Although passenger numbers have climbed, Irish budget airline Ryanair has reported a steep drop in first-half profits, citing high fuel costs. Passenger number show over the six months to September 2008 figures were 19% higher than the equivalent period in 2007, however profits after tax were down 47% to €215m. The group believes it will see a rebound as the lower oil price feeds through and anticipates it will break even over the full year.
Despite the seemingly bad news, as of 2pm today its share price was up more than 2%.
The group attributes the drop to a high oil price, which peaked at $147/barrel in July. In light of the high oil price, Ryanair hedged oil at a rate of $124 for the third quarter, when oil prices actually fell below $100, saddling the group with higher than needed fuel costs. Half year fuel costs more than doubled from €392.7m to €788.5m, the group reported.
Ryanair’s CEO Michael O’Leary said: “We have taken advantage of the recent falls in oil prices to hedge 25% of first quarter and second quarter fiscal 2009/10 supply at an average of $77 pbl. This will lock in a substantial saving over the $125 pbl paid in the half year to September 2008. We continue to closely monitor fuel prices and look for opportunities to extend our hedges at these much lower oil prices.”
Looking forward the group believes it will fare well in a recessionary environment, particularly as many of its competitors succumbs to bankruptcies and/or consolidations in Europe. O’Leary noted recent failures include Alitalia, Excel Airways, Futura, LTE, Sterling and Zoom and he said he expects more loss making European airlines will go bust this winter because of unsustainable losses and insufficient cash reserves.
Preparing itself for the difficult market ahead, Ryanair is taking cost cutting measures such as making redundancies and freezing pay.
