Ryanair boss looks forward to recessionDan Milmo, transport correspondent
The Guardian, Tuesday February 5 2008
Ryanair warned yesterday that its profits could halve next year as it committed to sacrificing earnings in order to keep up ticket sales in defiance of a worsening economic outlook.
Europe's largest budget airline said a "perfect storm" of rising fuel costs, deteriorating consumer confidence and the weak pound would put severe pressure on costs. The Dublin-based carrier was adamant that passenger growth would remain strong, as it gambles on acquiring more aircraft and filling them by cutting its margins to keep fares low. Ryanair said profits for the next financial year could fall by up to 50% to €235m (£176.2m) as a result, depending on oil prices and consumer demand.
Michael O'Leary, Ryanair's chief executive, was typically bullish as he delivered the profit warning, saying he would welcome "a good, deep bloody recession".
"One, it would lead to lower fares and, two, it would expose the regulatory scam that is going on over here," he added, referring to the group's long-running argument with the Civil Aviation Authority over airport charges.
His optimism was backed by some analysts, who said low-cost carriers could come off better in a recession than traditional airlines such as British Airways.
"Low-cost airlines are relatively resilient in a recession ... due to travellers trading down, weaker competitors downsizing and even going bankrupt and the likelihood of weaker oil prices in recessionary times," said Andrew Light, a Citigroup analyst, who had Ryanair's shares on a buy rating. Investors were less optimistic, as Ryanair shares fell 2.6% to €3.53. The downbeat 2008 outlook was delivered as Ryanair said third-quarter profits fell 27% to €35m, as costs rose as a result of higher landing fees and higher fuel costs due to the opening of longer routes.
EasyJet has criticised the airline in the past for exaggerating apparent threats to industry growth. But O'Leary's warning that fuel costs could damage profits had some credence. Ryanair has no protection against a steep oil price this year, because the airline has not hedged its fuel requirements - a process whereby a company buys fuel in advance at a fixed price.
O'Leary said Ryanair, which spends a third of its budget on fuel, would not enter a hedging deal while the oil price hovers around $90 (£45.47) a barrel. "We would start hedging if oil prices fell below $80 ... At $90 frankly we are not hedging," he said. Without a hedging deal, Ryanair will have to buy its fuel at market prices.
O'Leary added that Ryanair's gamble on passenger numbers continuing to grow was enforced in part, because the airline is committed to doubling its fleet over the next four years and will not take the expensive option of cancelling its orders
