Evaluating Financial Performance of Ryanair

I. Overview of The Company

1.1 The Company’s corporate and business strategies

1.2 The Company’s SWOT Analysis

II. Analyze Financial Performance of the Company

III. To compare the Company’s performance with Industry Average performance

IV. Compare the financial performance of the Company with the companies in the same industry.

V. Compare the Company with the closest competitor

1.3 Business Model and Strategy between two companies.

1.4 Compare financial Performance of two companies.

VI. Conclusion

1.5 Overview of Ryanair:

Ryan family launched Ryanair in 1985 as scheduled passenger airline services operating between Ireland and the United Kingdom. The purpose of Ryanair is an alternative to Aer Lingus, a state monopoly carrier. Although there was a growth in number of passengers, the Company faced a loss, accumulating to IR £20 m at the end of 1990. In early of 1990s Ryanair restyled itself to become low fare airlines. It was the first low fare airline in Euro, based on the model of Southwest Airline. Tony Ryan and Michael O’Leary were appointed the board members of Ryanair. The new model brought new fortunes to the Company. In

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1997, the Company had flown floated in IPO on the Dublin Stock Exchange and in 2002 the Company listed in Nasdaq-100.

On June 30th, 2010, Ryanair has serviced around 1,100 routes throughout European Continental and raised the frequency of service on number of major routes. In the fiscal year 2010, the number of Ryanair’ passengers have reached to 66.5 millions. At the end of 30th, 2010, Ryanair owned 250 Boeing 737-800 aircrafts, and operated 155 airports and employed 8,000 people. The Company will raise its fleet to 272 by March 2013. (Ryanair’s annual report 2010).

1.5.1 Ryanair’s corporate and business strategies

In the last few years, Ryanair has built its image as one of the leading low-fare carriers in the EU with a variety of improvement and expanding offerings of its low-fares service. That has brought Ryanair an advantage of increasing passenger percentage on routes. Besides, that Ryanair is continuously concentrating on efficiently control costs and operating has helped it maintain appropriate low-fares strategy over competitors. Some elements that are part of Ryanair’s policy will be cited as follows:

Low fares: Low fares are to stimulate the demand. Unlike other carriers, Ryanair focuses on one-way ticket policy, in which fare conscious targets like businessmen, travelers, who mainly use other methods of transport such as trains, coaches or cars; this policy came into effect since Nov-2001. Rather, based on demands for particular flights and the time interval until the planned date of departure, Ryanair designs suitable ticket packages to meet passengers’purposes. Ryanair sells 70% of seats per flight at the minimum available for the route that means Ryanair pursues “more sales for more profit” strategy by an increase in occupied seats. Ryanair promoted a campaign “fare for free” in 2003 (exclusive of government taxes and passenger services charges) for travelers between September and December, 17-2003. In fact, this promotion largely improved its low-fare carrier image!

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Tight focus on short-haul routes with particular demand Compared to flight time of other haulers, Ryanair’s average flight duration has been 1.1 hours with an average flight distance of 764 kilometers in 2003, helping raise its daily average round trip to 1.94 per trip. Choosing to exploit short-range trips has helped Ryanair to cut unnecessary costs which pay “frill” services otherwise expected by customers on longer flights. Besides, the point-to-point flying policy reduces unnecessary costs such as connection, barrage transfer, passenger transit between ranges. This is a one of main differences between the Company and traditional carriers.

Smart route selection Ryanair chooses secondary airports that have easy access to major population hubs and local airports like the center of a circle. By establishing convenient transfer centers like that, Ryanair could increase its competitive edge, cut costs, minimize terminal delays and raise on time departure rates and faster turnoveround times. The faster turnoveround times help the Company to maximize aircraft utilization. It is estimated that at the end of fiscal year ended March 31, 2003, the Company’ turnoveround time was about 25 minutes. This permit Ryanair to add two extra flights per day that is unable with a 60 minute turnovertime. By decreasing turnovertime, it adds €4.4 million in incremental revenue per aircraft per year.

Operating cost reduction:

Ryanair’s management believes that its operating costs are among the lowest of any European passenger carriers, which include: aircraft equipment and maintenance cost, personal expenses, customer service cost, airport charges. It could be cited amongst major rationales behind this:

Plane maintenance and equipment costs: Ryanair once set its strategy for controlling aircraft purchasing costs through buying used ones. Nevertheless, the policy has no longer worked nowadays. It is using the state-of-the arts generation of Boeing 737-800s, which shares some common spare parts with its running aircraft team. It is believed that by using new aircrafts, Ryanair could avoid needless

Page 3 Evaluating Financial Performance of Ryanair maintenance charges and spare parts as it used the older fleet. Likewise, limiting the fleet to 3 variants of a single aircraft made by a single maker (Boeing) should enable it to limit the associated costs including pilot training, purchase, storage of new spare parts, equipment costs and assuring a greater ability to managing crews and equipment.

Management the terms of the contracts of Boeing aircraft purchasing are very affordable for the carrier.

Personnel and administrative expenses: Ryanair is poised to control its administrative costs by continuously bolstering quality of its already highly-productive labor force. Incomes of its employees are based on productivity and contributed working time. In particular, flight attendants’ salary is based on on-board sales of products while pilot payment is relied on flight numbers or sectors flown and cabin crew payment is based on industry standards for minimum or maximum working hours. Rather, employees are eligible to participate in annual ESOPs.

