Ryanair half year profits up
Nov 2nd 2004, 12:03 am
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Ryanair half year profits up
Ryanair, Europe's No.1 low fares airline today (2 Nov 2004) announced record
half year profits of ¤201.3m. Traffic grew by 24% to 14.1m passengers,
yields declined by 5% and consequently total revenues rose by 21% to
¤721.1m. Unit costs (excluding fuel and route charges) fell by 4% and
(including fuel and route charges unit costs remained flat) and as a
result
the profit margin after tax declined by 1% to an industry leading 28%.
Summary Table of Results (Irish GAAP) - in Euro
Half Year Ended Sept 30, 2003 Sept 30, 2004 %
Increase
Passengers 11.3m 14.0m +24%
Revenue ¤596.4m ¤721.1m +21%
Adjusted Profit after
tax (Note 1) ¤175.5m ¤201.3m +15%
Adjusted Basic EPS
(Euro Cents) 23.21 26.51 +14%
(Note 1)
Note 1:Adjusted profit after tax and EPS for 2003, excludes
non-recurring
costs of ¤2.7m (net of tax) arising from the earlier than planned
retirement
of 6 Boeing 737-200 aircraft, the re-organisation of 'Buzz' in April'03
of
¤2.7m (net of tax), and finally a Goodwill charge of ¤1.2m in both
periods.
Announcing these results, Ryanair's Chief Executive, Michael O'Leary
said:
'These record traffic and profit figures show just how robust Ryanair's
'lowest fares' model remains even in a very difficult economic
environment
characterised by record fuel prices and intense price competition. Like
Southwest, this is Ryanair's 30th consecutive quarter of unbroken
profitability (before exceptionals) since we floated in May 1997.
'Central to these record profits is Ryanair's continuing disciplined
route
growth. Our two new bases in Barcelona and Rome have exceeded
expectations,
as have the 41 other new routes launched this Summer. Our expansion
continues this Winter with our Rome and Milan bases each getting two
more
aircraft. Our Frankfurt, Stockholm and Glasgow bases welcome one
additional
plane each, and our London Luton base rises from one 737-200 to four
737-800's. This Winter will also see Ryanair open five new destinations
with
low fare flights to Riga (Latvia), Santander, Seville and Valencia
(Spain)
and Porto (Portugal).
'Despite intense price competition and our own considerable growth, the
yield decline of 5% for the half year was at the better end of our -5%
to
-10% guidance. We attribute this to a combination of slightly better
peak
Summer yields and the initial impact of the multiple fuel surcharges
imposed
by many of our high fare competitors which has increased the price
differential, making Ryanair's low fares even more attractive to
consumers.
'Unit costs remained flat for the first half due to higher fuel and
route
charges which rose at a much faster rate than traffic growth. Excluding
fuel
and route charges, all other unit costs were reduced by 4% thanks to the
addition of more cost efficient Boeing 737-800s, new lower cost airport
agreements, and continuing tight control over all other costs. We
continue
to aggressively attack costs and have recently agreed the forward sale
of
our remaining 737-200 fleet for $10m as well as a new 10 year engine
maintenance contract with General Electric (GE) which locks away
significant
cost reductions.
'Our focus on continuously improving our No.1 customer service package
remains relentless. We have again reduced Europe's lowest fares by 5%
whilst
delivering our passengers the best punctuality with the least
cancellations
and fewest lost bags in the industry. The UK CAA recently released on
time
statistics confirmed Ryanair as the No.1 on-time major airline operating
to/
from the main UK airports. In addition Ryanair customers are enjoying
these
benefits on a fleet of brand new Boeing 737-800 aircraft, with all
leather
seating, through convenient local airports using Europe's largest travel
website. Ryanair will shortly be the first low fares airline in the
world to
introduce an Inflight Entertainment System (IFE) for all passengers
featuring latest Hollywood movies, chart topping music videos, kids
cartoons, sitcoms and audio CDs. Ryanair's customer service offering is
now
superior to all of our high fare competitors and our rapid growth in
traffic
and market share testifies to this fact.
'In Ireland we regret that the Minister for Transport who has spent two
years trying to introduce real competition at the Government owned
airport
monopoly was moved to a different portfolio. We hope the new Minister
will
move quickly to promote the development of competing independent
terminals
at Dublin Airport. The 31st October last marks the second anniversary of
this Government's receipt of 13 separate offers to develop a competing
second terminal at Dublin. Despite enormous support from the entire
tourism
industry not one inch of progress has been made in two years to
introduce
competition to the Dublin Airport monopoly. We are concerned that the
new
Dublin Airport Authority has taken over where the old monopoly left off
with
an unnecessary proposal to build a second runway and waste ¤120m. The
two
existing runways at Dublin have just 16m passengers annually compared to
the
40m passenger traffic on the single runway at Gatwick. What Dublin needs
is
competing terminals not 'Cartier runways'. The Dublin Airport monopoly
has
repeatedly failed its customers, and we urge the Government to fix this
by
introducing competing terminals at Dublin which will revolutionise Irish
tourism.
