RYANAIR ANNUAL PROFITS UP 25% TO €503m AS TRAFFIC GROWS 5% TO 76m. DIVIDEND OF €0.34 PROPOSED

Competition 

The combination of rising oil prices and EU wide recession has accelerated the rate of change in the competitive landscape. A number of EU airlines have closed this year including Malev (Hungary), Spanair (Catalonia), and Cimber Sterling (Denmark). IAG have announced that Bmi Baby will close later this summer if sale negotiations are unsuccessful. Ryanair has responded tactically to these developments by opening a new base in Budapest, expanding bases in Spain, Scandinavia and provincial UK to maximise capacity and minimise airfares for local consumers/visitors. We expect more European failures in 2012, as higher oil prices and recession continues to expose failed airline models as well as subscale or peripheral carriers. 



Government Regulation 

Despite a rising number of airline failures and record airline losses, many of Europe’s governments continue to treat aviation (and airline passengers) as a cash cow to fund their taxation and/or policy failures. The UK and Germany have increased passenger taxes, which has damaged their traffic, tourism and job creation numbers. UK APD has caused traffic to decline by 6% since 2007, while the UK Govt’s “do nothing” policy about runway capacity in the South East is encouraging traffic and tourism to bypass high cost London airports in favour of expanding airports in Spain, France, and Holland. 



Spain’s recent budget proposes significant increases in AENA’s already high airport charges at Madrid and Barcelona, as well as smaller increases at other regional Span ish airports. These Govt. imposed airport tax increases are in clear breach of the EU airport charges directive, and will further exacerbate youth unemployment in Spain. It is extraordinary at a time when the European Union is promoting growth, that individual EU governments wilfully ignore the reality that taxing air travel will damage traffic, tourism and job creation, particularly in the weaker EU regions. 



In Ireland, the new Government after one year in office has so far delivered no change or reform in the Dept of Transport’s failed policy of protecting the high cost DAA airport monopoly. Traffic at the three DAA airports has declined 25% from 30M in 2007 to 22M in 2011. At a time when Irish unemployment exceeds 14%, and youth emigration is rising, it’s time the new Irish Government adopted a radical reform policy including breaking up the three DAA airports, and selling one or both of the two Dublin airport terminals to raise funds for Government and allow competition deliver lower costs, traffic growth and jobs where the DAA monopoly and its downtown office the Dept. of Transport has demonstrably failed. 



We expect the UK Court of Appeal will rule shortly in our “out of time” case, in which we are seeking to block the UK OFT investigating our 6 year old minority (29%) stake in Aer Lingus. This ruling will not end the issue as whoever loses will probably appeal to the UK Supreme Court. Given the OFT’s recent failure to investigate IAG’s 100% acquisition of BMI, or its previous decision to ignore Air France’s 25% stake in Alitalia, it is impossible to understand why the OFT wishes to waste time or public funds investigating a 6 year old failed merger between two non-UK airlines when the EU Commission has already ruled that Ryanair could not be required to sell down this minority stake as it does not have either “de facto or de jure” control over Aer Lingus. 



EU State Aid 

Despite the European Court dismissal of the Commission’s 2005 finding of State Aid in the Charleroi case, and the Competition Commission’s failure to appeal this decision, it is clear that DG Comp is determined to pursue its misguided vendetta against Ryanair and our regional airports. DG Comp has now launched 18 separate investigations of (mainly) Ryanair traffic growth agreements at low cost regional airports. While DG Comp wastes time and money trying to limit the growth of traffic and jobs at these regional airports, it continues to ignore its own failure to require flag carrier airlines, to repay unlawful state aid in cases (incl. Air France, Malev, Spanair, and Alitalia among others) where the EU has ruled that illegal State Aid was received. As the recent rubberstamping of more flag carrier airline mergers confirm, the EU Commission applies one set of rules for flag carriers but an entirely different set of rules for Ryanair and our low cost regional airports all of whom comply fully with the MEIP/State Aid rules. 



High Oil Prices 

High oil prices continue to force competitors to increase fares and fuel surcharges making Ryanair’s fares even more attractive to consumers. Higher oil prices contributed to the closure of Spanair and Malev, and will lead to further closures and rising losses. Ryanair is 90% hedged for FY13 at $1,011 per tonne (approx. $101 pbl), a 22% increase on last year but significantly lower than current prices. These higher oil prices next winter and the refusal of some monopoly airports (most notably Dublin & Stansted) to lower winter charges makes it more logical to ground up to 80 aircraft rather than suffer losses flying at very low winter yields in FY13. 



Balance Sheet 

Ryanair’s balance sheet remains one of the strongest in the industry with over €3.5bn in cash despite having returned €1bn to shareholders over the past 5 years via 4 share buybacks and a 2010 special dividend of €0.34 per share. We have availed of low interest rates to secure almost 70% of our fleet financing all-in at under 3%. Our long term Capex dollar hedging programme means that our remaining 11 Boeing deliveries in late 2012 will be purchased at €/$ exchange rate of 1.40, and we have also extended our FY 13 fuel hedges at €/$ exchange rate of 1.38. 



Outlook 

We expect traffic in FY13 will grow by 5% to just over 79m passengers. H1 traffic will grow 7% while H2 will grow by 3%. Our fuel bill will rise by €320m in FY13 with most of this increase skewed into H1, and as a result we expect to report a Q1 profit fall due to these higher prices. We remain concerned about next winter as we have zero yield visibility but expect recession, austerity, currency concerns and lower fares at new and growing bases in Hungary, Poland, Provincial UK, and Spain will make it difficult to repeat this year’s record results. We expect that any increase in fares will only partially offset higher fuel costs, and accordingly we are guiding net profit in FY13 su bject to final yield outturn will be lower than FY12 in a range of between €400m to €440m. 



Dividend & Share buyback 

In June 2010 we announced our first special dividend of €0.34 per share under which we returned almost €500m to shareholders. We believe it is opportune to propose a second special dividend of €0.34 per share (approx. €483m) payable in Nov 2012 subject to AGM approval. If paid, our 2nd special dividend will mean Ryanair has returned €1.53bn in dividends and share buybacks to shareholders over the past 5 years”. 

Source: Ryanair