Recently, Irish low-cost carrier Ryanair Holdings plc RYAAY reported robust financial and operating numbers with net profit for the year ended Mar 2015 rising 66% year over year to €867 million. Moreover, load factor increased by 500 basis points to stand at 88% while air traffic jumped 11% to 90.6 million.
Such a strong performance by Ryanair was mainly supported by low fuel prices, attractive fares, continuous route expansion, allocated seating and the introduction of an extra carry-on luggage facility. Moreover, to enhance passenger satisfaction, the carrier launched an AGB program addressing customer related issues, which as a result has seen massive customer gains.
In order to target business class passengers, Ryanair has introduced business-friendly ticket facilities which have further driven demand for the carrier, thereby improving profits. However, profits in the reported period were offset by the company’s decision to enter into a long-term fuel hedge contract of $92 per barrel.
Robust passenger count growth coupled with a busy summer holiday season have encouraged the carrier to peg its fiscal 2016 profit expectations in the €940 to €970 million range. The company also expects more than 100 million passengers in the fiscal.
Ryanair is also eyeing the transatlantic route with extremely low fares for a one-way trip. If successful in implementing its plans, the company will likely pose significant competitive threat to U.S. low-cost carriers like Southwest Airlines Co. LUV and Spirit Airlines.
To support such large-scale expansion, the carrier has placed orders for Boeing 737-800 and Boeing 737-Max 200 aircraft for delivery between 2014 and 2023. The new fleet size will not only help meet escalated travel demand but will also boost operating margins, going forward.
On the other hand, premium European carriers like Deutsche Lufthansa Aktiengesellschaft DLAKY and Air France-KLM SA AFLYY reported 106 million and 87.4 million passengers, respectively, in 2014. However, both the carriers reported loss of €732 million and €185 million, respectively, for the same period. Sluggish economic growth coupled with continuous strikes by pilots has hurt profits and passenger gain for both the carriers.
Ryanair – which currently carries a Zacks Rank #1 (Strong Buy) – has been maintaining its strong performance over the last 30 years, surpassing most European carriers. Hence, we believe that Ryanair is poised to gain significantly from higher travel demand, enhanced customer friendly policies, attractive fares, increasing capacity and transatlantic route addition across the U.S. and European region.
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