Ryanair, Europe’s biggest low fares airline today (May 19) announced full year net profit of €523m, slightly ahead of previous guidance. Traffic grew 3% to 81.7m passengers. Revenue per passenger was flat, as strong ancillary revenue growth offset a 4% fall in average fares. Excluding fuel, sector length adjusted unit costs fell by 3%.

“Ryanair’s, Michael O’Leary, said:

The highlights of the past financial year include:-

Customer experience improving rapidly.
New website launched with “fare finder” facility.
121 new routes.
8 new bases – Athens, Thessaloniki, Brussels, Lisbon, Rome (FCO), Catania, Lamezia & Palermo.
180 new aircraft ordered, delivery 2014 to 2018.
Fares launched on GDS (Galileo & Worldspan) and Google flight search.
Net profit of €523m despite a 4% fall in avg fares.
€482m share buyback completed.
While disappointing that profits fell 8% to €523m due mainly to a 4% decline in fares, weaker sterling, and higher fuel costs, we reacted quickly to this weaker environment last September by lowering fares and improving our customer experience which caused H2 traffic to grow 4% as load factors rose 1%. Ancillary revenues grew 17%, much faster than traffic growth, and now accounts for 25% of total revenues.

New Routes and Bases

Forward bookings for Summer 14 are significantly ahead of last year, since we began offering lower fares and released our seasonal schedules earlier, and this should continue to deliver 2% higher load factors, and help us manage fares closer to departure as we have less capacity to sell.

We recently opened 4 new bases at Athens, Brussels, Lisbon and Rome. These are performing ahead of expectation as customers switch from high fare carriers to Ryanair’s lower fares and industry leading customer service. We announced 3 new bases for winter 2014 in Cologne, Gdansk, and Warsaw. We released our winter 2014 schedule 3 months earlier than last year, offering our customers lower fares much earlier than our competitors, while we focus on building frequency and capacity on key business city pairs. We expect these new bases will provide significant growth opportunities as we start deliveries (Sept 2014) of our new Boeing 737-800 NG aircraft order.

Customer Experience Improvement

We have worked hard over the last 6 months to improve customer experience and enhance our industry leading service (lowest fares, most on-time flights, the youngest fleet). These initiatives include, (i) allocated seating (ii) a simpler, easier to use, website with a brilliant “fare finder” facility, (iii) free small 2nd carry-on bag, (iv) “quiet flights” (v) a 24 hour “grace period” to correct minor booking errors, (vi) reduced boarding card and airport bag fees, and (vii) a new service to cater for groups and corporate travellers. Our new family product will launch in June and will allow children (when travelling with their family) to receive discounts on allocated seats and bags, while families who travel frequently with Ryanair can qualify for discounts on future flights. In the autumn we will launch a business service in conjunction with our frequency build on key business routes which will include, same day flight changes, bigger bag allowances, premium seat allocation, mobile boarding pass, and fast-rack through security at many Ryanair airports. This service, together with our new GDS distribution strategy, will make Ryanair much more accessible and easier to use for business customers.

Digital & Distribution Improvements

Our new digital strategy began to roll out last November with a much easier to use website, cutting the booking process from 17 to 5 “clicks”. More recently we unveiled a new website with “fare finder” which enables customers to easily find our lowest fares, share these fares with their friends and book them quickly. The “My Ryanair” registration service has been welcomed by customers with over 2m already registered. We will continue to invest in web and digital improvements over the coming year, as we deliver an industry leading mobile app (tailored for smart phones and tablets) by mid-summer, and improve our digital marketing and CRM services for the benefit of all our customers.

In April, we began extensive TV and outdoor advertising in major EU markets to promote our new website and recent customer experience improvements. These campaigns will continue through the year, as our marketing and advertising spend rises to approx. €35m (from just €10m last year), although this spend is still less than €0.50 per passenger.

We have broadened our distribution by becoming the first low fares airline in Europe to partner with Google’s “Flight Search” function, which is now available in the UK, France, Germany, Italy, Holland, Ireland, Poland and Spain (and more countries follow shortly). This partnership enables consumers to easily access and book Ryanair’s lower fares every time they search on Google. In April we began distribution on Galileo and Worldspan GDS systems, which allows travel and corporate agents to see and book Ryanair’s low fares. We are in talks with other GDS‘s (to broaden our distribution base) and hope to add more before year end. Our new Groups and Corporate travel service launched in January and take up of these services is growing rapidly.

Fuel

We are 90% hedged for FY15 at a cost of $960 per tonne (approx. $96 p.bl). This will generate net savings of approx. €70m compared to FY14. In light of recent oil price and US$ weakness we have hedged approx. 13% of our FY16 fuel (at approx. $94 per barrel), and have also hedged our dollar requirements which will deliver further savings of up to 4% per passenger, in Euro terms, in FY 2016.

Balance Sheet

Our balance sheet remains among the strongest in the industry and was a key factor in S&P and Fitch recently awarding BBB+ ratings to Ryanair, making us the highest rated airline in the world. During FY14 we completed €482m of share buybacks, well ahead of our original €400m target. We remain committed to returning a further €500m to shareholders in Q4 via a special dividend subject to AGM approval. This will bring the total returns to Ryanair shareholders since 2008 to over €2.5bn. Our business model remains strongly cash generative and year end cash amounted to €3.2bn (net cash of €158m), despite €482m in buybacks, debt repayments of €391m, and capex of €506m during the year.

Outlook.

We expect FY15 traffic to grow by 4% to over 84.6m as load factors increase 2% to 85% and we add some limited new route and capacity growth. Most of this growth will be skewed towards H2 as we reduce our winter grounding from 70 aircraft in FY14 to approx. 50 in FY15. While fares fell by 4% in FY14 we expect FY15 fares to rise by up to 2%. H1 fares will rise by up to 6% due in part to Easter, stable growth in Q2, and stronger forward bookings and load factors. However we remain very cautious about H2 guidance (especially following last winter’s weak price environment) where we are committed to 6% capacity growth which could cause H2 fares to fall by as much as 6% to 8%.

Unit costs for FY15 will be flat. Fuel costs (which includes de-icing) will be €70m lower than last year as we are 90% hedged, but we expect de-icing costs to rise from last year’s unusually mild winter. Excluding fuel unit costs will rise by approx. 5% reflecting pay increases, primary airport charges, a €25m rise in advertising and marketing, and ownership cost increases due to summer lease ins and new aircraft deliveries from September onwards.

In conclusion, we expect this combination of a strong H1, but a weaker H2 will generate a significant rise in after tax profits to a range of between €580m to €620m, although this guidance is heavily qualified by H2 yield outturn, over which we currently have zero visibility.