Cost of customer services: Ryanair has rented third-party contractors at certain airport to do passenger, aircraft jobs such as booking, guest handling and some services in order for more price competitive and cost efficient. Ryanair also manage to maintain its competitive rates by signing mid-long term contracts at reasonable price which are only adjusted to inflation on periodic basis. The development of online booking facilities has helped elimination the firm’s travel agent commissions. Also, it is believed that online ticketing will continuously contribute much more to its sales while eliminating unwanted costs. It is estimated that direct telephone reservations and sales through Ryanair’ website generated approximately 6% and 94% of its scheduled passenger total revenues in fiscal year 2003.

Airport Access Fees: Ryanair chooses to use charge competitive airports to lower its operating costs. Ryanair seeks to manage airport access and relates services fees by selecting airports with competitive cost offers. Its management based on the fact that its high growth in volume of passengers

Page 4 Evaluating Financial Performance of Ryanair travelling over years would bring it an advantage to negotiate with the airports for access to their ground facilities. Moreover, Ryanair attempts to reduce those charges by choosing cheaper gate locations and outdoor boarding stairs as well rather than expensive gateways.

Ancillary Services: Ryanair provides a spectrum of convenience, revenue boosting services that include on-board merchandise, beverage and food catering, accommodation booking services, car rentals, ground travelling etc… Ryanair applies accommodation services, car rentals, and travel insurance on its website and through traditional reservation offices as well. Ryanair’s leaders believe that with full services packages, Ryanair would be able to maintain high growth in all of its business lines while increasing productivity and reducing costs.

Ambitious growth plan: The very first success of Ryanair routed from the Ireland-UK market, afterward, it began to expand to operate into continental Europe, Ryanair is poised to pursue a sustainably high growth plan targeting other potential EU markets. Up to now, Ryanair has been severed a total of 940 routes in continental EU destinations.

Commitment to Safety and Quality Maintenance: Ryanair’s top focus is safety standards. That includes the careful recruitment and training processes for pilots and cabin crews while it annually spends a considerable amount of capital on maintenance, long-term assets to meet the international air transport standards to make sure that it can deliver highest service quality at very affordable prices. Since its establishment, there has not been any incident regarding passengers or flight services quality for Ryanair. It is a little strange that safety is one of the most crucial factors helping Ryanair maintain its low-fare strategy. However, Ryanair seeks to sign long-term maintenance, repair services at fixed costs with third-party contractors to hedge rising expense that might hurt long-term bottom-line prospect.

1.5.2 Ryanair’s SWOT Analysis

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Strengths Weaknesses  Wide operation base in the Euro  Distance of secondary airports from major  Largest and most profitable LCC in hubs reduces a portion of passenger Europe segment.  Competent, ambitious and efficient  Lack of appreciate frequency in certain management. routes  Optimal business model helping  Low-fare image might not be recognized coherently carry out low cost strategy. by new passengers  Secondary and regional airports drive  Exposure to outsourcing might shave costs down and bring faster capital Ryanair of close control of costs and turnover. expenses  Healthy financial conditions coupled with  Exposure to various laws and regulations stable cash flows allow Ryanair to boost governing environment, safety, security its ability to participate in ambitious may hamper Ryanair’s operations in mid- growth plan in the short and longer term. long terms.  Competitive edge on new aircraft purchase.  High seat occupancy rate and lowest cost seat-mile in short-haul flights.  Standardized and modern fleet saves on maintenance, training cost, enhance safety and fuel efficiency.  High rate on punctuality and low baggage loss rate give reliability to the organization.  High rate of aircraft use increases gross margin. Opportunities Threats  European markets are still potential for  Some flag carriers have attempted to low-fare carriers like Ryanair with the exploit low-fares segment by establishing European open sky agreement their own subsidiaries to better compete

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 USD weakness towards EUR empowers  Dependence on oil market condition, Ryanair’s purchasing power for Boeing which is a major threat to inefficient aircrafts. carriers  Stable geo-political condition in the EU  Competition and alternatives from ground helps reduce systematic risk. means of transport such as buses, trains,  Increasing demand for low-fare air ships… transport vs. other means of transport  Increasing charges from secondary amongst young population in the region. airports when more low-fares carriers choose to use them will hurt Ryanair’s growth potential

Table 1: Ryanair’ SWOT Analyse

1.6 Analyze Financial Performance of Ryanair

Figure 4: Ryanair’s revenue, operating expenses and profit for financial year

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First of all, we take a quick look at financial performance of Ryanair in 5 year-period. It can be seen from figure 4, revenues increased significantly of 76.5% during the period due to an increase of 91% in number of passengers, from 34.8 million in 2006 to 66.5 millions in 2010. However, the profits decreased negatively. It is because of considerably increasing in operating expenses of 95% during the same period. The reason of increasing in operating expenses is the negative fluctuation of fuel price during 2006 to 2010 and the growth of airport and handing charges. In fiscal year 2009, it was the first year for long time Ryanair made a loss in the profit. The loss, first, is because of an approximately 60% increase in fuel and cost expenses from €791.3 million fiscal year 2008 to €1,257.1 million in fiscal year 2009. Second, it is because of an impairment charge of €222.5 million on the available for sale investment in Aer Lingus, reflecting a significant decline in the Aer Lingus share price from March 31,2008 to March 31,2009 . In 2010, the Company’s fuel and oil expenses decreased to €893.9 million, Ryanair achieved positive profits of €305.3 million.

