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Ryanair may reverse growth strategy as fares fall

Source: Reuters - Mon 2th Nov 2009

Ryanair said on Monday it might throttle back on the expansion strategy which brought growth even in the depth of air travel crisis, warning that an 80-percent rise in first-half profit was driven by lower oil prices and masked falling fares.

Fare pressure cut the Irish carrier's revenue by 2 percent, which along with disappointment over no upward revisions to full-year profit forecast pushed shares in Europe's biggest budget airline as much as 5 percent lower.

"Extreme fare pressure will remain the key short-term theme over the winter" NCB analyst Neil Glynn said.

Ryanair, which has thrived on consumers trading down in the recession, said it was still winning substantial market share from major flag carriers Air France-KLM, British Airways and Deutsche Lufthansa.

But it said first-half profit was boosted by a 42-percent fall in fuel costs and concealed a 17-percent decline in fares which was set to accelerate to 20 percent in the second half.

Ryanair expects to make a loss in the third and fourth quarters of the 2009/10 fiscal year, though affirmed its forecast for full-year net profit at the lower end of a 200 million to 300 million euro range.

"The market expectations had been considerably higher than that" one Dublin-based trader said. 

Ryanair said talks with Boeing on ordering 200 aircraft for 2013-16 delivery had not progressed much, adding it could end its traditional relationship with the aircraft maker.

"We see no point in continuing to grow rapidly in a declining yield environment, where our main aircraft partner is unwilling to play its part in our cost reduction programme" Ryanair Chief Executive Michael O'Leary said.

"If we cannot invest our surplus cash efficiently in new aircraft, then we should distribute it to shareholders" said O'Leary, who has so far stuck to building Ryanair's 2.5 billion euro (2.25 billion pound) cash pile further without paying any dividends.


O'Leary, renowned in the industry for driving hard bargains, famously placed a massive order for 100 new Boeing aircraft and options on 50 more at rock bottom prices in the wake of the September 11 attacks on the United States.

Traders said O'Leary may just have been making a tactical move in talks with Boeing.

"I still believe that they are very keen to buy new aircraft - whether it's Boeing or Airbus is not clear at this point" the Dublin-based trader said. "I don't interpret what is happening as a dramatic change in their strategy yet."

O'Leary, who has said Ryanair could stop growing beyond 2012 if no deal was reached with Boeing, has been hinting for months he would be prepared to switch allegiance to Airbus.

Ryanair, which has mounted two unsuccessful hostile bids for Aer Lingus, reiterated it was unlikely to make a third bid but it would respond positively if - as it expects - the government asked it to bail out the loss-making Irish rival. 

Ryanair's net profit before exceptional items in the six months to the end of September came in at 387 million euros, compared with a forecast of 377 million euros by Ryanair's house brokers Davy.

Revenue fell 2 percent in the first half to 1.77 billion euros as the decline in fares outweighed a 15 percent growth in traffic.

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