'The enormous impact of record fuel prices on the airline industry will
impact future guidance. In November last year (during the run up to the
Iraq
War) when the cost per barrel surged we stopped our forward hedging
policy.
From November 2004 we are unhedged and will continue to remain so until
forward rates return towards their previous 'normal' levels. As usual
much
of the commentary on fuel prices in Ryanair has been hyperbolic. Ryanair
can
absorb much higher oil prices than its competitors and still offer the
lowest air fares. We remain by some distance the most profitable airline
in
Europe. $50 a barrel for Brent crude for the remainder of this fiscal
year
will add some ¤55m to our total budgeted costs. However the multiple
fuel
surcharging policy of our competitors has seen our rate of yield decline
ease. These stronger than expected yields will partially offset our
higher
fuel costs.
'Furthermore, many of our competitor airlines who were losing money
heroically when fuel was $25 per barrel are doomed the longer it stays
at
$50. Our prediction of a bloodbath and airline casualties this Winter
may be
accelerated by record high oil prices as well as irrational competition.
Just two weeks ago V-Bird in Germany closed, and we believe it will be
followed by other failures this Winter and beyond. Despite this
environment
Ryanair's world record margins enables us to absorb higher fuel prices -
without resorting to surcharges - and still remain Europe's fastest
growing
most profitable airline.
'We remain cautious in our outlook for the remainder of the fiscal year.
We
expect to achieve significant increases in passenger volume growth this
fiscal year and increased load factors. We anticipate that yield
attrition
in Q3 and Q4 will now be better than our original -10% to -20% forecast
and
based on current financial booking trends should finish in the -5%
to -10%
range. This will help to partially offset higher fuel prices for the
second
half. We anticipate that there will be further airline casualties as the
'perfect storm' of declining fares and record high oil prices force loss
making carriers out of the industry. Despite increases in route charges
and
fuel prices we continue to generate better margins than all of our
competitors. With the lowest cost base, the lowest fares and industry
leading customer service, we believe that Ryanair will continue to grow
profitably to the benefit of our customers, our people and our
shareholders'.
ENDS. Tuesday, 2nd November 2004
Ryanair Holdings plc
Management Discussion and Analysis of Results
Introduction
For the purposes of the MD&A all figures and comments are by reference to
the
adjusted profit and loss account excluding the non-recurring costs and
goodwill
referred to below.
Non-recurring costs consisted of Buzz re-organisation costs of ¤2.7m (net of
tax), and goodwill of ¤1.2m amounting to ¤3.9m (net of tax) in the half year
ended September 30, 2003 compared to ¤1.2m of goodwill in the period ended
September 30, 2004. During last year an additional amount of ¤2.7m was also
charged in the period arising from the write down in the residual value of
aircraft which was necessitated by the 'scribing' of five aircraft (Note 4).
Profit after tax increased by 18% to ¤200.1m during the six months compared
to
last year. The adjusted profit for the half year, excluding non-recurring
costs
and goodwill, increased by 15% to ¤201.3m.
Summary Half year ended September 30, 2004
Profit after tax increased by 15% to ¤201.3m, compared to ¤175.5m in the
previous half year ended September 30, 2003. These results were achieved by
strong growth in passenger volumes and continued tight cost control. Total
operating revenues increased by 21% to ¤721.1m, which is slower than the 24%
growth in passenger volumes, and reflects the competitive fare environment,
and
the company's objective of continuing to drive down average fares. Average
fares
have however declined at the better end of the 5% to 10% range that we had
originally forecast. The combination of lower fares, the successful launch
of
new routes and the slower rate of growth resulted in the Passenger Load
Factor
increasing from 83% to 87% during the period.
Total operating expenses increased by 24% to ¤485.6m, due to the increased
level
of activity, and the increased costs, primarily fuel, route charges and
airport
& handling costs associated with the growth of the airline. Operating
expenses
were also adversely impacted by the strengthening of the sterling to euro
exchange rate. Operating margins declined by 1% which in turn resulted in
Operating profit increasing by 16% from ¤203.3m to ¤235.5m. Profit after tax
has
increased by 15%, slightly less than the growth in Operating profit and
reflects
the higher net interest charge resulting primarily from the increased level
of
debt during the period. Net Margins declined by 1 point to 28% for the
reasons
outlined above.
Earnings per share have risen by 14% to 26.51 cent for the period.
