Ryanair expects to benefit from rivals' slowdown

Ryanair has predicted that the economic downturn which is affecting profits at rival airlines will benefit the budget airline.

Mr Michael O'Leary, the chief executive of Ryanair said yesterday that "general economic sluggishness in Europe will be good for low fare traffic growth". Mr O'Leary added a warning that while the number of passengers may increase the average profit per passenger flown will fall as fares come under pressure.

The airline yesterday released its figures for the first three months of the year that appeared to underpin Mr O'Leary's prediction.

Revenue grew by 31 per cent to €150.8 million (£118.76 million) compared to the first quarter last year while operating profit was ahead 29.2 per cent to €28.8 million.

The growth in revenue however lagged behind passenger numbers which were up 42 per cent to 2.4 million.

The figure for passenger growth was artificially enhanced" because Ryanair launched seven new routes from Stanstead in England to Sweden, Denmark, Austria and Italy in the first quarter, according to Mr O'Leary. "The load factor across these new routes has been ahead of expectations although the average air fares were lower that budgeted in their early months," he said.

Last year Ryanair did not launch new routes until the second quarter.

The airline predicts that that year on year passenger growth in the second quarter of this year will be closer to 25 per cent when the difference in the timing of new route launches is corrected.

Earnings per share for the first quarter were up 24 per cent to 6.41 cents. But Ryanair shares fell from €12.30 to close at €12.10, on the back of Mr O'Leary's warning that yields were under pressure. Ryanair said it was cautious in its outlook but comfortable with the general range of analysts estimates for the coming year.

Morgan Stanley, the US investment bank said it was upgrading Ryanair from "outperform" to "neutral" and set a price target of €14 per share. Davy Stock brokers said that it was "comfortable" with its forecast of profits of €144.5 for the full year.

Mr Howard Millar, the finance director, said the airline had not yet felt the impact of the downturn in the UK economy. He said this was not surprising given reports that retail spending remained strong.

Ryanair confirmed yesterday that was not taking up the option to purchase five new Boeing 737-800 aircraft which were scheduled for delivery between March and may 2003. Mr Millar said that there was no financial penalty for cancelling the options and the company was negotiating with Boeing over another 12 options.

He said that the prices quoted by Boeing did not reflect the fall in the value of second hand aircraft and that Ryanair was looking at acquiring up to 50 second hand 747s in order to meet its fleet expansion needs.

Mr Millar said that although older aircraft were more expensive to maintain the price difference more than compensated.

Mr O'Leary used the opportunity of the results statement to launch one his by now regular assaults on the Minister of Public Enterprise, Ms O'Rourke.

"So long as monopoly protectionism, higher costs and Ministerial incompetence continues to adversely impact Irish tourism, Ryanair will continue to expand rapidly in Europe by opening new routes, guaranteeing lowest air fares and creating up to 500 new jobs outside of Ireland," he said.

Operating expenses increased by 32 per cent to €122 million reflecting the higher costs associated with starting the additional routes. The associated 31 per cent increase in total operating revenues to €122.1 million meant that the net margin - one of the highest in the industry - declined only slightly from 15.7 per cent to 15.4 per cent.