Ryanair 2005 Annual Report Download - page 15

Dear Shareholders,
The past year, during which we celebrated our 20th anniversary, has proven a
successful one, despite the challenges thrown up by intensely competitive markets
and substantially higher oil prices. We strengthened our position as Europe’s
original and largest low fares airline, and established new records for traffic, profits
and customer service. Traffic grew by 19% to 27.6 million and we estimate that
these customers saved over 2.5 billion compared to the high fares charged by our
competitors. Our adjusted profits after tax grew by 19% to a new record of 269m
as we maintained our world leading net income margin of 20%. Our year end cash
balances stand at 1.6bn, a figure that is 21% greater than our annual sales. What
makes Ryanair unique among European airlines, is our huge price leadership, our
substantial unit cost advantage and our unrelenting commitment to offering our
customers the lowest fares in every market we serve.
Chief Executive’s Report 5
ANNUAL REPORT & FINANCIAL STATEMENTS 2005
Sales
The sales environment across Europe remains intensely
competitive. We have seen a number of players withdraw, as we
predicted, over the past 12 months. These include airlines such
as Volare, V-bird, Air Polonia and more recently EuJet. We have
also seen a number of charter operators reduce capacity or
withdraw from direct competition with Ryanair in certain
markets. These include MyTravel, Thompsonfly, Hapag Lloyd
Express among others. More recently some of our scheduled
competitors including British Airways, Easyjet and British
Midland have withdrawn from routes where they have been
unable to compete with Ryanair’s low fares. We expect this
process of retrenchment and consolidation among our
competition to continue. Many of Ryanair’s high fare
competitors have resorted to fuel surcharges as a way of
penalising their passengers for oil price rises. Ryanair
guarantees no fuel surcharges, not today, not tomorrow, not
ever, and as a result of the widening gap between our
competitors surcharge inclusive prices and our low fares more
and more passengers are being attracted to fly with Ryanair.
Our strong growth in total revenue over the last year has been
helped by our plan to widen the range of ancillary services and
products we make available to customers, both on board and
through Ryanair.com. This has in turn led to an increasing rate
of take up of these products and services by passengers and as
a result ancillary sales this year grew by 39%, which is
significantly ahead of the 19% growth in traffic achieved and we
expect this out-performance to continue for a number of years
to come.
Costs
The major challenge which faced us over the past year was the
dramatic and continuing increase in oil prices. A combination of
volume growth and price rises saw our fuel bill last year rise by
52%. This enormous cost explosion, combined with our
commitment not to impose fuel surcharges, meant that we had
to be more inventive than ever in reducing other costs to defray
these oil price rises. Critical to our success in this area was the
delivery of 27 more Boeing 737-800’s last year, which allowed
Ryanair to reduce - at the unit cost level - our staff, fuel
consumption, maintenance, and depreciation/amortisation
costs. Our new order for 140 (70 firm and 70 option) aircraft
which we signed with Boeing in February 2005 will enable us to
continue to reduce unit costs over the coming 5 years under
each of these cost headings. In addition Ryanair continues to
add new bases and new destination airports at lower costs than
heretofore and we expect this will also continue for the
foreseeable future.
Finally, a new ten year engine maintenance contract was signed
with General Electric which will deliver significant savings on
our engine maintenance and overhaul costs. The fact that
Ryanair has been able to partly defray substantial oil price
increases over the past year by reducing costs in other areas
underlines the strength of the Ryanair “lowest cost” model and
the ability of our management team to reduce costs on behalf of
our customers and shareholders.
Customer Service
Having the lowest fares and the lowest costs would mean little
if we did not deliver industry leading customer service. Over the
past 12 months Ryanair has made even further improvements to
what is already the European airline industry’s best customer
service record.