Ryanair Seeks Profit Growth by Flying 3 Million More People

May 19, 2014 12:01 pm ET

(Updates with closing share price starting in third paragraph.)

May 19 (Bloomberg) -- Ryanair Holdings Plc forecast a return to growth this year after the first profit decline in five years, as Europe’s biggest discount airline chases business passengers in a bid to fly almost 3 million more people.

Profit after tax for the year through March 2015 probably will be 580 million euros ($795 million) to 620 million euros, a gain of as much as 19 percent, the Dublin-based carrier said today in a statement. After-tax earnings fell 8 percent last year to 523 million euros.

The shares jumped the most in more than five years as investors embrace Chief Executive Officer Michael O’Leary’s strategy to raise average fares and make the no-frills approach more customer-friendly. Measures include allocated seating and a refined website aimed at drawing corporate passengers, groups and older travelers. Average fares will climb by as much as 2 percent this year, after dropping 4 percent in fiscal 2014, Ryanair said.

“Changing your customer experience takes some time,” Chief Financial Officer Howard Millar said in a telephone interview. “The feedback is very positive, particularly in relation to things like allocated seating, which is going well and hasn’t impacted turn-around times.”

Ryanair rose almost 11 percent to 7.02 euros, the biggest jump since December 2008 in Dublin. The shares have gained 3.8 percent in 12 months, valuing the airline at 9.71 billion euros.

Fare News

“There had been a lot of uncertainty about Ryanair pricing through the summer, and we expect the market to take this fare commentary very positively,” Barclays analyst Oliver Sleath said in a note to investors today.

The airline said it aims to fly 84.6 million passengers this year, while boosting the load factor by 2 percent. Ryanair will lease seven planes over the summer and ground 20 fewer jets during the winter, Millar said.

The outlook for this year depends on yields in the second half, for which the airline has “zero visibility’ at this stage, Ryanair cautioned. Traffic gained 4 percent in the second half of last year as the load factor gained 1 percent, Ryanair said. Sales climbed 3 percent to 5.04 billion euros.

The Irish carrier and discount rival EasyJet Plc are looking to expand their networks as former flag carriers undertake the latest revamps of their short-haul units. Deutsche Lufthansa AG and Air France-KLM Group have bolstered European offerings and British Airways-owner International Consolidated Airlines Group SA has bought new planes for Spanish unit Vueling.

Primary Airports

In pursuit of a target to fly 110 million passengers by 2019, Ryanair added eight bases in fiscal year 2014, while also boosting its presence at primary airports in cities such as Athens, Rome and Lisbon. It will base aircraft in Warsaw and Gdansk, Poland, as well as Cologne, Germany, later this year.

‘‘Our experience is, moving into markets, the lowest-cost producer always wins,’’ Millar said. ‘‘We’re not concerned about it. There is always some kind of fare war.’’

Targeting business passengers and customers seeking better service, the carrier has introduced fully-allocated seating, trimmed baggage fees and simplified its website. It also plans to boost marketing spending by 25 million euros this year. A new offering in the second half will introduce perks such as fast- tracked security and same-day flight changes, Ryanair said.

Publicity Tamed

That’s a marked shift for CEO O’Leary, who has prided himself on using media coverage of outlandish publicity stunts to grab passenger attention.

A boost in advertising and marketing spending, along with higher charges at primary airports and the cost of leasing aircraft in the summer, will cause non-fuel expenses to climb about 5 percent this year, Millar said. Unit costs overall are projected to remain flat.

After winning BBB+ credit ratings from Standard & Poor’s and Fitch, Ryanair is exploring a seven-year Eurobond of at least 500 million euros, which it will aim to complete within ‘‘the next couple months,” Millar said.

Ryanair agreed to buy five more Boeing Co. 737-800s last month, bringing its total order book to 180 jets valued at $16 billion at current list prices. The company will take delivery of 21 jets, up from 17, between this September and July 2015.

Fuel and currency hedging will deliver cost savings of about 70 million euros in 2015, Ryanair said. The carrier is 13 percent hedged for fiscal-year 2016 at $94 per barrel, it said.