Ryanair: going mainstream

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Passenger comfort has never been a watchword at Ryanair. Last autumn, its investors started to feel cramped, too. Europe’s biggest budget carrier gave two profit warnings. But those who kept faith were rewarded on Monday, when the airline talked of stabilising ticket prices in the market overall and offered a more cheerful outlook for its own yields for the March quarter. Coupled with typically disciplined figures on the cost side in the first nine months of 2013-14, and confirmation that full-year net profits should be in the €500m-€520m range, the news drove the shares up 7 per cent. They have recovered almost two-thirds of the autumn loss.

Still, those who concluded that Ryanair’s plan was to take price competition to emboldened rivals – Norwegian, say – and to expand its market through a slew of customer service initiatives, look vindicated. The first was a battle that the airline, with its lower cost base, was always likely to win. Its average fares were down 9 per cent, year on year, in the third quarter but passenger numbers rose 6 per cent and load factors nudged higher. With ancillary sales growing at a double-digit rate (goodbye, baggage fees: hello, reserved seating charges), revenues overall were flat.

The second is a more fundamental shift. Ryanair has begun to push into “mainstream” airports, such as Belgium’s Zaventem, and is talking of joining an industry reservation system to woo business travellers. The trick will be to do this in a way that does not chip away at Ryanair’s cost edge and leaves it sitting pretty when its extra capacity starts to arrive this year. Still, on the airport front at least, so far so good. Ryanair says savings at Dublin and Stansted should mean little change overall in airport costs next year. Its shares are back to over 14 times 2014-15 consensus earnings and the odds are on further uplift.

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