Balance Sheet
The strong profit growth continues to positively impact the balance sheet
with
Cash and Liquid Resources growing despite funding an additional ¤145.0m in
capital expenditure from internal resources. Cash balances at September 30,
2004
were ¤1,421.7m, an increase of ¤164.4m from March 31st 2004. Six aircraft
were
delivered in the period which in addition to aircraft deposits accounted for
the
bulk of the ¤208.5m incurred in capital expenditure. An additional ¤90.9m of
debt, net of repayments, was drawn down to part fund these aircraft
deliveries
during the period. Shareholders' Funds at September 30, 2004 have increased
to
¤1,655.6m, compared to ¤1,455.3m at March 31, 2004.
Detailed Discussion and Analysis Half year ended September 30, 2004
Profit after tax, increased by 15% to ¤201.3m driven by strong growth in
passenger volumes and continued tight cost control. Operating margins
declined
by 1% which has resulted in Operating profit increasing by ¤32.2m to ¤235.5m
compared to half year ended September 30, 2003.
Total operating revenues increased by 21% to ¤721.1m whilst passenger
volumes
increased by 24% to 14.0m.
Scheduled passenger revenues increased by 18% to ¤617.6m due to a
combination of
increased passenger volumes on existing routes, the successful launch of new
bases at Rome-Ciampino and Barcelona-Girona, and the commencement of 38 new
routes during the period, primarily offset by a 5% reduction in average
fares.
The strong growth in passenger volumes is also reflected in the improvement
in
the load factor achieved, which rose from 83% to 87% in the period.
Ancillary revenues continue to perform strongly with revenues growing by 42%
to
¤103.4m in the period. This performance reflects the strong growth in
non-flight
scheduled revenues, car hire and other ancillary products. Ancillary
revenues
continue to grow at a faster rate than passenger volumes and now account for
14%
of total revenues compared to 12% last year.
Total operating expenses increased by 24% to ¤485.6m due to the increased
level
of activity, and the increased costs primarily maintenance, fuel, aircraft
rentals, route charges and airport and handling costs associated with the
growth
of the airline. The increase in total operating expenses were also due to
the
higher level of activity and the stronger Sterling to Euro exchange rate
partly
offset by a stronger Euro to US$ exchange rate.
Staff costs have increased by 13% to ¤69.3m. This increase primarily
reflects a
13% increase in average employee numbers to 2,531 and the impact of pay
increases of 3% granted during the period offset by the lower level of
productivity based payments as sectors flown increased by 10%.
Depreciation and amortisation declined by 4% to ¤44.9m. There are an
additional
six 'owned' 737-800 aircraft in the fleet this year compared to last year,
however during the same period the company has retired three 737-200
aircraft.
The resultant higher depreciation charge was offset by a combination of
lower
amortisation due to the retirement of 737-200 aircraft and the positive
impact
of a new maintenance deal on the cost of amortisation of 737-800 aircraft.
The
strengthening of the euro to US$ also had a positive impact on the
depreciation
and amortisation charge.
Fuel costs rose by 35% to ¤113.8m due to a 23% increase in the number of
hours
flown, an increase in the average US$ cost per gallon of fuel offset by the
positive impact of the strengthening of the Euro to the US dollar during the
period.
Maintenance costs increased by 12% to ¤24.9m reflecting an increase in the
size
of the fleet operated, and an increase in the number of hours flown offset
by
maintenance savings due to improved reliability arising from the higher
proportion of 737-800 operated. Four BAE 146 aircraft, which incurred higher
maintenance charges per aircraft operated compared to the remainder of the
fleet, were returned to KLM earlier this year.
Marketing and distribution costs increased by 8% to ¤10.8m due to higher
spend
on promoting new routes and an increase in the level of activity during the
period.
Aircraft rental costs increased by ¤12.5m to ¤16.2m reflecting the increased
costs associated with the lease of ten 737-800 aircraft which were delivered
in
the period to March 31, 2004 offset by the return to KLM of four BAE 146
aircraft earlier this year.
Route charges increased by 28% to ¤67.9m due to an increase in the number
sectors flown, an increase in the average sector length, an increase in the
weight of the aircraft operated (which incur a higher charge), and the
negative
impact of the strengthening of sterling against the Euro during the period.
Airport and handling charges increased by 25% to ¤90.3m, slightly more than
the
increase in passenger volumes due to increased costs at certain existing
airports offset by lower costs at new airports, and the adverse impact of
the
strength of the sterling exchange rate against the euro during the period.
Other expenses increased by 20% to ¤47.5m, which is less than the growth in
ancillary revenues due to improved margins on some new and existing
products,
and cost reductions achieved on indirect costs.
Operating margins have remained very strong at 33% for the period due to the
reasons outlined above which has resulted in Operating profits increasing by
16%
to ¤235.5m.
Interest receivable has only increased by ¤0.3m despite an increase in the
level
of cash and liquid resources and highlights the lower deposit interest rates
earned in the period compared to last year. Interest payable increased by
¤3.1m
due to the drawdown of debt to part fund the purchase of new aircraft during
the
period.
