Ryanair reports bumper profit on ‘friendly’ fuel hedges, sees major industry consolidation |usa4world

Ryanair It reported a full-year net profit of 1.43 billion euros ($1.55 billion) on Monday, aided by favorable oil hedging positions as well as rising traffic and fares.

Despite a difficult first quarter of 2022 as a result of Russia’s invasion of Ukraine, travel demand rebounded during the year. The Irish low-cost carrier reported a 74% increase in full-year traffic to 168.6 million customers, while fares were 10% higher on pre-Covid levels.

Operating costs rose 75% to 9.2 billion euros as a result of a 113% increase in fuel costs, but the airline said “favorable” hedges helped offset this, while unit costs stood at 31 euros per passenger, which was lower than other European rivals. was much less than ,

CEO Michael O’Leary said in Monday’s earnings report, “Our industry-leading fuel hedging (over 80% on approximately $64bbl) contributed significantly to the final FY2013 profit result, helping the Group generate more than €1.4 billion More saved.”

Airlines hedge against the risk of a possible rise in oil prices by purchasing a certain amount of fuel through futures contracts at a fixed price for future delivery.

international benchmark crude oil. It was trading at a little over $75 a barrel on Monday morning.

Ryanair has been given an 85% discount this year to $89 a barrel, and the company’s chief financial officer, Neil Sorohan, told sources on Monday that it would add about an extra $1 billion to this year’s fuel bill. But he said Ryanair was confident it could cover the cost increase and grow profits “modestly” on a year-on-year basis.

“Despite an €850m bond repayment due in March 2023, our balance sheet is one of the strongest in the industry with a BBB+ credit rating and €4.7bn of gross cash at year-end,” O’Leary said in the report.

“Almost all of the Group’s B737 fleet is owned and 99% unencumbered, which significantly increases our cost advantage, as interest rates and lease costs continue to rise for competitors.”

Ryanair signed a deal earlier this month to buy 300 new Boeing 737-Max-10 aircraft – 150 firm orders and 150 future options – with phased deliveries between 2027 and 2033. The purchase, delayed until 2021 due to a price dispute, is related to Ryanair’s ambition to carry 300 million passengers per year by 2034.

“In addition to delivering significant revenue growth, the additional seats (along with greater fuel, carbon and noise efficiency) will further enhance Ryanair’s considerable unit-cost advantage over all European competing airlines,” O’Leary said in Monday’s report.

CFO Sorohan said the airline’s low-cost base is its biggest advantage as it seeks to expand its presence and market share across Europe, but added that the biggest risk to this growth strategy was the aviation industry itself.

“Every few years there’s always something going wrong, but because we have the balance sheet, because we have the cost base, we’ll be able to weather any storm that comes our way,” he said.

Consolidation ‘inevitable’

European airlines’ capacity has undergone a “systemic change” in light of the COVID-19 pandemic, Sorohan said, as many were forced to downsize. Meanwhile, OEMs (original equipment manufacturers) are struggling to meet demand and leasing companies have been hit by sanctions on Russia.

But the data shows that travel is at the top of people’s priorities, Sorohan said, which is why Ryanair feels comfortable ordering 300 aircraft this month and setting such an ambitious traffic growth target.

However, he stressed that industry-wide consolidation in Europe is “inevitable” – and has in fact “already begun.”

“Norwegian is half their size, but if you look at Italy, 40% has been consolidated into Lufthansa from ITA, ex Alitalia, with a view to reaching 100%. TAP in Portugal is up for sale, essentially some The potential will come out after that, and there’s a lot more to come,” he said.

“I wouldn’t be surprised to see another two low-cost carriers consolidate in Europe over the next few years. I also think it’s inevitable that you’ll see more of them coming together as we move more American Like the model, only four or five large carriers effectively fly 80% of traffic across Europe.”

Large European former “flag carrier” airlines took a significant hit during the pandemic, with many receiving controversial state aid from their respective governments.

The EU General Court earlier this month rejected the German government’s 6 billion euro recapitalization package (initially approved by the European Commission) and the Swedish and Danish governments’ 1 billion euro recapitalization package for Lufthansa. SAS Ruling that the state aid unfairly tilted competition towards Ryanair’s rivals.

“We’ve seen a systemic change in capability, and I think we’ll be left with some historically large flag carriers  air france klm Lufthansa – but eventually short-haul, point-to-point, will be something in which Ryanair will be a major player,” Sorohan said.

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