Fiscal Year ended March 31,

2010 2009 2008 2007 2006 Total Revenues 100% 100% 100% 100% 100% 84 84.69 Scheduled Revenues 77.8 79.7 82

16 15.31 Ancillary Revenues 22.2 20.3 18

79 77.84 Total Operating expenses 86.5 96.9 80.2

10 10.13 Staff Costs 11.2 10.5 10.5

6 7.35 Depreciation and Amortization 7.9 8.7 6.5

31 27.32 Fuel and Oil 29.9 42.7 29.2

2 2.21 Maintenance, Materials, and Repairs 2.9 2.3 2.1

3 2.80 Aircraft Rentals 3.2 2.7 2.7

Route Charges 11.3 9.8 9.5 9 9.72

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12 12.78 Airport and Handing Charges 15.4 15.1 14.6

5.53 Other 4.8 5.1 5.1 6

21 22.16 Operating Profit 13.5 3.1 19.8

Net Interest Income (Expense) (1.6) (1.9) (0.5) (1) Other Income (Expense) (0.5) (7.4) (3.1) (2.14)

20 20.02 Profit/(Loss) before Taxation 11.4 (6.2) 16.2

(1) (1.90) Taxation (1.2) 0.4 (1.8)

19 18.12 Profit/(Loss) after Taxation 10.2 (5.8) 14.4

Table 2: Summary operating and financial overview consolidated income statement data. (Source: Ryanair annual report 2010, 2008, 2006) Scheduled Revenues as percentage of total revenue has decreased during the period from 84.68% in fiscal year 2006 to 77.8% in fiscal year 2010, primarily reflecting a decrease of 14.2% in average fares from €40 in fiscal year 2006 to €35 in fiscal year 2010. Although the number of Ryanair‘s passengers soared approximately by 90% from 35 million in fiscal year 2006 to 67 million in fiscal year 2010, it demonstrated that the company is successful in opening new routes as well as attracting more customers in existing routes.

Ancillary Revenues as percentage of total revenue has increased gradually from 15.31% in fiscal year 2006 to 22.2% in fiscal year 2010. They include revenues from non-flight scheduled operations, car rentals, in-flight sales and Internet-related services.

Operating Expenses as a percentage of revenues, Ryanair’s operating expenses have increased from 77.84% in fiscal year 2006 to 86.5% in fiscal year 2010. Due to the increase of fuel costs, this expense was 27% of total of revenue in fiscal year 2006 to increase to 30% of this total in 2010. Specially, in fiscal year 2009, the cost of fuel accounted 42.7% of the Company’ revenues. According to the table above, airport and handing charges also are the other major expenses that considerably increased as compared with total of revenues. In fiscal year 2006, airport and handing charges were around 12% of total revenues, however the fiscal of 2010 was over 15%.

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In terms of profit and loss after taxation, there is a considerable drop in profit as a percentage of revenues. It can be seen from the table, the Company makes a profit of 18.12% as equal as total revenue in fiscal year 2006, however, this figure declined to 10.2% in fiscal year 2010. It is due to the increase in operating expense is higher than the increase in sale revenues.

Profitability ratio:

Figure 5: Graph of Ryanair’s ROCE and ROSF showing changes from previous years According to figure 5, Ryanair’s ROSF and ROCE were stable with high level during three fiscal years from 2006 to 2008. However, fiscal year 2009 of both shows loss in profit. The key reason for this loss is surge increase fuel bill rose around 60% to €1.59 billion, in 2008 oil prices were nearing $140 a barrel. The bill accounted for 43% of company’ operating expenses and compared to 32% in previous years. However, after fiscal year 2009 by using derivative to hedge negative effect of fuel and the jet fuel price was decreasing, therefore, ROSF and ROCE’s Ryanair shows a positive recovery.

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Efficiency Ratio

Figure 6: The graph of Ryanair’ Total asset turnover and fix asset turnover

According to figure 6, it shows that there is a slight improvement of its total asset utilization during 5 year periods. In fact, in 2006, Ryanair invested €1 in asset it generated €0.4 in the Company’s revenue, however, in 2010 €1 invested in total assets that created €0.43 in the Company’s revenue. In the same time, ratio for fix asset turnover rose from 0.66 in 2006 to 0.77 in 2009.

In general, these ratios indicate that the company has utilized its assets effectively during the five-year period. Although Ryanair has invested heavily to raise its aircrafts from 103 in 2006 to 232 in 2010, the fix asset turnover ratios are stable and slight increase. It indicated that new aircrafts are efficiently used to immediately generate the company’s revenue.

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Figure 7: Ryanair’s average trade receivable collection period and average trade payable payment period

We can see from the graph, the trend of average trade payables period increase slightly from 17.1 days in 2006 to 18.81 days in 2010. The increase can be explained by the company using advantage of the business of scale and scope to raise the time payable for its suppliers. In other words, it is using more free finance provided by suppliers. In contract, because of more competition in this industry, Ryanair has police to credit for its customers to encourage the demand and increase its sales. Therefore, average trade receivable collection period increased from 3.28 days in 2007 to 5.41 days in 2010. Financial gearing:

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Figure 8: The graph of Ryanair’ financial gearing showing changes from previous years

In terms of gearing, Ryanair uses more borrowing to fund its business during the period. It can be seen form the graph, in 2006, 54 % of financial resource came from borrowing, however, the figure in 2010 rose to 60%. It means Ryanair relies on external finance to run its business. It can be seen that in case of interest cover, in 2009 operating income were negative, it is because of the financial crisis and surge increase fuel price, therefore it could not cover its interest, all of other years for this periods, interest cover were around 5 and 6 times. It shows that the Company strong ability to pay its debts.

