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Ryanair, the low-fares airline, today raised its earnings guidance for the
year as profit rose 10% in the first six months of its financial year to
September 2012. Traffic increased. The airline said it would raise its earnings
guidance for the year from between €400m and €440m to between €590m and €520m.
First-half profits rose 10% to €596m as revenues increased 15% to €3.11bn,
traffic grew 7% to 48m passengers, while average fares rose 6%. Unit costs were
up 8% mainly due to a 24% (€218m) increase in fuel. Excluding fuel adjusted unit
costs rose by 2%.
Ryanair said that the combination of higher oil prices and EU wide recession
continues to drive significant change in European aviation. A number of EU
airlines have closed this summer including Windjet (Sicily), OLT Express
(Poland), and bmibaby (UK). These follow earlier collapses of both Malev
(Hungary) and Spanair (Spain) in 2012. Legacy carriers including Air France\KLM,
IAG, Lufthansa, SAS, and Air Berlin have all announced restructurings that
include significant contraction of their short-haul operations. Charter airlines
such as Thomas Cook are also cutting fleet sizes. "In contrast Ryanair continues
to find profitable opportunities for growth across Europe as higher cost and
less efficient competitors struggle to survive. Our new bases in Budapest and
Warsaw have stimulated strong demand at Ryanair’s very low fares while expansion
of existing bases in Spain, the UK and Germany has delivered impressive volume
and profit growth."
Michael O'Leary, CEO, said: "Ryanair carried 48m passengers during H1
(79m on a 12m rolling basis), and now accounts for approx. 12% of Europe’s
short-haul air travel market. Analysis of that market shows an industry
dominated by loss-making, unreliable and inefficient airlines producing
substantial revenues but unsustainable aggregate losses. Ryanair estimates
about 580m short-haul passengers are travelling at substantially higher
fares with intra EU airlines that are either loss-making or producing meagre
profit margins. This represents a major opportunity for Ryanair’s lowest
fares model- given our substantial unit cost advantage -to grow profitably
to 120m passengers per annum over the next 10 years."
The following is an update in relation to the
Aer Lingus offer:
Michael O’Leary said: “Consolidation is an essential part of making EU
airlines more competitive. It has already taken place in core EU countries via
IAG (Iberia and BMI merger), AF\KLM (including their investment in Alitalia) and
Lufthansa (via takeovers of Austrian, Brussels Airlines and Swiss). That process
is now spreading to peripheral countries as Aegean merges with Olympic in
Greece, TAP is sold in Portugal and Ryanair bids again for Aer Lingus.
As part of the EU’s Phase 2 review which began on August 29, Ryanair has
submitted an unprecedented remedies package, under which multiple up-front
buyers will commit to open new bases in Ireland, and enter all of the
Ryanair/Aer Lingus crossover routes which are not currently served by other
substantial airline competitors. We believe this is the first EU airline merger
where the remedies proposed delivers not one, but at least two up-front buyer
remedies, and where all of the “merger to monopoly routes” are remedied not just
by passive slot divestments but by active up-front buyers and new market
Ryanair is determined to explore all commercial options to address any
competition concerns the EU may have in order to secure approval for its
proposed merger. The recent BA/BMI (Phase 1) merger approval and the subsequent
Aegean/Olympic merger proposal vindicate Ryanair’s view that its offer for Aer
Lingus along with the radical remedies package will - if fairly assessed -
secure EU competition approval.”
Dónal O'Neill of Goodbody commented: "Ryanair reported Q2 numbers this morning which came in well ahead of our and
consensus forecasts as yields, ancillaries and costs came in better than
expected. Management has raised guidance for the full year to a range of €490m
to €520m, from €400m to €440m. We expect the stock to perform well today on the
back of these results.
Total revenue came in at €1,822m, 1.9% ahead of Goodbody and 2.7% ahead of
consensus. Scheduled revenue of €1,254m was 0.8% ahead of our forecast as yield
growth in Q2 was 6.6% versus our estimate of 5.7%. Ancillary revenue came in at
€298m, up 25% yoy and beating our estimate by 7.5% thanks to a strong
performance from reserved seating.
On the cost line, the fuel bill, at €581m, came in €19m (3%) below our
estimate of €600m. Elsewhere, depreciation was some 11% below our estimate,
while marketing and distribution costs were 13% higher than forecast. Total
costs of €1,242m were 1.4% better than we had forecast and consequently, PAT of
€497m was 10.5% above our estimate of €450m.
Arguably of greatest interest in these results is the H2 yield guidance.
Management has guided for 4% yield growth for the full year to March 13, which
implies yield growth of c.2% in the winter quarters. It has still cautioned on
the outlook for Q4 given its lack of visibility, but we suspect Q3 is shaping up
reasonably well at this point. It has also raised full year profit guidance to a
range of €490m to €520m. Taking the Q2 result and management guidance, we expect
FY13 PAT in the region of €510m, an upgrade of c.8%.
This is a very impressive set of results from Ryanair and given the outlook
from management, we expect the stock to perform very well today. Looking forward
we continue to like the stock in terms of valuation and cash generation. We
expect the dividend at the end of November to underpin the share price and with
a sizeable upgrade from the Q2 results we expect Ryanair to outperform near term
and recover some of the relative underperformance versus easyJet. Retain BUY."
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