Less can be more. Low-cost carriers tend to fare better than their full-service rivals in recessions, thanks partly to lower dependence on corporate travel and higher starting-points for their operating margins. But a big part of the trick is managing capacity and, longer-term, being in the right place to pick up business as the industry shrinks.
Ryanair has been helping things along. It grounded 80 aircraft - almost 30 per cent of its fleet - this winter, with the result that its passenger traffic, year-on-year, fell by 2 per cent for the first time in its history. But this, in turn, helped the carrier push up its average fare by 17 per cent, to EUR40, in the third quarter to end-December. Revenue rose 13 per cent, and, with costs (excluding fuel) well controlled, the airline made an unexpected EUR15m after-tax profit com-pared to consensus expectations of a EUR16m loss. Full-year guidance goes up by 9 per cent, to EUR440m.
All those jets - plus another 12 deliveries - will be flying again over the summer. But Ryanair expects to repeat the grounding strategy next winter - which is lousy for second-home owners dependent on Ryanair schedules, but bullish for pricing. And in the meantime, the carrier looks well positioned to capitalise on industry shrinkage: Spanair's demise, for example, could offer opportunities out of Barcelona, and the clouds over bmibaby's future let it entrench further in the UK's Midlands.
The extent to which shareholders benefit is another matter. Ryanair shares, trading on a forward earnings multiple of over 11 times, have doubled from 2008 lows but are no higher than in 2002. Increasing its share of intra-European flights may, Ryanair predicts, permit longer-term annual growth of 4-5 per cent - respectable but hardly exciting. Still, there is talk of an ADR buy-back programme and a second special dividend in 2013. For the airline business, at least, that's not bad.
Source: http://www.ft.com/cms/s/3/38dcb5c6-4b4a-11e1-a325-00144feabdc0.html
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