Investment Ratios

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Figure 9: The graph of Ryanair’ EPS showing changes from previous year

EPS ratio is useful method to measure the performance of a business’s share. The assessment of potential investment can be performed by examining the trend in earnings per share. According to the graph, the earnings generated by Ryanair’ business has decreased during the period. It seems that the prospect of Ryanair’s share was not good.

Figure 10: The graph of Ryanair’ Price and P/E showing changes from previous years P/E ratio presents the expectation of investors to the future of a business. The firms have a higher P/E ratio, it shows the investors are more confidence in the future prospect of the business. As a result, investors are willing to pay more present cash flow in exchange for the

Page 14 Evaluating Financial Performance of Ryanair future earnings stream from the business.It can be seen form the graph, trend in P/E dropped considerably during the period from 2007 to 2009 and has recovered after 2010. This recovery in 2010 of P/E ratios shows that investors expect a better prospect of the Ryanair’s business.

Ryanair’s Dividends Policy

Since 1996, the Company has not announced or paid dividends to its shareholders. However, in January 2010, Ryanair announced to intend a pay special dividend of €500 million, to be performed on October 2010. It also declared a plan to pay other dividend of €500 million before the end of fiscal year 2013. The company has police that may pay dividends from time to time or may not pay any dividends at all. Its profitability is used to purchases further aircraft and other significant capital expenditures.

1.7 To compare Ryanair’s performance with Industry Average performance:

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Scheduled Passergers Carried International Rank Airline Thousands 1 Ryanair 71,229 2 Lufthansa 44,460 3 easyJet 37,665 4 Air France 30,882 5 Emirates 30,848 6 British Airways 26,320 7 KLM 22,787 8 Delta Air Lines 21,029 9 American Airlines 20,356 10 Cathay Pacific airways 19,723 Table 3: World ’largest international scheduled airlines (Source: The International Air Transport Association (IATA) 2010). According to the International Air Transport Association, Ryanair is the world’s largest international airline. The number of Ryanair’ customers reached to over 71 million in 2010. This number is much higher with the second biggest international airline Lufthansa with over 44,4 million and the closest competitor in low-fare airline company easyJet ( 37 million). Average fares Ryanair €44 EasyJet €66 Air Berlin €82 Aer Lingus €94 Lufthansa €235 Air France €267 British Airways €324 Table 4: Airlines’ average fares (Source: Based on 2008 published annual reports) According to table above, it can be seen that, there is a wide the gap between Ryanair average fares and other European airline competitors. Ryanair drives down air fares for customers all over Europe to encourage the demand and growth of its traffic. Ryanair uniquely guarantees “no fuel surcharges” regardless of how high oil prices rise, while many of carrier competitors continue to levy unjustified fuel surcharges. Therefore, Ryanair’ average fares is lower in comparison with other airline companies. In fact, in 2008 Ryanair’s customers pay average €44 per ticket while the price offered by other low-fair carrier EasyJet was €66. In contrast, traditional airlines such as Lufthansa, Air France and British Airways

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charge their passengers for very high price. Lufthansa’ passengers paid average €235 per ticket and British airways was €324 per ticket. Airline Average Pay Ryanair € 50,355 Air France/KLM € 49,504 Lufthansa € 44,335 British Airways € 40,007 Table 5: Airlines’ Average Pay (Source: Based on 2008 published annual report) Airlines’ passengers per Employee Ryanair 9,679 EasyJet 6,772 Bristish Airways 735 Air France/KLM 715 Lufthansa 624 Table 6: Airlines’ passengers per Employee (Source: Based on 2008 published annual reports) According to airline average pay’ table, Ryanair’s pay is among the highest of any major European airlines. In 2008, each employee in average of Ryanair receives over €50,000 that is much higher than that of British Airway’s employee about €40,000. In addition, The Company keeps continuing to manage its rosters in order to maximize its people’s productivity. The company’s productivity remains high. According to Airline-Passengers per Employee, in 2008 Ryanair carried almost 10,000 passengers per employee, a figure that is some ten times better than our principal competitors across Europe.

1.8 Compare the financial performance of Ryanair with Airline companies

European Untied European Ryanair Union(Non- World Kingdom Union Euro)

P/E 10.88 13.44 8.44 27.03 15.59

EPS 0.25 - 0.53 - -

Div yield (%) 0 0.88 0.49 0.59 1.73

ROE (%) 12.68 11.21 -50.79 6.04 -17.97

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P/Book 1.55 2.22 1.94 1.94 2.72

P/Sales 1.26 0.59 0.34 1.24 1.15

Market Capitalization (million) 6,527.02 1,346.80 2,066.21 1,004.60 1,760.13

Quick Ratio 1.89 1.14 1.28 0.87 0.9

Current Ratio 1.89 1.46 1.33 1.19 1.5

Interest Cover 5.1 5.23 -7.13 -0.5 1.67

Long term debt/Equity 1.12 0.63 0.95 0.05 2.12

Long term debt/Capital 0.52 0.32 0.37 0.51 0.35

Liability/Equity 1.91 2.09 5.39 -0.38 4.6

Liability/Total Assets 0.66 0.61 0.7 0.71 1.02 Table 7: Summary financial performance of Ryanair and region of airline (Source: Reuters Financial Database in 2011).

