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Ryanair's Profit Up 50%

Thu Feb 06, 2003 10:20 am

From the NY Times,

Profit Up 50% at Irish Discount Airline

DUBLIN, Feb. 4 — While other airlines struggle with high costs and weak traffic, Ryanair, the Irish discount airline, is enjoying "a virtuous cycle of lower costs, lower fares, faster growth and increasing profits," the chief executive, Michael O'Leary, said today. That is why Ryanair's net income for the quarter ended Dec. 31 rose 50 percent from the year-earlier period, he said.

The company is grabbing opportunities to expand rapidly. On Friday, it ordered 100 737-800 aircraft from Boeing, valued by analysts at about $3 billion, and announced its first corporate acquisition, buying the Dutch discount airline Buzz from KLM Royal Dutch Airlines for 23.9 million euros ($26 million).

"We continue to limit any risks associated with our capacity growth by spreading it across our network, launching new bases, new routes from existing bases, and increasing frequency on existing routes," Mr. O'Leary said.

Ryanair's revenue for the latest quarter increased 37 percent, to 185.9 million euros ($202 million), while operating costs rose 28 percent, the company reported. Net income was 43.2 million euros ($47 million).

As robust as the figures were, they were in line with analysts' expectations. Ryanair's stock price, which had increased 16 percent in the last week on hopes for a pleasant surprise in today's figures, retreated 7 percent in Dublin trading, closing at 6.30 euros ($6.85) a share.

Mr. O'Leary said he expected the airline to earn 235 million euros ($255.9 million) after taxes for the fiscal year ending Mar. 31. After the strong quarter just completed, he said in a telephone interview, "now we have to go out and do it again."

The next expansion step is on the way — a new hub at Bergamo airport near Milan, scheduled to open on Thursday. And there are cost savings to be wrung from the Buzz acquisition. Mr. O'Leary said about 100 jobs would be eliminated at Buzz. He threatened to shut Buzz if its employees did not accept Ryanair's work practices and corporate culture, known for intense cost-cutting and uncompromising labor relations.

Ryanair faces mounting challenges to its 30 percent growth rate. It has thrived so far by flying to cheaper secondary airports and setting fares far below those of old-line national carriers like Aer Lingus, British Airways and Lufthansa. It cut those fares an additional 8 percent on average in the last three months of 2002. The low prices have helped fill seats — Ryanair's flights were 86 percent full in the quarter, up from 79 percent in the previous quarter. But lately, the established airlines have been offering some fares almost as low as Ryanair's.

Ryanair's combative style gets it into frequent public disputes. A recent storm blew up when Noel Hanlon, the chairman of the Irish airport authority, told a parliamentary committee that when Ryanair customers miss their flights, the airline pockets not just the fare but also the airport fees and taxes the customer paid on the ticket.

Mr. O'Leary said that every customer who buys a ticket through Ryanair's Web site must agree that all of what is paid is nonrefundable. "If you no-show, you've broken the contract, and you're not getting any money back," he said.

Dermott Jewell, chief executive of the Consumers' Association of Ireland, said customers are not adequately informed. "It is never made clear to them what it is that's not being refunded," he said.

Despite a flurry of outrage about the matter, customers appear to be sticking with Ryanair and its cheap fares. Mr. O'Leary said the airport authority was simply trying to start trouble by raising the issue in the first place. "Which part of `no refund' don't they understand?" he said.

Eastern Air lines flt # 701, EWR-MCO Boeing 757

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