Ryanair can't depend on lower costs to improve things. It had low costs already, and that has stopped being enough to draw the passengers it had become used to.
Ryanair Holdings Plc said it’s winning a fare war embroiling Europe’s network and discount carriers as lower ticket prices spur bookings and charges for reserved seating and priority boarding help lift revenue.
Ryanair shares rose the most since May 20 after the Dublin- based company said non-ticket sales rose 13 percent in the fiscal third quarter through December and that bookings for the current period are significantly ahead of a year ago.
Europe’s biggest discount carrier has responded to a tougher pricing environment this winter by trimming tariffs on almost 1,000 routes and grounding about 70 jets to pare capacity. The measures helped boost passenger numbers 6 percent to 18.3 million in the third quarter, even as it posted a 35.2 million-euro ($48 million) loss from the competition over fares.
“The weakness has eased,” Chief Financial Officer Howard Millar said today in a telephone interview. “The market is still soft, but the rate of decline has stopped and bottoming out or stable would be our view at the moment.”
Ryanair climbed as much as 6.1 percent and was trading 4.1 percent higher at 6.60 euros as of 8:35 a.m. in London. The stock has gained 17 percent in the last 12 months, valuing the airline at 9.07 billion euros.
Chief Executive Officer Michael O’Leary reiterated in a statement that full-year profit through March 31 will be about 510 million euros. While yields, a measure of pricing, will still drop about 8 percent in the fourth quarter, that’s less than the 10 percent previously forecast, the company said.
Ryanair and discount rival EasyJet Plc are looking to expand their networks as former flag carriers undertake the latest revamps of their short-haul units. Deutsche Lufthansa AG and Air France–KLM Group have bolstered European offerings and British Airways-owner International Consolidated Airlines Group SA has bought new planes for its low-cost Spanish unit Vueling.
The Irish carrier opened four Italian bases in December and plans to station planes in Brussels and Lisbon, as well as Athens and Thessaloniki in Greece. The new locations will help boost the customer total to 110 million from just over 80 million over the next five years, it said in a statement.
“Substantial” growth will come from primary airports, according to the release, marking a shift away from its focus on secondary bases, where the travel market tends to be more discretionary and fares generally lower.
Ryanair offered an introductory fare of 14.99 euros on about 400 routes in October and November, adding to 600 links already on sale. Grounding jets from November through March will remove 750,000 seats from the market, O’Leary has said.
The carrier plans to triple its marketing spend this year to about 35 million euros and is moving to fully-allocated seating this month in a push to draw business passengers and customers looking for higher service levels. Early trials to ensure a smooth roll-out of designated berths should protect the carrier’s 25 minute turnaround time, Millar said.
“We have the weakest month in terms of passenger volumes, which is February, to iron out the teething problems, so our view is we should be in a pretty good situation,” the executive said. “We need reserved and allocated seating take-up to be positive because we have reduced other charges.”
Other refinements to the airline’s ultra-low-cost model include a de-cluttered website, reduced baggage fees and specialized products targeting corporate customers and groups.
The carrier’s on-line booking process has been streamlined to five “clicks” from 17 and Ryanair will begin issuing mobile boarding passes in April.
The carrier extended its fiscal-year 2015 fuel hedge to 90 percent at $960 per ton on the back of a weaker U.S. dollar and lower oil prices. Fuel and currency hedging will deliver cost savings of about 80 million euros in 2015, Ryanair said.
Editors: Christopher Jasper, Benedikt Kammel. To contact the reporter on this story: Kari Lundgren in London at [email protected] To contact the editor responsible for this story: Benedikt Kammel at [email protected]
Photo credit: 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. Ryanair handed Boeing its largest European order on Tuesday with a provisional $16 billion deal to buy 175 passenger jets, boosting the struggling U.S. planemaker and underlining the Irish airline's domination of Europe's low-cost market. Lucas Jackson / Reuters