RYANAIR SOUNDED a cautious note yesterday as it enters a period of slowing growth, rising air fares and lower winter capacity.
Despite plans to cut its winter capacity, and the hedging the airline has put in place, it expects its fuel bill will rise by €350 million in its 2012 financial year. As a result, net profit is expected to remain flat at about €400 million, a level that falls considerably below previous market expectations of €490 million.
Competitors have responded to rising oil prices by introducing, or increasing, fuel surcharges. Ryanair says it will not follow suit but it still intends to push up fares by 12 per cent over the year.
NCB stockbrokers noted yesterday that future profitability will be driven by Ryanair’s ongoing ability to “hike average fares, given the relative gap between its fares and the next lowest in the sector”.
Ryanair believes its low-cost base will also help it to weather high oil prices better than its peers. “We expect to increase market share and expand into new markets as higher oil prices force competitors to further cut capacity this winter,” the airline said yesterday.
Ryanair is 90 per cent hedged for its 2012 financial year at $820 per tonne, which represents a 12 per cent price increase on last year but is “significantly below” current prices, it said.
Chief operating officer Michael Cawley said yesterday the airline was not hedged for 2013, and does not plan to do so at the moment because current prices were not attractive. However, if the developments in the Middle East that are driving oil prices higher persist until September it may “be prepared to hedge at that price”.
Profitability in 2013 and beyond depended on the extent to which the airline could “get fares up to compensate” for the higher cost of fuel, Mr Cawley said.
Analysts still believe the company will not disappoint.
“Overall, the guidance looks very conservative,” commented Bloxham, while worrying about the impact of the latest volcanic eruptions on booking. Davy expects the “cash-generative and lean Ryanair business model will continue to excel”.