Ryanair set to ground more planes as fuel costs take off

Ryanair is set to ground up to 80 planes this winter, double last year's figure, as high oil prices drive up the cost of running aircraft, and the budget airline warned yesterday that it remained concerned about the impact of the weak economic outlook.

"Higher oil prices next winter, and the refusal of some airports to offer lower charges, make it more profitable to ground up to 80 aircraft rather than suffer losses operating them to high-cost airports at low winter yields," the chief executive, Michael O'Leary, said.

Ryanair reported that unit costs had climbed 11 per cent over the year to the end of March – mostly because of higher oil prices. Excluding fuel, Ryanair said costs were up by just 3 per cent.

The airline, whose fuel requirements for the current financial year are 90 per cent hedged at $820 (£509) per tonne, or about $82 per barrel, said the rising costs meant its fuel bill for the new financial year was on track to swell by around €350m (£304m).

That is expected to push the airline's operating cost per passenger up by 13 per cent in the year to March 2012. Ryanair also expects to raise fares despite worries about the economic backdrop. "Since we have limited visibility on bookings we remain concerned at the impact of the recession, austerity measures and falling consumer confidence on fares," Mr O'Leary said. "Despite these concerns we cautiously expect that our average fares will rise by up to 12 per cent this year due to a better mix of new routes and bases, slower traffic growth, and higher competitor fuel surcharges."

But that is not expected to boost the bottom line. Mr O'Leary said the rises would offset higher fuel and other costs, meaning that post-tax profits for next year are likely to be similar to the €400m seen in the year gone by.

The figures excluded an exceptional pre-tax charge of €29.7m for the disruptions caused by last year's Icelandic volcano eruption. Ash from the Eyjafjallajokull volcano caused widespread cancellations to European flights last April, and, as Ryanair published its results yesterday, another ash cloud was spreading following the eruption of another Icelandic volcano.

But the airline said it did not expect a repeat of last year. "I think the regulators are a bit more sensible than they were last year," Mr O'Leary said. "I hope there will be no airspace closures – there shouldn't be, certainly not over any countries where we are flying."

The market was concerned, however, with Ryanair's shares falling by 6 per cent, while rival easyJet was 5 per cent behind on the prospect of another bout of disruptions.

Looking ahead, Ryanair expected traffic to grow by 10 per cent over the first half of the current financial year, but then fall by 4 per cent over the second half as it grounded more flights for the winter. As a result, annual traffic is expected to grow at a slower rate of 4 per cent to 75 million passengers.

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