The Company's Balance Sheet continues to strengthen due to the strong growth
in
profits during the period. The Company generated cash from operating
activities
of ¤296.3m, which part funded additional capital expenditure of ¤208.5m
Capital
expenditure primarily comprised of the delivery of 6 aircraft and further
advance payments for future aircraft deliveries. Long term Debt, net of
repayments increased by ¤90.9m which was drawn down to part fund aircraft
deliveries during the period. Cash and liquid resources continued to reflect
the
strong trading performance of the company during the period and at September
30,
2004 stood at ¤1,421.7m compared to ¤1,257.4 at March 31, 2004.
Shareholders' Funds at September 30, 2004 have increased to ¤1,655.6m
compared
to ¤1,455.3m at March 31, 2004.
Detailed Discussion and Analysis Quarter Ended September 30, 2004
Profit after tax, increased by 12% to ¤148.1m driven by strong growth in
passenger volumes and continued tight cost control. Operating margins have
remained strong at 41% although slightly down on last year, which has
resulted
in Operating profit increasing by ¤20.5m to ¤170.7m compared to quarter
ended
September 30, 2003.
Total operating revenues increased by 19% to ¤418.3m whilst passenger
volumes
increased by 20% to 7.4m.
Scheduled passenger revenues increased by 16% to ¤358.6m due to a
combination of
increased passenger volumes on existing routes, the successful launch of new
bases at Rome-Ciampino and Barcelona-Girona offset by a 3% reduction in
average
fares. The strong growth in passenger volumes is also reflected in the
improvement in the load factor achieved, which rose from 87% to 90% in the
quarter.
Ancillary revenues increased 43% to ¤59.8m, a faster growth rate than
passenger
volumes, reflecting a strong performance in non-flight scheduled revenues,
car
hire and other ancillary products. Ancillary revenues continue to grow at a
faster rate than passenger volumes and now account for 14% of total revenues
compared to 12% for the same period last year.
Total operating expenses increased by 23% to ¤247.6m due to the increased
level
of activity, and the increased costs primarily fuel, aircraft rentals, route
charges and airport and handling costs associated with the growth of the
airline. Total operating costs were also adversely impacted by increases in
the
average sector length and the strengthening of the sterling exchange rate
against the euro whilst higher US$ fuel prices were partly offset by the
strength of the euro exchange rate against the US$.
Staff costs have increased by 11% to ¤35.2m primarily reflecting an increase
in
average employee numbers to 2,595 and the impact of pay increases of 3%
granted
during the period, offset by the lower level of productivity based pay as
sectors flown increased by 9%.
Depreciation and amortisation decreased by 10% to ¤21.3m. A higher
depreciation
charge due to an increase in the size of the 'owned' fleet from 56 to 60,
offset
by a lower amortisation charge due to the retirement of 737-200 aircraft and
the
positive impact of a new engine maintenance deal on the cost of amortisation
of
737-800 aircraft. The strengthening of the euro to US$ also had a positive
impact on the depreciation and amortisation charge.
Fuel costs rose by 42% to ¤61.9m due to an increase in the number of sectors
flown, a 10% increase in sector length, and a higher average US$ cost per
gallon
of fuel offset by the positive impact of the strengthening of the Euro to
the US
dollar during the period.
Maintenance costs decreased by 2% to ¤10.8m reflecting the improved
reliability
arising from the higher proportion of 737-800 operated and a lower level of
maintenance costs incurred due to the return of four BAE 146 aircraft to KLM
earlier in the year.
Marketing and distribution costs increased by 53% to ¤3.5m due to a higher
promotional spend, and increased costs associated with the higher level of
activity.
Aircraft rental costs increased by ¤5.9m to ¤8.2m reflecting the increased
costs
arising from the lease of ten 737-800 aircraft which were delivered in the
quarter to March 31, 2004 offset by the return of four BAE 146s to KLM.
Route charges increased by 25% to ¤34.7m due to an increase in the number
sectors flown, an increase in the average sector length and an increase in
the
weight of the aircraft operated (which incur a higher charge), and the
negative
impact of the strengthening of sterling against the Euro.
Airport and handling charges increased by 23% slightly more than the
increase in
passenger volumes due to increased costs at certain existing airports offset
by
lower costs at new airports, and the adverse impact of the strength of the
sterling exchange rate against the euro during the period.
Other expenses increased by 22% to ¤25.9m, which is less than the growth in
ancillary revenues due to improved margins on some new and existing
products,
and cost reductions achieved on indirect costs.
Operating margins have remained very robust at 41% although they were 1%
lower
than last year, due to the reasons outlined above which has resulted in
Operating profits increasing by 14% to ¤170.7m during the quarter.
Interest receivable has increased by ¤0.7m due to the combined impact of
higher
levels of cash and liquid resources and an improvement in average deposit
interest rates earned in the quarter compared to last year.