As shown in the above comparative table, the performance of Ryanair is better than the industry average performance in many places in the world. ROE of Ryanair is 12,69% meanwhile the ratio for other regions such as European Union and World suffered a loss or keeping low rates European Union (Non-Euro) and United Kingdom were 6.04% and 11.21% respectively. The short-term liquidity ratios are used to measure the ability of firm in converting the current asset into cash when it has some urgent financial obligations to be settled in a short-term period. Ryanair’ current ratio and quick ratio has remained at 1.89%. Comparing to the airline industry in many places in the world, Ryanair has maintained a higher in average both current ratio and quick ratio than its competitors. In other words, Ryanair has a better position than average airline industry to meet its short-term financial obligations. In terms of market capitalization, Ryanair is more than 3 times larger comparing airline industry company average.

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Flybe Virgin Ryanair Southwest EasyJet JetBlue Gol Air Berlin Air Asia West Jet Norwegian Group Blue

31/3/2011 31/12/2010 30/9/2010 31/3/2011 31/12/210 30/6/2010 31/12/2010 31/12/2010 3/12/2010 31/12/2010 31/12/2010

Company Report Items 3,629.50 8,680.44 3,426.71 617.58 2,550.17 1,858.08 3,143.34 3,723.58 956.98 1,803.15 1,103.31 Revenue 3,141.30 8,308.23 3,218.55 673.03 2,575.58 1,993.52 2,829.07 3,786.69 696.98 1,770.49 1,076.34 Operating Costs

420.9 556.82 177.5 -4.87 120.33 23.55 174.07 -141.62 266.35 147.43 31.2 Pretax Profit and loss 46.3 213.76 37.69 -9.17 47.83 8.92 77.6 -44.46 9.08 44.94 9.27 Tax

Profit after tax 374.6 343.06 139.81 4.3 72.5 14.62 96.47 -97.16 257.28 102.49 21.93

8,596 11,557.23 4,613.17 468.64 4,927.69 2,658.05 4,082.09 2,370.12 3,209.33 2,670.93 849.59 Total Assets

5,642.10 6,895.62 2,883.50 346.53 3,691.47 2,017.35 2,762.88 1,864.78 2,326.79 1,540.68 619.12 Total Liabilities 2,953.90 4,661.61 1,729.66 122.11 1,236.22 640.71 1,319.21 505.34 882.54 1,130.25 230.46 Shareholders’ Equity

Table 8: key financial items for low cost airline 2010 and 201 (Source:Retuers)

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From the table above, Southwest is the low cost airline which has the highest revenue, €8.6 billion. The following is Air Berlin and Ryanair which Revenue are approximately €3.72 and €3.6 billion. So it can be said that, Ryanair is ranked of the third largest low cost airline in respect of revenue. In addition, Rynair is the second biggest low cost airline in terms of Pretax Profit and loss, and the biggest low fair airline in aspect of Profit after tax, approximately €374.6 million that is higher than the profit after tax of Southwest. Southwest is the biggest airline in terms of total assets, while Ryanair is the second biggest that owns assets near double to compare the rest of low fare airlines.

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Flybe Virgin Ryanair Southwest EasyJet JetBlue Gol Air Berlin Air Asia West Jet Norwegian Group Blue 31/3/2011 31/12/2010 30/9/2010 31/3/2011 31/12/210 30/6/2010 31/12/2010 31/12/2010 3/12/2010 31/12/2010 31/12/2010 Profitability ratios Return on Equity 12.68 7.36 8.08 3.52 5.86 2.28 7.31 -19.23 29.15 9.07 9.52 Return on Total Assets 4.64 3.09 3.16 1.02 1.48 0.59 2.45 -4.06 8.62 3.87 2.94 Return on Capital Employed 7.68 10.84 6.62 0.41 7.39 3.09 10.88 -2.58 9.8 10.4 5.59 Operating Margin 13.45 8.51 6.07 0.15 9.76 2.88 10 -0.92 27.17 10.29 2.44 Return on Fixed Assets 7.79 4.15 5.19 1.97 1.89 0.76 3.47 -6.16 10.86 5.86 4.74 Gearing ratios Long term debt/Equity 1.12 0.46 0.72 0.62 1.72 1.65 1.16 1.6 2.01 0.57 1.09 Long term debt/Capital 0.52 0.32 0.4 0.34 0.63 0.61 0.53 0.61 0.67 0.36 0.52 Quick Ratio 1.89 1.22 1.09 1.21 1.53 0.89 1.55 1.5 0.81 Current Ratio 1.89 1.29 1.42 1.12 1.25 0.76 1.63 0.93 1.56 1.52 0.83 Interest Cover 5.1 6.63 7.78 0.31 1.85 0.93 2.35 -0.51 2.81 4.11 10.67 Liquidity and Asset Ratios Total Assets/Employees (milliom) 1 0.33 0.63 0.16 0.51 0.22 0.27 0.68 0.39 0.4 Total Assets/Equity 2.91 2.48 2.67 3.84 3.99 4.15 3.09 4.69 3.64 2.36 3.69 Sales/Assets 0.45 0.78 0.77 1.47 0.52 0.75 0.8 1.56 0.32 0.68 1.48 Sales/Receivables 26.36 43.26 13.64 7.39 14.83 20.55 12.78 11.72 3.55 57.23 10.28 Sales/Working Capital 2.3 14.19 6.83 -45.29 10.47 -6.27 12.78 -64.22 5.12 6.01 -38.33

Table 9: key financial ratio for low-fare airlines, 2010 and 2011 (Source: Reuters)

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It can be seen from the table above, Ryanair’s financial performance is better in comparison to that of other low cost airlines as a whole, in terms of profitability. Only profitability ratios of Air Asia are better than that of Ryanair. In fact, Air Asia’ ROCE, ROSF are 9.8% and 29.15% respectively. Meanwhile, ROCE and ROSF of Ryanair are lower 7.68% and 12.68%. However, the size of Air Asia is much smaller compared with Ryanair. The largest low cost airline in the World, Southwest, presents lesser success than Ryanair. Southwest’ ROCE and ROSF are 10.84% and 7.36%. Ryanair is the best low fair airline in ability to its short term debts. Ryanair’s Current Ratio is 1.89 while that of Southwest and Air Asia are 1.29 and 1.56 respectively. Even though each employee of Ryanair uses around €1 million in assets, the ratio sales/assets is lower than other main low fair airlines. It means Ryanair utilizes its assets less effectively than others. In fact if Ryanair invests €1 in assets, it generates only €0.45 pence. However if Southwest invests €1 in assets, it generates €0.78 pence, and that for EasyJet is €1 investment in assets, it generates €0.77 pence.

