Ryanair Non-Fuel Costs To Continue To Fall

January 19, 2016

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Ryanair's costs per passenger will continue to decline over the next two years, even if fuel prices stop falling, due to cheap financing and fixed costs spread over more seats, a senior executive said.

A drop in fuel prices is providing a boon for airlines, but industry observers have warned that other costs often drift upwards as savings on oil boost profitability and reduce the pressure for unpopular cuts.

"I wouldn't see our costs creeping up," chief financial officer Neil Sorahan told Reuters news agency on the sidelines of the Airline Economics conference in Dublin.

Ryanair's unit costs less fuel have fallen over the past two years. Asked if that would continue for the next couple of years, Sorahan said "we would hope so."

He dismissed a suggestion by rival Wizz Air that Ryanair's costs were climbing as it shifts to more premium airports in a bid to attract more business passengers.

Ryanair says its average unit cost is EUR€29 and claims it is around a third lower than Wizz Air's.

"The gap is going to widen," Sorahan said.

Fixed costs such as marketing would fall on a per passenger basis as the airline increases capacity by around 8 percent a year. A deal with its largest hub, London's Stansted Airport, will cut costs per passenger as numbers grow.

A major saving is the cost of financing. Ryanair issued EUR€850 million (USD$926 million) of bonds this year at a cost of 1.12 percent.

That low cost was described as "quite staggering," by Jimmy Dempsey, CFO at US low-cost carrier Frontier Airlines at the conference in Dublin.

The issue left Ryanair's net cash at EUR€976 million at the end of September and Sorahan said the airline had the capacity to buy with cash all 52 aircraft due for delivery in the year to March 2017.

"We may finance some of the aircraft out of cash… we may top up some of that with some strategic financing," he said.

Lower fuel costs combined with a push to improve customer service has helped Ryanair deliver record profits, but Sorahan said it was "not a given" the airline would return cash to shareholders in the coming financial year.

It returned EUR€400 million to shareholders in August via a share buyback and another EUR€398 million earned from the sale of a stake in Aer Lingus in November.

"We will most likely every year or every second year do something, be it a buyback or a dividend, depending on where oil is, where the markets are," he said.

When the company does decide to return cash, it is "slightly more biased towards buybacks" than dividends, he said.

(Reuters)