This year, many airlines have struggled to post significant profits. However, budget airlines such as Ryanair have thrived, even throughout the most difficult times in the past four years, enabling the Irish company to boost its profits by 10 per cent in the first half of this financial year.
Three large contributory factors are the cause of this success – firstly, the average fare rise of 6 per cent has allowed the airline to raise profit margins significantly. Budget airlines are more able to raise fares as this still often ensures that they remain cheaper than competitors.
Furthermore, passengers who would usually travel on a higher cost airline have reined in spending during the period of economic uncertainty, meaning that even with slightly raised costs, budget airlines are continuing to thrive.
Secondly, passenger numbers peaked this summer, as the poor weather experienced by the majority of the country sent consumers to airports in their droves. Despite the economic difficulties, cheap foreign holidays remained accessible to many people this year, and last minute deals were snapped up quickly as British passengers chased the elusive sunshine break.
In fact, traffic grew by 7 per cent, meaning that 48 million passengers boarded Ryanair aircraft in the first half of the year. This was especially marked during the few weeks between the end of the Olympics and the start of the new school term, where families enjoyed foreign breaks without missing the electric atmosphere in London and the rest of the UK during the summer of sport.
Lastly, Ryanair’s fuel bill ended up being lower than originally forecast, meaning that some of the funds set aside to keep their commercial aeroplanes in the sky could be re-routed back into the annual budget.
Michael O’Leary, chief executive of the low cost airline, says; “Profits exceeded our expectations driven by a combination of strong summer bookings, a 6 per cent rise in average fares, and lower than forecast fuel bill due to the successful implementation of our fuel savings programme.”
In the first half of the year until the end of September, Ryanair’s profits totalled €596 million, beating the forecast sum of €564 million comfortably. It is also higher than profits achieved in the same period last year, which totalled €544 million. In turn, this helped boost revenues by 15 per cent to €3.1 billion.
As a result, economic forecasts for the Dublin-based airline in the year to March have risen significantly, with Ryanair posting the new predictions early this week. Previously, Mr O’Leary expected his airline to make a profit of between €400 million and €440 million – however this has now been readjusted to between €490 million and €520 million.
Of course, much of Ryanair’s continuing success will depend heavily on the decision made by the European Union’s competition regulators, who are currently debating whether or not the budget airline should be able to take control of rival Irish airline, Aer Lingus. Ryanair has already offered concessions in an attempt to smooth the way for the takeover, with the final decision deadline set for February 6th next year.
Should regulators approve, the deal will cost Ryanair in the vicinity of €700 million, yet will massively expand its customer base and aircraft numbers.
For now, though, management at the airline remain focused on this week’s positive news regarding profits, and will be looking at ways to carry this good fortune on into the future.
Chief financial officer Howard Millar says; “It was a strong performance after the Olympic Games, we certainly saw an upward rise in average fares.
“Many people who appeared to stay at home came back in force post the Olympic Games.”
Do you think budget airlines will remain as popular now that the recession has officially ended and many consumers will have the spending power to choose larger, more expensive airlines? Or do you think that the “recession mentality” will remain in the minds of the general population, meaning that the majority will continue to choose the cheapest option when going abroad on holiday?
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