Ryanair's extra charges help lift profit to all-time high

DUBLIN Mon May 20, 2013 1:08pm BST

A model airplane rests on a table during an announcement of the commitment for Ryanair to purchase aircraft from Boeing, in New York March 19, 2013. REUTERS/Lucas Jackson

A model airplane rests on a table during an announcement of the commitment for Ryanair to purchase aircraft from Boeing, in New York March 19, 2013.

Credit: Reuters/Lucas Jackson

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DUBLIN (Reuters) - A sharp rise in earnings from add-on charges for items such as baggage and pre-assigned seating helped boost Ryanair's earnings above expectations in the past year, lifting its shares to a record high.

Ryanair, which helped pioneer a business model in which low ticket prices are supplemented with charges for extras like printing boarding passes and carrying luggage, flew 5 percent more passengers last year, but earned 20 percent more on extras.

That helped lift net profit 13 percent to a record 569 million euros (479 million pounds) in the year through March, ahead of an average analyst forecast of 558 million in a company poll.

Its shares rose more than 9 percent to a 6.90 euros peak.

Chief Executive Michael O'Leary said the result was a "testimony to the strength of Ryanair's ultra-low cost model."

Key to the increase in so called "ancillary" charges was the roll-out of a scheme to allow the advance booking of specific seats across the network, allowing passengers to bypass the sometimes unruly rush to secure good seats on Ryanair flights.

Ryanair said the service had proved particularly popular with businesspeople trading down from Europe's older national carriers, many of which are struggling to deal with high fuel prices and more cost-conscious travellers.

Ryanair regularly raises the ire of customers and consumer groups by introducing charges for everything from printing boarding cards to booking flights on its web site.

But O'Leary, its outspoken boss, insists the fact Ryanair flies more international passengers than any other airline makes Ryanair the "world's favourite airline", a slogan previously used by British Airways.

It remains to be seen if Ryanair can sustain the same level of growth in add-ons. Chief Operating Officer Michael Cawley said in an interview last week it was difficult to predict ancillary revenues in the medium term, saying management had been surprised by the success of reserved seating.

He said ancillaries would likely grow a little ahead of passenger growth.

SLOWER GROWTH

Total revenue increased 13 percent to 4.9 billion euros as average fares increased by 6 percent. Costs, measured per passenger mile, increased 8 percent, mainly due to an 18 percent increase in the price of fuel.

In a relatively downbeat outlook, O'Leary forecast profit would grow by 5 percent at most in the coming year, with prices for fuel and air traffic control eating into profits.

Capacity growth will slow to 3 percent from 5 last year as it waits for deliveries to begin on 175 Boeing jets it ordered in March and most of that will come from grounding fewer planes in the traditionally weaker winter months.

But Ryanair typically underestimates its performance at the start of the year and Ryanair Chief Financial Officer Howard Millar described the outlook as "cautious." A year ago Ryanair had forecast net profit of between 400 million euros and 440 million for the year to March 2013.

Analyst Stephen Furlong at Davy Stockbrokers said: "It's not unusual that the guidance is quite cautious, but they are still forecasting higher profits ... Their cash generation remains spectacular."

The company had net cash of 61 million euros at year end despite having returned almost 500 million to shareholders in November.

O'Leary added that profit in the first quarter to the end of June will be lower as the busy Easter period fell in the fourth quarter. But bookings on new routes, which include Morocco, the Netherlands and Greece, in the coming summer were ahead of expectations, albeit with fares at modest levels.

Profit growth of 5 percent would still be impressive compared with some of Ryanair's peers. Airlines like British Airways-owner IAG, Lufthansa and Air France-KLM have been slashing jobs and shelving growth plans as they grapple with soaring fuel prices and a weak economy.

IAG for instance last week posted an operating loss of 278 million euros in the first quarter, traditionally a weak period for airlines.

Ryanair's largest low-cost rival easyJet last week said it expected 4 percent growth in revenue per seat in the next six months and improved profitability for the full-year.

(Editing by David Holmes)

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