Interest payable increased by ¤1.6m due to the drawdown of debt to part fund
the
purchase of new aircraft.
half year profits of ¤201.3m. Traffic grew by 24% to 14.1m passengers,
yields declined by 5% and consequently total revenues rose by 21% to
¤721.1m. Unit costs (excluding fuel and route charges) fell by 4% and
(including fuel and route charges unit costs remained flat) and as a
result
the profit margin after tax declined by 1% to an industry leading 28%.
Summary Table of Results (Irish GAAP) - in Euro
Half Year Ended Sept 30, 2003 Sept 30, 2004 %
Increase
Passengers 11.3m 14.0m +24%
Revenue ¤596.4m ¤721.1m +21%
Adjusted Profit after
tax (Note 1) ¤175.5m ¤201.3m +15%
Adjusted Basic EPS
(Euro Cents) 23.21 26.51 +14%
(Note 1)
Note 1:Adjusted profit after tax and EPS for 2003, excludes
non-recurring
costs of ¤2.7m (net of tax) arising from the earlier than planned
retirement
of 6 Boeing 737-200 aircraft, the re-organisation of 'Buzz' in April'03
of
¤2.7m (net of tax), and finally a Goodwill charge of ¤1.2m in both
periods.
Announcing these results, Ryanair's Chief Executive, Michael O'Leary
said:
'These record traffic and profit figures show just how robust Ryanair's
'lowest fares' model remains even in a very difficult economic
environment
characterised by record fuel prices and intense price competition. Like
Southwest, this is Ryanair's 30th consecutive quarter of unbroken
profitability (before exceptionals) since we floated in May 1997.
'Central to these record profits is Ryanair's continuing disciplined
route
growth. Our two new bases in Barcelona and Rome have exceeded
expectations,
as have the 41 other new routes launched this Summer. Our expansion
continues this Winter with our Rome and Milan bases each getting two
more
aircraft. Our Frankfurt, Stockholm and Glasgow bases welcome one
additional
plane each, and our London Luton base rises from one 737-200 to four
737-800's. This Winter will also see Ryanair open five new destinations
with
low fare flights to Riga (Latvia), Santander, Seville and Valencia
(Spain)
and Porto (Portugal).
'Despite intense price competition and our own considerable growth, the
yield decline of 5% for the half year was at the better end of our -5%
to
-10% guidance. We attribute this to a combination of slightly better
peak
Summer yields and the initial impact of the multiple fuel surcharges
imposed
by many of our high fare competitors which has increased the price
differential, making Ryanair's low fares even more attractive to
consumers.
'Unit costs remained flat for the first half due to higher fuel and
route
charges which rose at a much faster rate than traffic growth. Excluding
fuel
and route charges, all other unit costs were reduced by 4% thanks to the
addition of more cost efficient Boeing 737-800s, new lower cost airport
agreements, and continuing tight control over all other costs. We
continue
to aggressively attack costs and have recently agreed the forward sale
of
our remaining 737-200 fleet for $10m as well as a new 10 year engine
maintenance contract with General Electric (GE) which locks away
significant
cost reductions.
'Our focus on continuously improving our No.1 customer service package
remains relentless. We have again reduced Europe's lowest fares by 5%
whilst
delivering our passengers the best punctuality with the least
cancellations
and fewest lost bags in the industry. The UK CAA recently released on
time
statistics confirmed Ryanair as the No.1 on-time major airline operating
to/
from the main UK airports. In addition Ryanair customers are enjoying
these
benefits on a fleet of brand new Boeing 737-800 aircraft, with all
leather
seating, through convenient local airports using Europe's largest travel
website. Ryanair will shortly be the first low fares airline in the
world to
introduce an Inflight Entertainment System (IFE) for all passengers
featuring latest Hollywood movies, chart topping music videos, kids
cartoons, sitcoms and audio CDs. Ryanair's customer service offering is
now
superior to all of our high fare competitors and our rapid growth in
traffic
and market share testifies to this fact.
'In Ireland we regret that the Minister for Transport who has spent two
years trying to introduce real competition at the Government owned
airport
monopoly was moved to a different portfolio. We hope the new Minister
will
move quickly to promote the development of competing independent
terminals
at Dublin Airport. The 31st October last marks the second anniversary of
this Government's receipt of 13 separate offers to develop a competing
second terminal at Dublin. Despite enormous support from the entire
tourism
industry not one inch of progress has been made in two years to
introduce
competition to the Dublin Airport monopoly. We are concerned that the
new
Dublin Airport Authority has taken over where the old monopoly left off
with
an unnecessary proposal to build a second runway and waste ¤120m. The
two
existing runways at Dublin have just 16m passengers annually compared to
the
40m passenger traffic on the single runway at Gatwick. What Dublin needs
is
competing terminals not 'Cartier runways'. The Dublin Airport monopoly
has
repeatedly failed its customers, and we urge the Government to fix this
by
introducing competing terminals at Dublin which will revolutionise Irish
tourism.