1.9 Comapre Ryanair and EasyJet:

1.9.1 Business Model and Strategy between two companies: Though operating as low-fare airlines, there some difference between the two carriers: EasyJet tends to use central, primary airports, so carrying higher costs and charges. Clearly, it targets business class customers. Airports used by easyJet are to be named: Charles de Gaulles of Paris, Schiphol in Amsterdam, Orly of Paris…

In 2002, easyJet acquired 120 planes from Airbus in a contentious move to “diversifying the fleet”. However, it was seen that the mixed team of Airbus and Boeing would drive costs of pilot training, maintenance and operation of its fleet up. Otherwise, Ryanair continued to use it pure B-737 fleet. Up to now, B-737 is still the workhorse of various low-fare carriers as the first choice. In spite of signing with Airbus on crew training, spare parts supplies, EasyJet still bear a £5 million on training for operating its new Airbus aircrafts.

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That the EU goes against state subsidy for airports will come more badly for Ryanair than for EasyJet since EasyJet already concentrates on central, primary airports that always charge higher and EasyJet’s fares are fully reflected by the costs and charges.

In term of expansion, Ryanair is somewhat more successful than EasyJet. In the M&A deal to acquire Go, Ryanair paid only a net €1million on a carrier with 4 million passenger base while EasyJet spent €400 million on another potential 5 million passenger airliner.

Another time, easyJet failed to buy Deutsche BA, after being unable to reach a nearly feasible deal with the German carrier’s pilot and cabin crews to work in its business model. Simultaneously, Ryanair succeed in persuading Buzz personnel to sign on its employment terms to operate in 13 new routes to the EU, including Germany.

Key Statistics:

Figure 11: Comparison of Scheduled passengers between EasyJet and Ryanair

It can be seen from the figure 3, there was a slight difference between numbers of passengers between two airline companies in 2006. EasyJet serviced 33 millions of passengers and the number of Ryanair was 34.8 million. During the 5 years period, the speed increase in numbers of customers of Ryanair is much higher than that of easyJet. In fact, 2010 the Page 24 Evaluating Financial Performance of Ryanair number of Ryanair’s passenger reached to 66.5 million, however, the number of easyJet was about 49 million. It is because of Ryanair rapider opening new routes and purchasing new aircrafts to grow the number of passengers.

Figure 12: Comparison of total routes between EasyJet and Ryanair Opening new routes, in 2006 two airline companies had the same number of routes (262), however Ryanair’ routes was nearly double to compare with easyJet in 2010, the number of Ryanair’ route was 940 compared to that of easyJet about 509. Beside that, Ryanair was more than double number of aircraft after 5 year-period from 103 in 2006 to 232 aircrafts in 2010. Although in 2006 easyJet’ fleets was 122 higher than Ryanair, in 2010 was 196.

Figure 13: Comparison of total aircrafts between EasjJet and Ryanair

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Figure 14: Comparison of number of employees between EasyJet and Ryanair During the time, Ryanair has the smaller number of employees of is smaller than easyJet. However, in 2010 the number of Ryanair’ employees was over the number of easyJet.

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1.9.2 Compare financial Performance of Ryanair and EasyJet: Profitability ratio analysis ROCE:

Figure 15: Comparison of EasyJet’ ROCE and Ryanair’ The return on capital employed ratio is a fundamental measure of business performance. This expresses the relationship between the operating profit generated during a period and the average long-term capital invested in the business during that period. In the graph, Ryanair and EasyJet’s ROCE have decreased between 2006 and 2010 due to a considerable increase in operating profit. It is because of the negative effect of the financial crisis and surge increasing fuel price. In general, Ryanair’s ROCE is better than that of EasyJet all of the time. Only in 2009 Ryanair’s ROCE is negative -3.6% while that of EasyJet’s is 2.1%. ROSF:

Figure 16: Comparison of EasyJet’ ROSF and Ryanair’s

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The Return on shareholder’ fund ratio (ROSF) shows us how much profit that shareholders can earn from their investments. From the graph, we can see that, ROSF of Ryanair and EasyJet have increased between 2006 and 2007, but the situation has changed in 2008. ROSF of Ryanair and EasyJet has reduced. It is due to increasing operating expenses. ROSF of Ryanair is larger than EasyJet all most the period of time exception 2009, Ryanair’s ROSF was negative -6.98% while EasyJet’s is 5.45%. Net Profit Margin:

Figure 17: Comparison of Net Profit Margin between EasyJet and Ryanair The trends of Net Profit Margin for both Ryanair and EasyJet have decreased as a result of the faster increase of the operating profit than that of revenue. Furthermore, EasyJet’ Net profit margin is much smaller than that of Ryanair.

