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Ryanair raises profit forecast by 20% amid surge in winter bookings Ryanair puts 32% jump in profits down to being nicer
(about 4 hours later)
Ryanair has raised its annual profit forecast almost 20% on a surge in winter bookings and said it would cut fares by up to 10% in the new year to steal more market share from struggling higher-cost rivals. Being nice pays, Ryanair has declared, with the Irish airline announcing a 32% jump in first-half profits a year after its pledge to transform its customer service.
The improved guidance comes after Europe’s largest low-cost carrier introduced customer service improvements and offered a new business fare with free checked-in baggage and the ability to make flight changes. Ryanair’s chief executive, Michael O’Leary, said business was booming since a decision in late 2013 to change its image and stop “unnecessarily pissing people off”. He said: “What we have been doing is significantly improving the customer service and it is working like a dream.”
It now predicts profit after tax for the year to March at between €750m (£586m) and €770m, up from a previous forecast of €620m to €650m and well ahead of an average forecast of €694m in a poll of analysts. O’Leary claimed the brand was being transformed after a change in culture and practices, and that the airline was now “number one for customer service”.
“We’ve had a bumper half year and we’ve had to boost our guidance as we got visibility on the second half of the year,” the chief executive, Michael O’Leary, said. He said: “Our customer service used to be fairly narrowly defined as the lowest fares, an on-time flight and we didn’t lose your bag. But if it was anything more than that we would tell you politely to go away.”
“We are keeping prices low while improving the service. Its as simple as that.” He said Ryanair had spent the year eliminating a lot of the policies passengers did not like, allowing more carry-on baggage, allocated seating and cutting punitive charges.
Higher-cost rivals Lufthansa and Air France have lowered their profit forecasts in recent days on higher competition and the cost of industrial action. “We won the war in fares, there was no one left to compete with us on price. So it was the logical thing to do, to go and compete with people on customer service and being nice.
The sale of 2m more tickets than planned over the winter will consolidate the Irish airline’s position as Europe’s largest airline by passenger numbers, boosting annual numbers to an estimated 89 million, up 8.5% over the previous year. “We tried to improve and address the negatives that were previously associated with the Ryanair brand.”
“The market was looking for a revision, but this is pushing it to the upper end of expectations,” said Mark Simpson, an analyst with Irish brokerage Goodbody. “They are using the strength of the first half to really grab market share in the second half.” Despite what he called the “new smiley happy-clappy people” and the launch of new products to attract business passengers and families, O’Leary said: “We recognise we’re not quite there yet. [But] passengers at primary airports trying us for the first time like the new policies, they like the friendly, smiley cabin crew and the feedback has been positive.”
Ryanair plans to boost its market share by cutting fares by up to 5% in the three months to December and by up to 10% in the first three months of next year. Profits after tax for the first six months of the financial year were €795m. The Irish airline, which has often given cautious forward guidance to the City, forecast its full-year profits after winter – traditionally a loss-making period – would be in the region of €750m to €770m, 45% higher than last year.
Traffic grew 4% in the first half and average fares were up 5%. O’Leary describes some of that rise as “an easy cop rather than being enormous growth” after the dip in profits in 2013-14 to €523m, partly skewed by the timing of Easter, from €569m the previous year.
The airline said it had tried to lock in recent falls in the price of oil, hedging 90% of its fuel needs for the year to March 2016 at about $93 (£58) a barrel and would try to extend that further in the coming months. “The underlying trend is enormously positive. Since we changed the strategy, being fundamentally nicer to our customers, the business has boomed,” he added.
Complaints to Ryanair were down 40% to 80,000 letters a year, O’Leary said, adding that many of those were about the landing bugle, played to herald an on-time arrival, the theme tune of which was recently modified to “some Spanish dribble”.
There were 4% more passengers in the summer, driving up fares and profit margins. O’Leary said he expects “a Herculean growth” in traffic during the quieter winter, with slightly lower fares and high forward bookings leading the airline to predict 20% more passengers. The airline bumped up its forecast for winter passenger growth by 2.2 m, to increase its full-year passenger numbers to 89m, up 8.5% on last year.
“As a result of this being nice to the customers, bookings and traffic are rising, and we’ve gone out and ordered another 200 aircraft in the last six months so we can double in size,” he said.
Ryanair recently placed an order for 200 Boeing 737 Max aircraft that plans to build passenger numbers to 150m by the middle of the next decade, according to the airline.
O’Leary said the improved fortunes could also be ascribed to the relaunch and redesign of its website and apps: Ryanair is now the UK’s most searched airline website.
After his conversion to the benefits of social media, O’Leary’s online ambitions have expanded wildly, via Ryanair’s new Labs division where, he said, “weird and wonderful techies design new things weekly”. He said a price comparison feature would be launched to show real-time rival fares on the airline’s site and suggested user forums and even airbnb services could be hosted on the site. “Tripadvisor shouldn’t exist as an independent platform, it should be on Ryanair,” he said.
The airline now expects its bid to take over Cyprus Airways to fail because the “Cypriot government will want the Greeks to take it over”, O’Leary said. But Ryanair could still expand into the Middle East regardless, he added.
O’Leary’s smile may grow ever sunnier when he reaps a personal windfall in February as a special dividend of €520m is paid to shareholders, including the chief executive.
Michael O’Leary – in his words
• Being nice
“If I had known being nicer to customers was going to work so well, I would have started many years ago.”
“It’s an Irish dynamic. We’re charming chappies generally, we’ve made an institution of being nice to people.”
• A midlife crisis
“I’ve learned how to use the Twitter.”
“We’re listening to you. We’re responding to your needs, God help me. The Robin Hood fucking stuff does need to change. We need to move away from making noise and actually start communicating with people.”
“It’ll have to evolve, be a different Ryanair. It can’t always be cheeky fucking chappie and in your face.
• Being nasty in the early years
“You’re not getting a refund so fuck off. We don’t want to hear your sob stories. What part of ‘no refund’ don’t you understand?”
“People say the customer is always right, but you know what - they’re not. Sometimes they are wrong and they need to be told so.”