'The enormous impact of record fuel prices on the airline industry will
impact future guidance. In November last year (during the run up to the
Iraq
War) when the cost per barrel surged we stopped our forward hedging
policy.
From November 2004 we are unhedged and will continue to remain so until
forward rates return towards their previous 'normal' levels. As usual
much
of the commentary on fuel prices in Ryanair has been hyperbolic. Ryanair
can
absorb much higher oil prices than its competitors and still offer the
lowest air fares. We remain by some distance the most profitable airline
in
Europe. $50 a barrel for Brent crude for the remainder of this fiscal
year
will add some ¤55m to our total budgeted costs. However the multiple
fuel
surcharging policy of our competitors has seen our rate of yield decline
ease. These stronger than expected yields will partially offset our
higher
fuel costs.
'Furthermore, many of our competitor airlines who were losing money
heroically when fuel was $25 per barrel are doomed the longer it stays
at
$50. Our prediction of a bloodbath and airline casualties this Winter
may be
accelerated by record high oil prices as well as irrational competition.
Just two weeks ago V-Bird in Germany closed, and we believe it will be
followed by other failures this Winter and beyond. Despite this
environment
Ryanair's world record margins enables us to absorb higher fuel prices -
without resorting to surcharges - and still remain Europe's fastest
growing
most profitable airline.
'We remain cautious in our outlook for the remainder of the fiscal year.
We
expect to achieve significant increases in passenger volume growth this
fiscal year and increased load factors. We anticipate that yield
attrition
in Q3 and Q4 will now be better than our original -10% to -20% forecast
and
based on current financial booking trends should finish in the -5%
to -10%
range. This will help to partially offset higher fuel prices for the
second
half. We anticipate that there will be further airline casualties as the
'perfect storm' of declining fares and record high oil prices force loss
making carriers out of the industry. Despite increases in route charges
and
fuel prices we continue to generate better margins than all of our
competitors. With the lowest cost base, the lowest fares and industry
leading customer service, we believe that Ryanair will continue to grow
profitably to the benefit of our customers, our people and our
shareholders'.
ENDS. Tuesday, 2nd November 2004
Ryanair Holdings plc
Management Discussion and Analysis of Results
Introduction
For the purposes of the MD&A all figures and comments are by reference to
the
adjusted profit and loss account excluding the non-recurring costs and
goodwill
referred to below.
Non-recurring costs consisted of Buzz re-organisation costs of ¤2.7m (net of
tax), and goodwill of ¤1.2m amounting to ¤3.9m (net of tax) in the half year
ended September 30, 2003 compared to ¤1.2m of goodwill in the period ended
September 30, 2004. During last year an additional amount of ¤2.7m was also
charged in the period arising from the write down in the residual value of
aircraft which was necessitated by the 'scribing' of five aircraft (Note 4).
Profit after tax increased by 18% to ¤200.1m during the six months compared
to
last year. The adjusted profit for the half year, excluding non-recurring
costs
and goodwill, increased by 15% to ¤201.3m.
Summary Half year ended September 30, 2004
Profit after tax increased by 15% to ¤201.3m, compared to ¤175.5m in the
previous half year ended September 30, 2003. These results were achieved by
strong growth in passenger volumes and continued tight cost control. Total
operating revenues increased by 21% to ¤721.1m, which is slower than the 24%
growth in passenger volumes, and reflects the competitive fare environment,
and
the company's objective of continuing to drive down average fares. Average
fares
have however declined at the better end of the 5% to 10% range that we had
originally forecast. The combination of lower fares, the successful launch
of
new routes and the slower rate of growth resulted in the Passenger Load
Factor
increasing from 83% to 87% during the period.
Total operating expenses increased by 24% to ¤485.6m, due to the increased
level
of activity, and the increased costs, primarily fuel, route charges and
airport
& handling costs associated with the growth of the airline. Operating
expenses
were also adversely impacted by the strengthening of the sterling to euro
exchange rate. Operating margins declined by 1% which in turn resulted in
Operating profit increasing by 16% from ¤203.3m to ¤235.5m. Profit after tax
has
increased by 15%, slightly less than the growth in Operating profit and
reflects
the higher net interest charge resulting primarily from the increased level
of
debt during the period. Net Margins declined by 1 point to 28% for the
reasons
outlined above.
Earnings per share have risen by 14% to 26.51 cent for the period.
Balance Sheet
The strong profit growth continues to positively impact the balance sheet
with
Cash and Liquid Resources growing despite funding an additional ¤145.0m in
capital expenditure from internal resources. Cash balances at September 30,
2004
were ¤1,421.7m, an increase of ¤164.4m from March 31st 2004. Six aircraft
were
delivered in the period which in addition to aircraft deposits accounted for
the
bulk of the ¤208.5m incurred in capital expenditure. An additional ¤90.9m of
debt, net of repayments, was drawn down to part fund these aircraft
deliveries
during the period. Shareholders' Funds at September 30, 2004 have increased
to
¤1,655.6m, compared to ¤1,455.3m at March 31, 2004.