To sum up, financial performance of Ryanair is better in comparison to that of EasyJet’s as a whole, in terms of ROCE, ROSF and Net Profit Margin.

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Efficiency ratios and Liquidity ratios analysis Fixed asset turnover:

Figure 18: Comparison of fixed Assets turnover between EasyJet and Ryanair The fixed-asset turnover ratio expresses how ability a company uses its fix-asset to generate revenue. In the graph, EasyJet’ fixed assets turnover is higher than that of Ryanair during the period. In other words, EasyJet has been more effective in utilizing its fix-assets to generate sale revenue than Ryanair. In fact, in 2010 if EasyJet invested €1 in fix-assets, it would generate €1.2 in revenue. However if Ryanair invested €1 in fix-assets, it would generate only €0.66 in revenue. Trade Receivables collection period:

Figure 19: Comparison of trade receivables collection days between Easyjet and Ryanair

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A company always attempts to keep the amount of its receivables at a minimum level to avoid shortage of cash flow. The company’s cash flow can be strongly affected by how well the company manages its credit policy. The average settlement period for trade receivables ratio measure how long, on average, credit customers make a payment to the firm that provides them goods and services on credit. It can be seen from graph, while Ryanair’s trade receiables collection days stay low level around 5 to 6 days, while that of EasyJet are very high over 20 days in 2009. It means Ryanair needs around 5 to 6 days to collect money from their customers; meanwhile EasyJet needs more than 20 days to withdrawn. It shows that the ability to management of Ryanair’ cash flows much better than that of EasyJet. Trade payable payment period:

Figure 20: Comparison of trade payable payment period between Easyjet and Ryanair The average settlement period for trade payables ratio calculates how long, on average, the firm make a payment to suppliers who provide them goods and services on credit. In the graph, the number of days that Ryanair take to pays for its suppliers is longer than EasyJet all of these years. In other words, Ryanair has been more and more using free source of finance provided by its supplier than EasyJet. It primarily due to Ryanair’s is bigger of the business scale and it achieves the favorable conditions from its suppliers. In addition, both companies have trend increasing the use of free source of finance provided by suppliers to their business.

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Current ratio:

Figure 21: Comparison of current ratio between EasyJet and Ryanair Current ratio expresses the firms’s ability to pay its short-term debt in time. From the graph, there is decrease in ability to pay the debt in both companies during the period between 2006 and 2010. In fact, in 2006 Ryanair had ₤2.43 in liquid assets for every ₤1 it owes. However, in 2010 Ryanair had only ₤1.98 in liquid assets for every ₤1 it owes. The figural for EasyJet was much lower in 2006 ₤2.11 in liquid assets for ₤1 borrowing and in 2010 ₤1.42 for ₤1 it owes. However, the ratio of both is quite good, and it does not have short-term debt problems in both companies. Furthermore, the graph shows Ryanair’ ability to pay its short-term liabilities better than EasyJet all the time.

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Gearing ratio:

Figure 22: Comparison of gearing between EasyJet and Ryanair In term of gearing ratio, during the period Ryanair and EasyJet’ gearing ratio is similar. The gearing ratio of Easy is slight higher than that of Ryanair. In can be seen from the graph, in 2006, 54% of financial resource of Ryanair came from borrowing, however, the figure in 2010 rose 60%. In the same time, the figure for EasyJet was 54% in 2006 and 63% for 2010. To sum up, both Ryanair and EasyJet are being more relied on external financial to run them business

Shareholder returns: Investment ratio analysis EPS:

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Figure 23: Comparison of earning per share ratio (EPS) between EasyJet and Ryanair The earnings per share is important ratio that helps to assess potential of an investment opportunity in a firm. It measures the earning that each share of firm generates during a particular period. Shareholders usually pay most attention to earning per share because that indicates firms’ capability in creating cash flows for shareholders. In the graph, the trend in earnings per share of Ryanair decreased from 40 pence per share in 2006 to -11.44 pence per share in 2009 and then recovered to 20.68 pence in 2010. In contrast, there was a fluctuation in earning per share of EasyJet between 16.9 pence per share and 34.8 pence per share during this period of time. To sum up, EPS of EasyJet is more stable than that of Ryanair. So the prospect of EasyJet seems to be more stable than Ryanair’s. P/E ratio:

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Figure 24: Comparison of Price earning per ratio (P/E) between EasyJet and Ryanair Price earnings ratio can express the relationship between the capital value of the share and its current level of earnings, and it can affect the market confident in the future of a company, so it is very useful. Two airline companies’ P/E was fluctuation during 5 years period. Therefore, the confidence of two airline companies’ shareholders varies. However, in 2010 Ryanair’P/E is higher than that of EasyJet, so it may indicates investors will expect a better future prospect of Ryanair. Employee ratio: Employee ratio demonstrates the productivity of the company’ employees.

Figure 25: Comparison of turnover per employee between EasyJet and Ryanair

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The average settlement period for trade payables ratio calculates how long, on average, the firm make a payment to suppliers who provide them goods and services on credit. This ratio is most useful when compared against other companies in the same industry. Ideally, a company wants the highest revenue per employee possible, as it denotes higher productivity. In the graph, turnover per employees ratio of EasyJet is higher than that of Ryanair all of the time. It means that easyJet’employees is higher productivity in comparison to that of Ryanair in terms of generating revenue.

Figure 26: Comparison of profit per employee between EasyJet and Ryanair However, in case of profit per employee, each employee of Ryanair generates more profit than EasyJet’s during 5 years period. It due to Ryanair is better off reducing unnecessary operating expenses.

