Comment: Ryanair trumps rivals but O’Leary stresses caution

Carriers report mixed quarterly results and conflicting outlooks. Ian Taylor reports

A series of airlines’ quarterly results last week produced a set of contrasting figures and some sharply differing outlooks.

Ryanair produced the best results, reporting a €170 million profit for the three months to June.

But Ryanair chief Michael O’Leary was notably cautious about the months ahead despite his customary bullishness about Ryanair’s “once-in-a-lifetime jump in market share”.

He reported Ryanair increased capacity to 15% above 2019’s level this summer and recorded “double-digit increases in fares” when European airlines overall are operating at about 85% of pre-pandemic capacity.

O’Leary acknowledged “I never thought we could deliver” such increases and forecast “a three-to-four-year period of fares growth”.

Upward pressure on prices would come not just from “so much cost pressure” but because “capacity growth in Europe is going to be flat or downward for the next two to three years”, said O’Leary, with this winter set to see “significant cuts in capacity”.

Yet he repeatedly warned the recovery remains “very fragile” and could be “damaged at short notice”, insisting: “The outlook is cautious.

“You can’t ignore the risk of new Covid variants. We’re not sure there won’t be Covid disruptions. We don’t know what’s going to happen in Ukraine.”

By contrast, easyJet dismissed talk of capacity cuts beyond the summer, although chief executive Johan Lundgren warned some disruption would continue.

EasyJet reported a loss of £114 million for the three months to June primarily due to a £133-million bill for flight disruption.

Lundgren noted the cost-of-living crisis, acknowledging: “Clearly, there will be additional pressures on households”. But he argued: “There is still pent-up demand and travel is one of the last things people sacrifice.”

He was adamant: “We expect all capacity to be back by next summer.”

British Airways parent IAG reported a €133-million profit for the same quarter, despite BA being forced to cancel 18% of its summer schedule and this week limiting sales of short-haul flights.

The costs of the disruption to BA were limited to €15 million because it cancelled 10% of its schedule back in April and more in June and July.

By the time Heathrow imposed a cap on departing passengers last month, BA had only to cancel another 0.5% of flights and 0.2% of seats to comply.

IAG chief executive Luis Gallego insisted: “We don’t see any sign of weakness in booking behaviour. We understand there is a risk of recession. [But] demand remains very strong.”

In contrast to BA, Wizz Air reported “record summer flying” but lost €452 million in the three months to June.

It blamed the strength of the US dollar but Wizz has also clearly been hurt in its markets in Eastern Europe by Russia’s invasion of Ukraine. The carrier acknowledged: “The war in Ukraine and supply chain disruption . . . have impacted [aircraft] utilisation.”

Wizz Air’s ticket revenue per passenger was down 12% on 2019 despite other carriers reporting double-digit increases, and this was compounded by a 9% fall in ancillary revenue per passenger on last year.

The figures suggest Wizz has expanded and shifted capacity around faster than it can fill its flights while also taking a hammering on costs by failing to hedge adequately.

Wizz also revealed its rate of flight cancellations in June reached close to 10% on four days and peaked at 12%.

BA and easyJet have been caught in the spotlight over flight cancellations and delays, of course, with BA in the headlines again this week for taking action to prevent fresh disruption by suspending last-minute sales on short-haul flights.

The irony is that Ryanair, so long a byword for lack of customer care, should be so far out in front in sticking to its flight schedule that it drew praise from an editorial in The Times this week.

O’Leary went so far as to highlight an upside of the disruption, declaring: “Big queues at Dover and cancellations at Gatwick are good news for Ryanair. We’re outperforming all other airlines.”

Ryanair has benefited from its avoidance of primary airports and the fact it employs its own ground handlers, at Stansted in particular, when short-staffed third-party ground handlers have been the greatest source of difficulties.

O’Leary could afford to be magnanimous about the problems afflicting rivals, insisting: “I have considerable sympathy for competitor airlines which are taking a lot of criticism for delays and cancellations because of air traffic control which are not their fault.”

In the light of how well Ryanair is doing it is worth reminding ourselves how cautiously O’Leary views the outlook.

It does no harm to under-promise and over-deliver, especially when addressing investors. But O’Leary will not have emphasised such caution lightly.

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