Detailed Discussion and Analysis Half year ended September 30, 2004
Profit after tax, increased by 15% to ¤201.3m driven by strong growth in
passenger volumes and continued tight cost control. Operating margins
declined
by 1% which has resulted in Operating profit increasing by ¤32.2m to ¤235.5m
compared to half year ended September 30, 2003.
Total operating revenues increased by 21% to ¤721.1m whilst passenger
volumes
increased by 24% to 14.0m.
Scheduled passenger revenues increased by 18% to ¤617.6m due to a
combination of
increased passenger volumes on existing routes, the successful launch of new
bases at Rome-Ciampino and Barcelona-Girona, and the commencement of 38 new
routes during the period, primarily offset by a 5% reduction in average
fares.
The strong growth in passenger volumes is also reflected in the improvement
in
the load factor achieved, which rose from 83% to 87% in the period.
Ancillary revenues continue to perform strongly with revenues growing by 42%
to
¤103.4m in the period. This performance reflects the strong growth in
non-flight
scheduled revenues, car hire and other ancillary products. Ancillary
revenues
continue to grow at a faster rate than passenger volumes and now account for
14%
of total revenues compared to 12% last year.
Total operating expenses increased by 24% to ¤485.6m due to the increased
level
of activity, and the increased costs primarily maintenance, fuel, aircraft
rentals, route charges and airport and handling costs associated with the
growth
of the airline. The increase in total operating expenses were also due to
the
higher level of activity and the stronger Sterling to Euro exchange rate
partly
offset by a stronger Euro to US$ exchange rate.
Staff costs have increased by 13% to ¤69.3m. This increase primarily
reflects a
13% increase in average employee numbers to 2,531 and the impact of pay
increases of 3% granted during the period offset by the lower level of
productivity based payments as sectors flown increased by 10%.
Depreciation and amortisation declined by 4% to ¤44.9m. There are an
additional
six 'owned' 737-800 aircraft in the fleet this year compared to last year,
however during the same period the company has retired three 737-200
aircraft.
The resultant higher depreciation charge was offset by a combination of
lower
amortisation due to the retirement of 737-200 aircraft and the positive
impact
of a new maintenance deal on the cost of amortisation of 737-800 aircraft.
The
strengthening of the euro to US$ also had a positive impact on the
depreciation
and amortisation charge.
Fuel costs rose by 35% to ¤113.8m due to a 23% increase in the number of
hours
flown, an increase in the average US$ cost per gallon of fuel offset by the
positive impact of the strengthening of the Euro to the US dollar during the
period.
Maintenance costs increased by 12% to ¤24.9m reflecting an increase in the
size
of the fleet operated, and an increase in the number of hours flown offset
by
maintenance savings due to improved reliability arising from the higher
proportion of 737-800 operated. Four BAE 146 aircraft, which incurred higher
maintenance charges per aircraft operated compared to the remainder of the
fleet, were returned to KLM earlier this year.
Marketing and distribution costs increased by 8% to ¤10.8m due to higher
spend
on promoting new routes and an increase in the level of activity during the
period.
Aircraft rental costs increased by ¤12.5m to ¤16.2m reflecting the increased
costs associated with the lease of ten 737-800 aircraft which were delivered
in
the period to March 31, 2004 offset by the return to KLM of four BAE 146
aircraft earlier this year.
Route charges increased by 28% to ¤67.9m due to an increase in the number
sectors flown, an increase in the average sector length, an increase in the
weight of the aircraft operated (which incur a higher charge), and the
negative
impact of the strengthening of sterling against the Euro during the period.
Airport and handling charges increased by 25% to ¤90.3m, slightly more than
the
increase in passenger volumes due to increased costs at certain existing
airports offset by lower costs at new airports, and the adverse impact of
the
strength of the sterling exchange rate against the euro during the period.
Other expenses increased by 20% to ¤47.5m, which is less than the growth in
ancillary revenues due to improved margins on some new and existing
products,
and cost reductions achieved on indirect costs.
Operating margins have remained very strong at 33% for the period due to the
reasons outlined above which has resulted in Operating profits increasing by
16%
to ¤235.5m.
Interest receivable has only increased by ¤0.3m despite an increase in the
level
of cash and liquid resources and highlights the lower deposit interest rates
earned in the period compared to last year. Interest payable increased by
¤3.1m
due to the drawdown of debt to part fund the purchase of new aircraft during
the
period.
