Ryanair chief warns of trouble on radar as profits begin descent
· Earnings growth slowing to small loss next winter
· Defiant boss vows to continue low-fares battle
Mark Milner
Wednesday June 6, 2007
The Guardian
Shares in low-cost carrier Ryanair nosedived yesterday after its flamboyant chief executive Michael O'Leary said the industry was on course to hit severe turbulence that would dent its profits growth.
As the airline reported a 33% rise in pre-tax profits to €451m (£306m) yesterday, Mr O'Leary said he expected only a 5% increase this financial year and said Ryanair could made a small loss over the coming winter.
He said the market had "softened" in April, a trend that had continued in May, with figures yesterday showing Ryanair's load factor - how full their planes were - had fallen from 82% to 80% last month.
The downbeat message was amplified by figures from British Airways, where the passenger load fell to 73.3%, 1.5 percentage points down on a year earlier.
The Ryanair chief executive blamed a series of factors for the softening of market conditions: rising UK interest rates; "swingeing" increases in the charges for using Stansted; the doubling of airline passenger duty in the UK; a one-off increase in the number of crews; and long queues to clear security. "At this time with no visibility of winter bookings and yields we believe that the company and our shareholders should remain cautious and conservative," Mr O'Leary said yesterday.
"The vast majority of our profits will be generated in the first half of the year, with the consequent reduction in profitability and maybe even small losses being recorded during quarters three and four."
Ryanair shares fell more than 7% after the warning, but analysts were more sanguine. "Ryanair often make cautious noises early in the year, and while we expect the negative newsflow to persist over the early summer months, we still believe in the longer term low-cost growth story," analysts at Dresdner Kleinwort said in a research note.
Mr O'Leary was typically robust in his reaction to the market conditions. Ryanair would continue to respond with aggressive promotions, he said, putting pressure on higher-cost rivals. "Ryanair will lead and win every fare war in Europe. It's never going to be cheaper to fly across Europe than this summer and winter.
"I like it when customers win and our competitors lose. We have never yet lost money by reducing fares to the travelling public."
Despite the problems facing the industry in the short term, Mr O'Leary remained optimistic for the longer term, saying Ryanair expected to double the number of passengers and its profits over the next five years, buying more planes and opening up routes and bases across Europe.
He expected the European commission to block his attempt to take over Irish rival Aer Lingus. Asked how he would respond to a rejection by the commission and any attempt to force Ryanair to sell its 25.2% stake, Mr O'Leary said it would be the same to both: "We'll see you [the commission] in court." He accused Brussels of breaking its own competition rules to support the Irish government's determination not to let Ryanair take over Aer Lingus.
He dismissed any suggestion his warning of troubled times to come was a machiavellian attempt to rattle Brussels.
"If I stood buck naked in the street, I don't think Brussels would look more favourably on Ryanair's bid for Aer Lingus. It would be easier for a camel to pass through the eye of a needle than for Ryanair to get a fair hearing in Brussels."
He attacked what he called "hysteria" in the UK over the industry's emissions of greenhouse gases, ascribing much of it to "the guilt-ridden middle classes who drive the SUVs to Sainsbury's and buy kiwi [fruit] from New Zealand and kumquats from latin America."
Aviation contributed 2% of greenhouse gases, he said. "The people who are worried about the environment are right to be worried. But the self-abusers who think taxing air transport is going to do anything for the environment are eco-nuts."
The Ryanair chief gave further details of what he described as a "small retirement project", to involve setting up a long-haul, low-cost business. It would depend on the open skies deal between the US and the European Union turning into a reality, he said, plus the availability of cheap aircraft capable of long-haul journeys. Ryanair would not be involved, nor would he run the business; but he claimed it would have to provide fares as low as €10.
Mr O'Leary ended his message to the aviation world by saying he would retire in the next two or three years, "though that tends to be a bit of a rolling date".