Ryanair’s profits fall by 47% because of higher fuel prices

Ryanair, the low-cost airline headquartered in Dublin, Ireland, and also Europe’s largest low-fare carrier, has said its pre-tax profits have gone down by 47% at €214.6 million in the first half of 2008, compared with €407.6 million over the same period a year ago, as its fuel costs have more than doubled.

Ryanair said in a statement that its fuel bill rose to €788.5 million from €392.7 million, while passenger traffic went up by 19% to 32 million in the six months ending September 2008.

Ryanair, with its biggest operational base at London’s Stansted Airport, has been marked by rapid expansion a result of the deregulation of the air industry in Europe in 1997. Ryanair is also the third largest airline in Europe in terms of passenger numbers.

Michael O’Leary, chief executive officer of Ryanair, said in the statement: “Despite profits dropping in the first half of 2008, the airline remains confident of breaking even in 2008. Next year, I think, profits will rebound strongly. Fuel prices have been much higher, and our profits have been lower.”

“It is no secret,” Michael O’Leary added, “that Ryanair is setting up a sister company to fly cross the Atlantic, but that nothing could happen until the airline secures a long-haul fleet.”

The average price of jet fuel in northern Europe was 65% higher in the three months ending September 30, 2008, than the same period a year earlier. However, oil prices have fallen since then.

Over the same period, the average fares, including charges, were 4% lower at €47. Revenues were 16% higher at €1.8 billion.

The statement from Ryanair said the carrier’s net income for the three months ending September 30, 2008, fell to €185.8 million from €268.9 million in the same period a year earlier.

“Ryanair’s stock,” the statement said, “declined by 41% in 2008, cutting the airline’s market value to €4.05 billion, as surging oil prices, followed by contracting economic growth, caused havoc in the airline industry.”

Michael O’Leary elaborated: “If oil prices remain at approximately $80 a barrel in 2009, then our earnings will rebound strongly. We have a significant cost advantage over our competitors, many of whom have hedged fuel next year at significantly higher levels than current market prices. This will force competitors to increase airfares further and widen the price gap between them and Ryanair’s lowest fares.”

In an interview, Howard Millar, chief financial officer of Ryanair, said: “The carrier is refraining from hedging contracts that would fix the price that it pays for fuel for its fourth quarter of 2008. The airline is 80% hedged at $124 a barrel for the third quarter of 2008. For the first half of the next fiscal year, Ryanair has hedged 25% of its fuel needs at an average $77 a barrel of crude oil.”

In addition, Ryanair is paring costs by grounding flights at its bases at London’s Stansted Airport and at Dublin Airport. As a part of this programme, 400 pilots and flight attendants will be asked to take one week’s unpaid leave in November 2008.