Europe’s low-fare airline, Ryanair Holdings plc (ADR) (NASDAQ:RYAAY), reported impressive first quarter fiscal 2015 earnings having being on the receiving end last year on poor results. Strong load-factor, as well as an increase in average prices, has been cited as the reason behind the reported 152% increase in earnings. In an interview on Bloomberg, Douglas McNeill, investment director at Charles Stanley Direct, stated that cost cuts allowed the company to perform better amidst increased competition in the space.
Ryanair Holdings plc (ADR) (NASDAQ:RYAAY)’s profit for the quarter comes as a surprise, considering other giant airlines like Lufthansa and Air France have already issued profit warnings as they continue to face mounting problems in the airline industry.
“[…] They have responded to that, in a way, that is proved correct, they cut prices. Their yields last year; (year- to March) were down by about 4%, so they really turned on the screws on the competition, and that’s why we have seen a chain of profit warning this year from a number of other airlines,” said Mr. McNeil.
Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) has always been cautious when giving its guidance, according to the analyst, and there is every reason as to why they have done the same this year heading into the winter season. Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) has also announced plans to hike its capacity by 8%, heading into the winter. The airline has also announced that this year it will only ground 50 of its airplanes as opposed to the traditional 70 airplanes during the winter season.
McNeil believes the change in plans at the airline is part of the company’s effort to be attractive, especially to the business travel market. The airline is also looking on providing schedules that are reliable with minimal changes when transitioning from one season to another.
“Normally they would ground something like 70 planes over the winter this year it is only going to be 50. Part of the reason for that is that they are trying to appeal more to the business travel market. They are trying to offer schedules that are reliable that don’t change much between summer and winter,” said Mr. McNeil.
Owing to impressive first-quarter earnings, Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) expects its traffic to rise by 3% with fares also increasing by 6% subject to late bookings. The increase of capacity by 8% is also expected to put pressure on fares.