The Company's Balance Sheet continues to strengthen due to the strong growth
in
profits during the period. The Company generated cash from operating
activities
of ¤296.3m, which part funded additional capital expenditure of ¤208.5m
Capital
expenditure primarily comprised of the delivery of 6 aircraft and further
advance payments for future aircraft deliveries. Long term Debt, net of
repayments increased by ¤90.9m which was drawn down to part fund aircraft
deliveries during the period. Cash and liquid resources continued to reflect
the
strong trading performance of the company during the period and at September
30,
2004 stood at ¤1,421.7m compared to ¤1,257.4 at March 31, 2004.
Shareholders' Funds at September 30, 2004 have increased to ¤1,655.6m
compared
to ¤1,455.3m at March 31, 2004.
Detailed Discussion and Analysis Quarter Ended September 30, 2004
Profit after tax, increased by 12% to ¤148.1m driven by strong growth in
passenger volumes and continued tight cost control. Operating margins have
remained strong at 41% although slightly down on last year, which has
resulted
in Operating profit increasing by ¤20.5m to ¤170.7m compared to quarter
ended
September 30, 2003.
Total operating revenues increased by 19% to ¤418.3m whilst passenger
volumes
increased by 20% to 7.4m.
Scheduled passenger revenues increased by 16% to ¤358.6m due to a
combination of
increased passenger volumes on existing routes, the successful launch of new
bases at Rome-Ciampino and Barcelona-Girona offset by a 3% reduction in
average
fares. The strong growth in passenger volumes is also reflected in the
improvement in the load factor achieved, which rose from 87% to 90% in the
quarter.
Ancillary revenues increased 43% to ¤59.8m, a faster growth rate than
passenger
volumes, reflecting a strong performance in non-flight scheduled revenues,
car
hire and other ancillary products. Ancillary revenues continue to grow at a
faster rate than passenger volumes and now account for 14% of total revenues
compared to 12% for the same period last year.
Total operating expenses increased by 23% to ¤247.6m due to the increased
level
of activity, and the increased costs primarily fuel, aircraft rentals, route
charges and airport and handling costs associated with the growth of the
airline. Total operating costs were also adversely impacted by increases in
the
average sector length and the strengthening of the sterling exchange rate
against the euro whilst higher US$ fuel prices were partly offset by the
strength of the euro exchange rate against the US$.
Staff costs have increased by 11% to ¤35.2m primarily reflecting an increase
in
average employee numbers to 2,595 and the impact of pay increases of 3%
granted
during the period, offset by the lower level of productivity based pay as
sectors flown increased by 9%.
Depreciation and amortisation decreased by 10% to ¤21.3m. A higher
depreciation
charge due to an increase in the size of the 'owned' fleet from 56 to 60,
offset
by a lower amortisation charge due to the retirement of 737-200 aircraft and
the
positive impact of a new engine maintenance deal on the cost of amortisation
of
737-800 aircraft. The strengthening of the euro to US$ also had a positive
impact on the depreciation and amortisation charge.
Fuel costs rose by 42% to ¤61.9m due to an increase in the number of sectors
flown, a 10% increase in sector length, and a higher average US$ cost per
gallon
of fuel offset by the positive impact of the strengthening of the Euro to
the US
dollar during the period.
Maintenance costs decreased by 2% to ¤10.8m reflecting the improved
reliability
arising from the higher proportion of 737-800 operated and a lower level of
maintenance costs incurred due to the return of four BAE 146 aircraft to KLM
earlier in the year.
Marketing and distribution costs increased by 53% to ¤3.5m due to a higher
promotional spend, and increased costs associated with the higher level of
activity.
Aircraft rental costs increased by ¤5.9m to ¤8.2m reflecting the increased
costs
arising from the lease of ten 737-800 aircraft which were delivered in the
quarter to March 31, 2004 offset by the return of four BAE 146s to KLM.
Route charges increased by 25% to ¤34.7m due to an increase in the number
sectors flown, an increase in the average sector length and an increase in
the
weight of the aircraft operated (which incur a higher charge), and the
negative
impact of the strengthening of sterling against the Euro.
Airport and handling charges increased by 23% slightly more than the
increase in
passenger volumes due to increased costs at certain existing airports offset
by
lower costs at new airports, and the adverse impact of the strength of the
sterling exchange rate against the euro during the period.
Other expenses increased by 22% to ¤25.9m, which is less than the growth in
ancillary revenues due to improved margins on some new and existing
products,
and cost reductions achieved on indirect costs.
Operating margins have remained very robust at 41% although they were 1%
lower
than last year, due to the reasons outlined above which has resulted in
Operating profits increasing by 14% to ¤170.7m during the quarter.
Interest receivable has increased by ¤0.7m due to the combined impact of
higher
levels of cash and liquid resources and an improvement in average deposit
interest rates earned in the quarter compared to last year.
Interest payable increased by ¤1.6m due to the drawdown of debt to part fund
the
purchase of new aircraft.
