Ryanair sees higher fuel costs and fares
Reuters | Mar. 30, 2006
Ryanair, Europe's biggest low-cost airline, expects a higher fuel bill this year but higher average fares and a 20 percent rise in passengers would provide some relief from soaring oil prices, a senior executive said on Thursday.
He also said the Dublin-based company would continue expanding aggressively, with up to three new bases planned in Europe this year and a deal was close to introducing in-flight gambling.
Chief Financial Officer Howard Millar said the airline, whose protection from soaring oil prices runs out this week, faced another challenging year with fuel set to account for 38 percent of total costs.
"Our view will be that we will pretty much stay where we are. Fares will rise a bit, fuel prices will be up a bit and we should sustain some kind of reasonable margin," Millar said.
"We have suffered this year. Next year fuel will account for something like 38 percent of our cost base."
Millar said Ryanair would not resume hedging fuel costs until the oil price fell well below USD$60 per barrel. He said the airline expected a similar pattern to last year when it entered the busy summer season unhedged and relying on higher average fares to offset the damage.
He reiterated Ryanair's guidance for a 10 percent rise in net profit to EUR295 million (USD$354 million) for the current year to March 31, 2006, downplaying some analysts' expectations it could slightly overshoot that target.
Yields, or average fares, were still expected to decline 5-10 percent due to the timing of Easter.
Ryanair expects to carry 42 million passengers in the year ahead, up from 35 million this year, as it continues to expand aggressively and aims to undercut the opposition with low fares.
Millar said passenger growth, lower costs through online check-in and more revenue from non-ticket sources of income, such as hotels, car hire, advertising and in-flight food, would drive earnings.
Meanwhile Ryanair was talking to two potential partners on in-flight gambling with an announcement expected in the first quarter of 2006/07, he said. Millar also expected in-flight mobile phone services to be available in 15 to 18 months.
Ryanair, which operates 15 bases in Europe, does not plan to slow down its aggressive growth strategy. It is eyeing a new base in France in the year ahead along with one or two more.
"Vast swathes of Europe are empty. We think there are enormous opportunities," Millar said. While he did not rule out flying to further-flung destinations such as Turkey, he said Ryanair was more focused on France, Spain, Italy and eastern Europe.
Millar also said the airline had received some very attractive offers to move its headquarters to eastern Europe but there were no plans to leave Dublin.
Millar, who is also Ryanair's Deputy Chief Executive, said he did not expect the airline's boss Michael O'Leary to step down soon and there were 10 senior managers at the airline who would be capable of doing the job.
"There is no crown prince. It will be open season should Michael decide to leave Ryanair. I don't see him doing that anytime soon."