Irish budget carrier Ryanair's chief, Michael O'Leary, still expects the carrier to break even for the current year as gains from falling oil prices are offset by lower-than-expected average fares.
Ryanair today disclosed a near-halving of first-half net profits to €215 million ($275 million). The fall in profits largely reflects a 4% fall in yields and a doubling of its fuel bill.
The carrier is sticking to its full-year guidance of break-even for the year ending 31 March 2009 as it expects a recent halving in the oil price to be offset by lower fares.
Ryanair had earlier been projecting a reduction in average fares of around 5% for the second half of its financial year. "We now think it is going to be much deeper than that," says O'Leary, forecasting average fares will be 15-20% down in the second half amid the tough economic conditions.
 |
|---|
©Ryanair |
"Our full year average fares could fall by almost 12%, although these lower fares will be largely offset by lower fuel costs."
But O'Leary still expects the carrier's profits to rebound next year, especially if the oil price remains under $80 per barrel - noting every $1 movement in the oil price downward over the previous year will have a $14 million impact on its savings.
Ryanair is 80%-hedged for the third quarter at $124 per barrel, but is unhedged for the fourth quarter. The airline has acted to take advantage of the current lower oil price to hedge 25% of its fuel requirements in both the first and second quarters of next year at $76 and $79 per barrel respectively - representing a saving of over $125 million compared to the first half of this year.
"It allows us to lock in huge cost reductions," says O'Leary, but highlights the lack of liquidity in the market. "Hedging is very difficult at the moment. We were originally hoping to hedge for 50% [next year]. I would be happy to hedge up to 50%, but until the market frees up a bit we won't be able to."
Source: Air Transport Intelligence news
