Low-cost carriers fare better than their full-service rivals in recessions,
thanks partly to lower dependence on corporate travel and higher starting
points for their margins. But a big part of the trick is managing capacity
and, longer-term, being in the right place to pick up business as the
industry shrinks.
Ryanair has been helping things along. It grounded 80 aircraft – almost 30 per
cent of its fleet – this winter, with the result that its passenger traffic,
year on year, fell by 2 per cent for the first time in its history.
Higher fare
But this, in turn, helped the carrier push up its average fare by 17 per cent,
to € 40, in the third quarter to end-December. Revenue rose 13 per cent,
and, with costs (excluding fuel) well controlled, the airline made a € 15m
after-tax profit compared with expectations of a € 16m loss. Full-year
guidance goes up by 9 per cent, to € 440m.
All those jets – plus another 12 deliveries – will be flying again over the
summer. But Ryanair expects to repeat the grounding strategy next winter –
which is lousy for second-home owners dependent on Ryanair schedules, but
bullish for pricing.
Industry shrinkage
And in the meantime, the carrier looks well positioned to capitalise on
industry shrinkage: Spanair’s demise, for example, could offer opportunities
out of Barcelona, and the clouds over BMIbaby’s future let it entrench
further in the UK’s Midlands.
The extent to which shareholders benefit is another matter. Ryanair shares,
trading on a forward earnings multiple of over 11 times, have doubled from
2008 lows but are no higher than in 2002.
Increasing its share of intra-European flights may, Ryanair predicts, permit
longer-term annual growth of 4-5 per cent - respectable but hardly exciting.
Still, there is talk of a buy-back programme and a second special dividend
in 2013. For the airline business, at least, that’s not bad
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