More passengers, lower fares and on course for another record profit - investors might be wondering what all the fuss was about in the wake of September’s cancellation fiasco.

A strong Easter meant traffic grew 11% to 72m for the first half despite the cancellations in September. Profits also grew 11% to €1.29bn and Ryanair is on course to beat last year’s record earnings. Guidance of €1.4-1.45bn was unchanged.

Air fares fell by 5% but a rise in ancillary revenues helped to offset this decline as customers went for things like reserved seats and priority boarding to make their journey a little less unpleasant.

Due in part to the failure of three airlines this year, which has reduced some slack in the market, fares are set to decline by less than expected at between 4% and 6% compared to previous guidance of 5-7%.

On the outlook for the rest of the year, the grounding of 25 aircraft for the 5-month winter season means H2 passenger growth will slow to 4% - a welcome relief for the industry given the pressures on capacity and likely to be yield supportive. Full year traffic growth was confirmed at 129m down from the previous 131m, but still a 7.5% increase on last year.

On the cancellations, Ryanair is as bullish as ever although the compensation costs will amount to €50m in total, with €25m booked already.

Other costs are rising – ex-fuel will be 3% higher this year. Partly it’s compensation costs but it’s also because Ryanair plans to pay pilots more. This should prevent future disruptions but it comes at a cost of €100m every year (€45m for FY18). Whilst the airline says that this will not affect the hefty unit cost advantage it has over competitors, it will undoubtedly have a material impact on earnings.

Ryanair can now boast it pays 22% more than Norwegian – good for the pilots but will it please investors and passengers? In the wake of the Mons ruling and the pilot shortage, rising labour costs is seen as a key risk to Ryanair’s model of keeping costs down and there is a prospect for costs to rise further. The Mons court ruling raises the prospect of unionisation (something Ryanair doesn’t tolerate at present) and more expensive direct employment costs from the use of local rather than Irish labour contracts.

On consolidation, Ryanair rightly expects the trend to continue. In addition to Monarch, Alitalia and Air Berlin, it notes the presence of ‘other financially troubled EU airlines who will, we believe, follow them’. There is more pain to come for the sector but, as the company says, this trend can ‘only be good for Ryanair's yield and traffic growth’.


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