Ryanair to cut costs further to offset fuel price hikes as profits soar to €52.6m

RYANAIR'S ability to make profits will not be curtailed if oil prices double to €80 a barrel, the airline's chief executive Michael O'Leary revealed last night.

He made the comments after Ryanair Holdings Plc disclosed first-quarter profits exceeded forecasts and rose 30% to €52.6 million, as it attracted more passengers and increased revenue from commissions on car rentals and hotel rooms.

Net income was €52.6m, or 6.9 cents a share, for the three months ended June 30, from €40.5m, or 5.3c, a year earlier. Revenue grew by 23% to €302.7m.

Aviation fuel is the single biggest cost for Ryanair at 16% of revenue but the airline is only hedged until the end of October, at a cover level of $26 per barrel.

Mr O'Leary said the company would resume fuel hedging if the price of oil falls and gets close to $30 per barrel. Crude oil futures hit a new record above $44 a barrel yesterday.

"Close to or below $30 a barrel we will hedge, and as far out as we can," Mr O'Leary said.

"Six months, a year, two years at $40 a barrel won't affect our profitability or our margins. Prices could double to $80 a barrel and we would still be profitable," he said.

Competition from Aer Lingus, new low-cost carriers including Vueling Airlines SA and full-serviceairlines such as British Airways drove down fares by 6% during the period. The decline was more than offset by a 40% surge in revenue from loans and credit cards and an increase in passengers.

Ryanair's passenger count rose 28% to 6.59m in the first quarter compared with the same period in 2003. Ryanair added seven new routes in April.

Chief operating officer Michael Cawley said Ryanair plans to offset increases in fuel prices in the meantime with more cost cuts. He revealed the company plans to cut costs by close to 5% this year.

Mr O'Leary said the company continues to be cautious in its outlook for the remainder of the year.

"We expect to achieve passenger volume growth this fiscal year in the order of 20% and deliver increased load factors. We believe that yield attrition this winter will be within our forecast range of 10% to 20%.

The reality is that the high-cost, high-fare airlines, and those so called low-fare loss-makers are unable to compete with Ryanair's service. The lowest cost carrier always wins," he said.

Merrion stockbrokers analyst John Mattimoe, who rates the shares a hold, said: "Although we believe that the company will emerge from the current price war as a long-term winner, we are not convinced that the timing to enter the stock is right, given the uncertainty over the likely length and depth of the price war and nervousness over the sensitivity to fuel costs."