Ryanair blames high fuel costs for profits drop

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The Independent Online

Michael O'Leary, the chief executive of Ryanair, has warned that full-year profits might fall for the first time since 11 September 2001, but expressed hope that the UK would be hit by a "deep, dark recession" that would force smaller rivals out of business and put a dampener on rising airport landing charges and green taxes.

Blaming high fuel costs and falling load factors on its planes, Europe's largest low-cost airline saw profits for the first nine months of the year drop by 27 per cent to €35m (£26m). The fall came despite a 21 per cent rise in passenger numbers and a 16 per cent jump in turnover. Mr O'Leary said that if the "perfect storm" of high fuel prices and a recession occurred this year, Ryanair could see its profits driven down "by up to 50 per cent" next year.

He was confident, however, that the company was well placed to benefit over the longer term, as a downturn would weed out rivals and hamper Government moves to increase fees, such as landing charges.

"We are generally pessimistic about the next 12 months, profits will probably fall," said Mr O'Leary. "We need a deep dark recession. It would be bloody good for the industry. It would help see off the environmental nonsense that has become so popular among the chattering classes."

Mr O'Leary has loudly criticised Government measures, such as the doubling of the air passenger duty, and continues to fight proposed hefty increases to landing charges at Stansted, the airline's base serving the London area, and Dublin airport.

Mr O'Leary painted the profits drop as a temporary speed-bump, but the City was less convinced. Chris Reid, an analyst at Deutsche Bank, said that the figures showed a trend of costs rising faster than capacity and revenue growth. The company is "not getting the benefit of its volume growth in its unit cost base and in our view this is leading to, from a profit perspective, business model failure".

With about 100 aeroplanes on order, Mr O'Leary predicted that, despite the near-term turbulence, the company will double capacity and profits in five years. Yet the market has sold down the shares by more than a third in the past six months, gripped by worries that the company may get caught in a pincer of vastly increasing capacity just as demand begins to drop if the UK and European economies stumble.

The company has been able to partially offset higher costs by selling aircraft in the second-hand market. Ryanair booked €12.1m (£9.1m) through the sale of five planes to Chinese and Indian carriers in the most recent quarter, and could sell another 10 over the next six months. Mr O'Leary said carriers were paying "very generous" prices for second-hand planes because many cannot get immediate access to new models as the order books of Boeing and Airbus are full for years to come.

The company also has a business plan in place for its planned transatlantic budget carrier, though Mr O'Leary said that he would not start it up until he could swing a deal to buy new planes on the cheap.

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