Ryanair to go on the offensive to reverse a fall in profits
No-frills airline Ryanair has reported its first fall in profits for five years. But it’s hoping a charm offensive will persuade passengers to part with more of their money.
It's been a busy few days for budget-airline reporting. Last Tuesday, EasyJet(LSE:EZJ) said it made a pre-tax loss of £53m in its half-year results. And today, Europe's biggest no-frills airline, Ryanair (LSE: RYA), announced its full-year results.
The last few months have clearly been tough on both airlines. Higher fuel costs and a weaker pound have been the main contributors to the heartache. Ryanair's fuel bill (which counted for 46% of the airline's total operating costs) rose 7% to just over €2bn in the year to March.
At the same time, Ryanair was forced to lower its fares by 4%, which it partly blamed on last summer's heatwave in northern Europe. Presumably, would-be passengers were content to bask in their back gardens rather than migrate south. This year, Ryanair said it will raise airfares by 2%. But who's to say we won't have another scorching summer? Will Ryanair be forced to lower its fares again?
That said, Ryanair has been successful in attracting more passengers. In fact, passenger numbers were up by 3% to 81.7 million people last year. The airline expects that number to rise by a further 4% this year. To achieve that aim, Ryanair has gone on a full-blown charm offensive.
For years, Ryanair has been plagued with a bad reputation when it came to customer service. So it's made much of its new customer-friendly website. Whereas it used to take 17 mouse clicks to make a booking, it now takes just five. It is also the first of the budget airlines to sign up to Google's new Flight Search' function. This allows customers to book tickets through the search engine itself.
Passengers also now have the option of carrying on extra hand-luggage; they can also reserve seats.
But not all of its customers have been impressed by the changes. On Friday, The Guardian reported a customer complaining of hidden charges when trying to reserve a seat. This maybe suggests that Ryanair hasn't kicked all of its old habits.
But it is going all out on its marketing strategy. Whereas the airline spent just €10m in 2014, it plans to spend around €35m this year attracting customers. And like all airlines, it's particularly interested in business flyers, who book later and spend more on extras.
This autumn, Ryanair is rolling out a new service aimed at stealing more business customers from other airlines. This will include the ability to make same-day changes to flights, an increase in baggage allowance, premium seat allocation and a fast-track route through security.
On fuel prices, Ryanair says it has a large hedged position of 90%, which will amount to cost savings of €70m in 2015. Ryanair has also ordered 180 new planes to be delivered between now and 2018 and last year, it opened eight new bases from Athens to Warsaw.
However, for the first time in five years, Ryanair reported a fall in profits. Post-tax profits fell 8% to €523m. The airline is no stranger to profit warnings, issuing two last year and the results were, in fact, better than many analysts had feared.
As a result, the shares have risen by almost 10% today to just shy of €7. That puts Ryanair on a price/earnings (p/e) ratioof 16