Ryanair profits nosedive

PROFITS at Europe's biggest budget airline, Ryanair, nosedived 26% in the third quarter of the year to €35m (£24m), as higher oil prices and a collapse in fares took their toll.

Fuel prices continue to remain high and will hit future profits. The airline was also adamant that it will fight European Commission proposals to make carriers pay more compensation to passengers whose flights are cancelled or severely delayed.

'It's preposterous that passengers paying an average €30 a ticket should get €200 in compensation if they're delayed. We will fight these proposals,' the airline declared.

With delays at UK airports last year up more than 30%, analysts believe airlines can ill afford the proposed charges. Industry watchers say that short-haul European flights have been barely profitable for carriers and the proposed EU charges could push some to the brink.

Ryanair's group chief executive Michael O'Leary said that high fuel costs remain a problem for the airline, despite some limited hedging against rising prices: 'Our fuel hedges expired at the end of October 2004 and we were unhedged during November, however as forward prices fell, we restarted our hedging programme for this winter season,' he said.

'We are almost 100% hedged at an average of $41 a barrel for Brent crude for the fourth quarter and are unhedged thereafter,' he added.

Fuel prices were in fact slightly lower than expected and this had a positive impact on the group's third-quarter results - Rynair said it had come in €4m under budget on fuel costs.

O'Leary added: 'We still expect our fourth quarter fuel costs to be €5m lower than the previous guidance. We still see value in hedging to remove uncertainty from our business and will continue to review our hedging policy as forward oil prices return to more normal levels.'

But he said the board was still cautious on the outlook for the fourth quarter and the full year.

'While yields and fuel prices are now somewhat better than originally forecast, sterling has weakened appreciably and this will have a downward impact on yields,' he said.

'In the fourth quarter of last year we suffered a 22% collapse in average fares, however based on current booking trends we now expect that current fourth quarter yields might be as much as 5% higher,' he added.

Advance bookings for the fourth quarter show traffic growth in line with expectations and yields are expected to rise by up to 5% in the fourth quarter. The group said this upturn is more a reflection of the 22% decline in the comparable yield last year, slower capacity growth and an earlier Easter, rather than significant current price recovery.

Passenger volumes in the quarter grew by 13% to 6.9%, while yields were in line with the same quarter last year. As a result, total revenues rose by 15% to 294.4m.

O'Leary called for the break-up of BAA's London airports monopoly as his row with the owner of Stansted escalated. Ryanair is in a legal spat with the airport operator - BAA also owns Heathrow and Gatwick - over rising fuel costs at Stansted.

BAA is charging Ryanair an extra £7m a quarter and the total bill could top £40m by the time the case is heard next year.

O'Leary is now publicly questioning BAA's £4bn expansion of Stansted. He says it is building 'a folly of Taj Mahal proportions' at the expense of customers who rely on low-fare airlines using Stansted as a low-cost airport.