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Ryanair Holdings (RYAAY)Stock (Airlines Industry, Transportation Industry)
 Ryanair (NASDAQ:RYAAY) is a low cost airline which offers point-to-point service on more than 1,100 scheduled short-haul flights per day to over 147 locations throughout Europe and Morocco.[1] It carried approximately 49 million passengers in the fiscal year 2008.[2] In 2008, it had €2,714 million in revenues, an increase of approximately 20% since the previous year. Ryanair did, however, report that its net operating profit slid in the first quarter of April-June 2008 to $33 million from $185 million a year earlier. [3] The airline is based on a low-cost, low-fee structure, for which the ability to secure low-cost labor, services, and jet-fuel are essential. Although it has limited costs by negotiating low fees with many airports, it remained subject to rising fuel costs. In July 2008, fuel costs had increased to 50% of operating expenses from 36% in the year prior.[4] In July 2008, the company purchased the option to buy (or "hedged") 90% of its fuel needs for September 2008 and then 80% for the upcoming quarter at $124 and $129 a barrel respectively.[5] To decrease costs, the company has specifically chosen many of its destination airports because they have low fee structures or because the company was able to negotiate lower airport fees. [6] However, many of its low-cost agreements with airports have been coming under legal action by competitors or the Commission of European Union or expiring as of 2008, which could also become an increasing cost for the company. [7] The company earns most of its revenue in euros or sterling and has many of its expenses in dollars; however, it has also hedged against currency fluctuations to minimize the risk it is exposed to.[8] Although the company had released disappointing earnings in July 2008, the company CEO stated in August 2008 that the company has € 2.2 billion of cash and is aiming to increase profits after this year. [9]
[edit] Corporate OverviewAs of 2008, Ryanair offered more than 1,100 scheduled short-haul flights per day to more than 147 locations throughout Europe and Morocco, with 26 locations in the United Kingdom/Ireland. The company carries approximately 45.5% of all scheduled traffic between London and Dublin, its primary route. [10] [edit] Business segments 
[edit] Operating metricsThe steady growth of passengers travelling (around 20% per year since 2005) as well as the increase in spending on ancillary expenses (primarily on non-flight scheduled services such as credit card fees and baggage handling) have resulted in flight revenue and even more significant increases in ancillary revenues. [20]
Between 2007 and 2008, the number of passengers traveling with Ryanair increased by 19.76%; however, the load factor, or the percentage of seats filled on the planes remained at 82% because the number of available seat miles, or number of miles that could be flown, also increased by 29.06% within year. Because Ryanair runs many very cheap promotions in order to increase its load factor, the unit revenue per passenger mile (the revenue per mile that each actual passenger flies), and the unit revenue per available seat mile both fell. The unit costs per available seat mile did, however, fall as well as Ryanair cut costs. The costs did not, however, fall as much as the revenue, so profits had to be increased by increasing the number of passengers.[22][23]
[edit] StrategyRyanair undertakes the following strategies to decrease its costs and increase its appeal to clients. It considers these strategies to be important differentiating factors from its competitors.
