It has avoided the ‘unreliable optimism of some competitors’ and trimmed the top end of its profit guidance, but budget airline Ryanair (RYA) has nonetheless pleased the market this morning.
Its shares are up around 6.4% to €13.28 as its half-year results were better than expected.
Despite reporting flat profit after tax of €1.15bn, this was roughly 7% ahead of the market consensus of around €1.083bn.
ANCILLARY REVENUES DRIVE GROWTH
This profit was driven by an 11% increase in revenue to €5.39bn, helped by a 28% jump in ancillary revenue to €1.65bn as more passengers chose the firm’s priority boarding and preferred seat services, as well as a 1% decline in costs excluding fuel.
Ancillary revenues, i.e. the money made from checked bags, seat assignments, hotel commissions, etc, are becoming an increasingly important part of airlines’ business models as the prices of extra services offered is relatively stable.
After all, ticket prices typically fluctuate depending on market response, and so the more money it can bring in through checked bags, etc, the less it will be impacted by issues such as higher fuel prices, which has caused issues for a lot of airlines.
RYANAIR AVOIDS 'OPTIMISM OF COMPETITORS'
Despite beating market consensus with its results, Ryanair remained cautious in its outlook for the year and said ‘we try to avoid the unreliable optimism of some competitors’ as it warned that it remains sensitive to market uncertainty, including any impact if there was a no-deal Brexit.
The firm has narrowed its full year profit after tax guidance to €800-900m, compared to the previous guidance range of €750-950m, with its fuel bill and other costs set to rise, and its Lauda airline expected to report higher losses than originally expected.
READ MORE ABOUT RYANAIR HERE
Ryanair also said it will have to cut jobs due to delays to the delivery of the 58 Boeing 737 MAX aircraft it ordered. The airline now expects to receive just 20 of these aircraft - which it said will ‘transform’ its cost base and its business - in time for the crucial summer period next year.
It does however expected a ‘better fare environment’ than last winter and also anticipates ancillary revenues to grow ahead of traffic growth, meaning it expects to squeeze more out of each passenger on average.
BRITISH AIRWAYS OWNER TO CREATE MADRID HUB
Elsewhere, British Airways-owner International Consolidated Airlines (IAG) moved 1% higher to 548p after acquiring Air Europa for €1bn in cash as the firm sets its sights on the market in European travel to Latin America.
A Spanish airline, Air Europa mainly flies out of Spain to destinations in South America and the Caribbean.
AJ Bell investment director Russ Mould said the acquisition is part of IAG’s plan to use the deal to turn its existing Madrid hub into a ‘proper rival’ for Europe’s other major airports like London Heathrow and Paris’ Charles de Gaulle.
Mould added, ‘The acquisition will also give the group an increasingly European flavour - despite its association with one of the UK’s heritage brands.’
