airline made a pre-tax profit of €93.6m for the year to 31 March, a steep fall when compared compared with a profit of €529m for the same period last year, due to a 60% increase in fuel costs. Revenues rose by 8% to €2.9bn, driven by an increase in passenger numbers from 50.9 million to 58.5 million.

Ryanair said its €2.3bn cash pile is still rising, in sharp contrast with BA and Aer Lingus which are burning through cash to sustain business models that have a far heavier dependence on expensive long-haul routes.

The budget airline performs better than long-haul operators because it keeps its planes in the air for as long as possible every day and packs the jets with passengers who might not pay much for their tickets but bolster profits by paying for add-ons such as baggage check-in, food and hotel hire. Costs are kept low by buying fuel-efficient aircraft in bulk with aggressive discounts, cutting baggage-handling costs by restricting luggage through hefty check-in charges and flying to lesser-known airports that have cheaper landing fees.

If oil stays below $100 a barrel, Ryanair ensures it meets its target of filling 85% of seats per flight - the level at which it makes a profit - by selling tickets at aggressively low prices.

Be careful to read the small print when travelling with Ryanair. Whilst the basic price appears cheap, check weight and check in add ons which can be expensive if breached. Also book your airport parking and airport hotels online beforehand to get the best choice