Decline of high fare short-haul travel
Published: 29 Jul 2008
Ryanair, Europe's largest low fares airline, has reported a first quarter profit of €21m down €118m (or 85 percent).
Significantly, the airline indicated that it would plunge from a profit last year of €439m (£348m) to a loss of up to €60m in 2009 if fuel costs stay high and render many of its cheap flights unprofitable.
On the first quarter results, Ryanair's CEO Michael O'Leary said, "Trading conditions have been difficult in Q1 as we suffered the loss of Easter and the impact of higher fuel prices. Oil prices almost doubled in Q1 from $61 to $117 (per barrel) as our fuel bill rose 93 percent to €367m. Fuel now represents almost 50 percent of our total operating costs compared to 36 percent last year."
He said the outlook for the remainder of the fiscal year, which is entirely dependent on fares and fuel prices, remains poor. According to O'Leary, the emerging economic recession in the UK and Ireland caused by the global credit crisis and high oil prices means that consumer confidence is plummeting.
"We believe this will have an adverse impact on fares for the rest of the year. We will respond as always with lower fares and aggressive pricing to keep people flying and maintain our high load factors," said O'Leary.
"The demise of low fare air travel is again being predicted by high fare airlines like BA and others who are still losing shorthaul traffic to Ryanair. Higher oil prices won't end low fare air travel, it just increases the attraction of Ryanair's guaranteed lowest fares, as consumers become more price sensitive and switch away from high fare/fuel surcharging airlines like BA," he added.
"Higher oil prices will speed up the decline of high fare short-haul travel this winter as many European airlines consolidate or go bust. We believe that oil prices of approx. $130 per barrel are unsustainable over the medium term, but we don't know when they are going to fall. The airline industry is cyclical, and this downturn will provide enormous opportunities for strong, well financed airlines, such as Ryanair to grow."
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Viaje said on 29 Jul 08:
Of course, the high price of fuel is hurting the airline industry, and I believe RyanAir's O'Leary when he says that fuel costs are now almost 50 percent of total operating costs.
RyanAir trades in euros and pound sterling, so with the drop in the value of the US dollar, European airlines should be in a much better position than US airlines. And yet, it was recently reported by ATA that for the first quarter of this year, US airlines cost of fuel was only 29% of operating costs. Something doesn't quite add up here.