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Relatively cheap jet fuel is continuing to keep fare prices low across Europe to the obvious benefit of passengers. For airlines though, it’s a different matter.
The continent’s biggest, Ryanair, reported a substantial rise (+55 percent) in pre-tax profit to $516 million (€443.7 million) with revenue up 13 percent to $2.2 billion (€1.9 billion) in its first quarter. That all sounds great but its share price has still fallen.
Some have speculated that this is down to the company’s less than positive outlook and in particular that average ticket prices are going to fall by 8 percent in the second half of its financial year. And while this might be bad news for other carriers, Ryanair insists it isn’t a big deal.
“We’re never that worried per se about fares because we’ve got a really good advantage over everybody else on costs,” said the airline’s chief financial officer Neil Sorahan at a press conference.
“We’re what we call ‘load active yield passive’ which means we’ll always hit the passenger target and the market more or less dictates what they’re going to pay for those seats.”
Ryanair’s focus on getting as many passengers on its aircraft as possible pays off in a number of ways. Firstly, it means volume discounts at certain airports and perhaps more importantly it brings it a wider audience for selling ancillary products.
Whether its tea or coffee onboard, priority boarding or holidays and car hire, Ryanair has plenty of ways it can make money of customers other than simply through tickets. Indeed, in the first quarter ancillary revenues contributed $583 million (€501 million) or 26.2 percent (though this isn’t quite best in class – see below.)
“26 percent of our revenue in the last quarter was ancillary revenue, so we will happily trade away fares to drive the other elements of the business,” Sorahan said.
|Passenger Revenue ($m)||1,639||1,775||781||309|
|Ancillary/non-seat revenue ($m)||583||31||146||237|
|Total revenue ($m)||2,222||1,806||969*||546|
|Ancillary revenue as a percentage of total||26.2||1.7||15.1||43.4|
All figures taken from most recent quarterly results
*Norwegian’s total revenue also includes other sources
On the same day as it published its first quarter results, Ryanair also confirmed that it was in the running to buy beleaguered Italian airline Alitalia, which is currently in bankruptcy proceedings.
Reports in Italy suggest there have been a total of 10 non-binding bids and Sorahan explained that Ryanair was definitely keen.
“We’re the largest carrier in it with almost 30% of market share so we’re were very serious when it comes to anything to do with Italy,” he said.
Sorahan suggested that Alitalia’s long-haul capabilities could survive with another carrier (potentially Ryanair) offering a short-haul feed.
Ryanair also used its results to reiterate its warnings about Brexit and its concerns about a lack of clarity coming from the UK government.
The European Union’s single aviation market allows airlines to pretty much fly unhindered between member states. This is likely to change from march 2019, when the UK leaves.
The UK Transport Secretary Chris Grayling said last week that there was no chance flights would be grounded but Ryanair maintained that it “may be forced to cancel flights and move some, or all, of our UK based aircraft to Continental Europe from April ’19 onwards.”
“Unfortunately, I’m hearing a lot of ‘it’ll be alright on the night’ but nobody know how it’s going to be alright on the night so I think we need a bit of clarity on how that’s going to be the case and that clarity hasn’t been forthcoming and if you talk to his [Grayling’s] counterparts in Europe, they would have a different view,” said Sorahan.