Along with politics and religion, the subject of “flying with Ryanair” is something that should probably not be raised at the dinner table. The company is the subject of scorn for some, and admiration for others. But regardless of what you think of its product or chief executive Michael O’Leary, if you’re an investor, you should be paying attention.
Yesterday, the Irish low-cost carrier reported that passenger numbers rose 17% to 6.12m in September, one percentage point higher than last year. In contrast, British Airways said its passenger numbers fell 1.7% last month to 2.82m, as its business and first class customers continued to feel the recessionary squeeze.
It seems that Ryanair (LSE: RYA) and other low-cost carriers are managing to increase market share at the expense of their premium- to mid-range rivals. Ryanair’s load factor (the measure of how full its planes are) is up 1% to 85% year-on-year, while Easyjet’s rose from 86.9% to 88.1%. And while BA’s planes are flying 81.3% full, up a little on last year, this is down to the fact that it has cut the number of flights on many routes, rather than any increase in its passenger numbers.
In short, Ryanair continues to grow and add profits as other carriers go bust (SkyEurope), make cuts (Thomas Cook), or rush to the market with bond issues (BA and Lufthansa), meaning it should be in a better position come the other side of the recession.
Indeed, Bloxham stockbrokers in Dublin reckon it made an operating profit of €300m in the last quarter, up from €210m in the same period last year. That’s on top of the €136.5m it made in the three months to June 2009, meaning it goes into the winter “equipped with a remarkable amount of padding”.
That means that it can spend, spend, spend to keep its prices low, while its rivals struggle just to stay airborne. And with Ryanair “pumping the cash machine while airline earnings are at cyclical lows… Imagine what it can do when markets normalise.”