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Low fare flights will survive high oil price

Ryanair optimistic despite fall in profit
[July 30th 2008] Ryanair check in

Despite a dramatic 85% fall in profit, low cost airline Ryanair is confident high oil prices won’t spell the end of low fare flights.

Ryanair puts the fall in its Q1 profit to just €21 million down to a combination of fuel costs almost doubling and yields being cut because Easter fell in the previous quarter this year. Average fares, including baggage charges, during the period fell by 8% to €42. But the number of passengers carried grew by a healthy 19% to 15 million, and load factors were a respectable 81%.

One reason for the fall in yields was more passengers decided to check in online and opted for carry on baggage in the face of rising baggage charges. Ryanair says that this change in passenger behaviour is helping it to “significantly reduce” handling costs.

Ryanair CEO, Michael O’Leary, remains confident low fares airlines have a future. “The demise of low fare air travel is again being predicted by high fare airlines like BA and others who are still losing short haul traffic to Ryanair. Higher oil prices won’t end low fare air travel, it just increases the attraction of Ryanair’s guaranteed lowest fares, as consumers become more price sensitive and switch away from high fare/fuel surcharging airlines like BA,” he says.

Ryanair has bought 90% of its fuel for September at $129 a barrel and 80% for Q3 at $124 a barrel, but admits it has not hedged for the fourth quarter, leaving it vulnerable to further increases in oil prices.

“We will continue to absorb higher oil costs, even if it means short-term losses, while we continue to deliver Europe’s guaranteed lowest fares to our 58 million passengers,” O’Leary states.

“Higher oil prices will speed up the decline of high fare short haul travel this winter as many European airlines consolidate or go bust. We believe that oil prices of approx. $130 per barrel are unsustainable over the medium term, but we don’t know when they are going to fall. The airline industry is cyclical, and this downturn will provide enormous opportunities for strong, well financed airlines, such as Ryanair to grow,” concludes O’Leary.

Written by: Nick Purdom


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