Ryanair forecast a 10 percent rise in profit and passenger numbers in its current financial year as it targets more primary airports and improves its online offering to compete better with rivals such as easyJet and former flag carriers.
The success of its recent image makeover, however, means the Irish airline does not expect to have to slash prices to gain market share. After posting full-year profit up 66 percent, Chief Executive Michael O'Leary said average fares would remain broadly flat in the key summer months, while easyJet expects a 4 percent drop in revenue per seat in the three months to June.
Ryanair has made huge strides in catching up with rivals since launching its Always Getting Better campaign last year to shake off a reputation for terrible service. The scheme has included lower fees, flexible tickets for business travellers and a shift away from small regional airports.
The profit jump in the year to March 31 was on passenger numbers up 11 percent, compared with an original estimate of 4 percent. Its share price is up 67 percent from a year ago, against a fall of 2.6 percent for the Thomson Reuters European airline index
"Even we have been surprised at how customers have responded to the customer improvements," O'Leary said in a conference call.
He made repeated comparisons with easyJet, whose high profitability in 2013 prompted Ryanair to change its business model and target customers who are less price-sensitive.
Ryanair was hit less hard than easyJet by French air traffic control strikes in April, O'Leary said. The strikes cost Ryanair less than 5 million euros, he said, against the 25 million pound hit reported by easyJet.
O'Leary also released a slide detailing how Ryanair had poached passengers on a number of London routes, including to Edinburgh, Glasgow, Lisbon and Cologne.
"Increasingly we are competing and beating easyJet on service, both in terms of frequency, punctuality and customer experience, and going after that key business market," he said.
Analysts and investors were more sceptical, pointing out that Ryanair and easyJet compete directly on less than 5 percent of routes, a number that is closer to 30 percent when calculated by city pairs rather than airport pairs.
While Ryanair has a clear cost advantage, it will take a long time to build up its position in key airports, Investec analyst Robert Murphy said. "EasyJet has been operating at these airports, not just since last year, but since the turn of the millennium."
Some investors took fright when easyJet's warning about a drop in revenue per seat prompted suggestions that Ryanair would make aggressive price cuts.
However, O'Leary said fares would be "broadly flat" in the six months to September, which he later clarified as falls of between 0 percent and 2 percent.
Pauline McPherson, co-fund manager at the Kames Global Equity Fund, said that the biggest positive from Ryanair's results day was commentary that rivals were cutting routes rather than dropping fares, effectively conceding that they cannot compete.
"This is now a travel offering that is far more comparable, in terms of route and passenger experience, with the flag carriers," she said.
Ryanair shares were up 4.9 percent by 1515 GMT, against a 2 percent gain for easyJet. (Reuters)
Source: www.businessworld.ie