[edit] Key Trends and Forces[edit] Increasing Airport ChargesAirport charges, or fees that airlines must pay in order to use airports, are rising significantly throughout many of Ryanair's hubs.[36] Although the company was often able to arrange lower fees than rival carriers through legal action, choosing airports that are further away from destinations than standard airports, and brash negotiations, fees are now increasing as a result of contract expirations, challenges from competitors, and airport authority decisions.[37] In September, 2005, the airport authority at Dublin Airport approved an increase of airport charges by more than 22% in order to offset the building expense of €800 million for a new terminal. In March 2007, Ryanair's discounted agreement for airport charges with Stansted Airport expired, effectively increasing airport charges by approximately 100%. In July 2006, Air France challenged Ryanair's low-cost agreements with Marseille's airport, while the European Commission has begun investigating the agreements for low charges that Ryanair has with Frankfurt's Hahn Airport. The company's low-charge agreement with Brussels (Charleroi) airport was deemed state-aid by the European Commission in 2004 and was thus terminated. [38] Because being able to negotiate low airport costs constitute an important part of Ryanair's low cost-structure, Ryanair consistently fights the price increases in court in an effort to keep its costs down. One such example is being played out at Stansed Airport in 2008. An April 2008 increase of Stansted's airport charges by 15% has caused Ryanair to enter into legal action against the British Airport Authority; however, the company has stated that it does not believe that it will win the legal action. [39] The increase in prices at Stansted airport has now become a factor in the companies decision to cut some service from that airport. [40] The company has decided to ground 15 aircraft operating on the Dublin-Stansted route during the winter starting in the 2008-2009 year. [41] In total, it will ground approximately 250 flights at Stansted's airport.[42] If airport charges increase to the point that a route is no longer profitable or sustainable, as they did at Stansted, Ryanair will cut those unprofitable flights, which could decrease profits if more suitable routes are not found.[43] [edit] Fuel CostsThe cost of jet fuel accounted for the 36.4%, 39.3%, and 34.5% of all operating expenses for Ryanair in the years 2008, 2007, and 2006 respectively [44] Ryanair's CEO had publicly stated that the company would not hedge fuel, or pay a fee to purchase the fuel at a set price, in 2008 unless fuel went under $100 per barrel. [45] Ryanair's decision not to hedge, however, was overturned in July because the company believed that fuel prices were going to continue to rise. [46] On July 25, 2008, Ryanair purchased the option to receive 90% of its fuel requirements for September, 2008 at $124 per barrel and 80% of its fuel requirements between October 2008 and December 2008 at $129 per barrel. [47] Michael O'Leary, CEO of Ryanair, stated in late July 2008 that fuel expenses accounted at that point for approximately 50.0% of all operating expenses, which represents a significant increase even from the end of the 2008 fiscal year. [48] Overall costs from April - June 2008 were up 18% from the costs from the prior year. Although the breakdown of these costs was not made available, because the airline has laid off employees and is on a cost-cutting campaign, it is likely that all of these increased costs are related to increased fuel costs, representing most of the drop in profits from April - June 2008 from $185m to $33m. [49] [edit] Currency Exchange RatesRyanair's revenues are primarily denominated in U.K. pound sterling and the Euro. This distribution shifted toward the Euro in 2008. Ryanair buys jet fuel and other supplies in US dollars, so an increase in the U.K. pound and Euro's value against the dollar is beneficial for the revenue of the company.[50] The chart below shows the percentage of revenues denominated in GBP and Euros.
In the 2008 and 2007 fiscal years, the company entered several forward contracts, principally between the US Dollar and the Euro to protect the company against the variability of exchange rates between the dollar and the euro. The company states that unrealized losses resulting from these contracts were approximately €65.2 million for the 2007-2008 fiscal year. [52] [edit] CompetitionAfter the Open Skies Treaty of 1992 created freedom of air transportation within the European Union, the number of low cost carriers within the European Union increased dramatically. Ryanair carried approximately 49m passengers in the 2007 calendar year, making it the leader among airlines in Europe in terms of number of passengers carried.[53] Market Share Ryanair offers the greatest number of seats per-week of any of all Low-Cost Carriers within Europe. Its closest competitor, EasyJet, offers approximately 20% fewer seats each week. Here, Ryanair's per week seat offering is compared to the top 25 European based Low Cost Carriers in terms of seats offered per week. As 27% of Ryanair's destinations originate in the UK and Ireland, the airline is often seen as a short-haul carrier within the UK and Ireland and also from the UK and Ireland to other destinations. In this case, it makes sense to compare the company to the short-haul service of the top four airlines originating in the UK and Ireland. [55]
Ryanair has been able to avoid fuel surcharges, has a low-record of lost bags, and a high record of on-time performance in comparison with its competitors.[60]
As high-speed trains have cut down on the journey time between different points, they have also become competitors to Ryanair and other low-cost airlines. [62] As train service becomes more rapid and affordable, it has become a significant competitor on routes which can be more quickly reached by rail. In 2008, it had 69% of all passengers from London to Paris and 64% of all passengers from London to Brussels.[63]
 Ryanair Holdings2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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