Figure 27: Comparison of total Asset per employee between EasyJet and Ryanair

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2 Conclusions

This paper analyzes Ryanair’s financial performance between 2006 and 2010 by ratio analysis. Ryanair’s performance and strategies are evaluated and compared with low cost airline industry average performance as well as strategies with the closest competitor (EasyJet). Based on my research results, I find that:

2.1 Ryanair’s financial performance between 2006 and 2010:

Financial performance of Ryanair in 5 year-period from 2006 to 2010 is not very impressive. Although revenues increased significantly of 76.5% during the period, the profits have decreased. It is because of considerably increasing in operating expenses of 95% during the same period.

In terms of profit and loss after taxation, there is a considerable drop in profit as a percentage of revenues. Company makes a profit of 18.12% as equal as total revenue in fiscal year 2006, however, this figure declined to 10.2% in fiscal year 2010. It is due to the increase in operating expense is higher than the increase in sale revenues.

Profitability ratio: Ryanair’s ROSF and ROCE were stable with high level during three fiscal years from 2006 to 2008. However, fiscal year 2009 of both shows loss in profit. The key reason for this loss is a surge in fuel bill, which rose around 60% to €1.59 billion. In 2008 oil prices were nearing $140 a barrel.

Efficiency Ratio It shows that there is a slight improvement of its total asset utilization during 5 year periods. In fact, in 2006, Ryanair invested €1 in asset it generated €0.4 in the Company’s revenue, however, in 2010 €1 invested in total assets created €0.43 in the Company’s revenue. In the same time, ratio for fix asset turnover rose from 0.66 in 2006 to 0.77 in 2009.

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In general, these ratios indicate that the company has utilized its assets effectively during the five-year period. Although Ryanair has invested heavily to raise its aircrafts from 103 in 2006 to 232 in 2010, the fix asset turnover ratios are stable and slight increase. It indicated that new aircrafts are efficiently used to immediately generate the company’s revenue.

Financial gearing: Ryanair uses more borrowing to fund its business during the period. In 2006, 54 % of financial resource came from borrowing; however, the figure in 2010 rose to 60%. It means Ryanair relies on external finance to run its business. In case of interest cover, in 2009 operating income were negative, it is because of the financial crisis and surge increase fuel price, therefore it could not cover its interest, all of other years for this periods, interest cover were around 5 and 6 times. It shows that the Company has strong ability to pay its debts.

Investment Ratios The earnings generated by Ryanair’ business has decreased during the period. It seems that the prospect of Ryanair’s share was not good. In term of P/E, trend in P/E dropped considerably during the period from 2007 to 2009 and has recovered after 2010. This recovery in 2010 of P/E ratios shows that investors expect a better prospect of the Ryanair’s business.

2.2 The comparison between the performances of Ryanair with industry average:

The performance of Ryanair is better than the industry average performance in many places in the world. ROE of Ryanair is 12,69% meanwhile the ratio of airlines in other regions such as European Union and World suffered a loss or keeping low rates European Union (Non-Euro) and United Kingdom were 6.04% and 11.21% respectively. Ryanair’ current ratio and quick ratio has remained at 1.89%. Comparing to the airline industry in many places in the world, Ryanair has maintained an average high level in both current ratio and quick ratio than its competitors. In other words, Ryanair has a better position than average airline industry to meet its short-term financial obligations.

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In terms of market capitalization, Ryanair is more than 3 times larger comparing airline industry company average. Southwest is the low cost airline which has the highest revenue, €8.6 billion. The following is Air Berlin and Ryanair which Revenue are approximately €3.72 and €3.6 billion. Ryanair is the biggest low fare airline regarding profit after tax, approximately €374.6 million that is higher than the profit after tax of Southwest. Southwest is the biggest airline in terms of total assets, while Ryanair is the second biggest that owns assets nearly double to the rest of low fare airlines. Ryanair’s financial performance is better in comparison to that of other low cost airlines as a whole, in terms of profitability. Only profitability ratios of Air Asia are better than that of Ryanair. In fact, Air Asia’ ROCE, ROSF are 9.8% and 29.15% respectively. Meanwhile, ROCE and ROSF of Ryanair are lower 7.68% and 12.68%. However, the size of Air Asia is much smaller compared with Ryanair. Ryanair‘s ratio sales/assets is lower than other main low fare airlines. It means Ryanair utilizes its assets less effectively than others. In fact if Ryanair invests €1 in assets, it generates only €0.45 pence. However if Southwest invests €1 in assets, it generates €0.78 pence, and that for EasyJet is €1 investment in assets, it generates €0.77 pence.

2.3 The comparison between Ryanair and EasyJet:

The comparisons the difference strategies: Ryanair and Easyjet are operating as the same mode: low-fare airlines, there some difference between the two carriers: - EasyJet tends to use central, primary airports, so carrying higher costs and charges. While Ryanair uses secondary and regional airports. - EasyJet uses the mixed team of Airbus and Boeing that would drive costs of pilot training, maintenance and operation of its fleet up. Meanwhile, Ryanair continued to use it pure B-737 fleet. - In term of expansion, Ryanair is somewhat more successful than EasyJet. In the M&A deal to acquire Go, Ryanair paid only a net €1million on a carrier with 4 million passenger base while EasyJet spent €400 million on another potential 5 million passenger airliner. Page 38 Evaluating Financial Performance of Ryanair

The Comparison financial performance between Ryanair and EasyJet:

Profitability ratio analysis ROCE& ROSF: Ryanair and EasyJet’s ROCE and ROSF have decreased between 2006 and 2010 due to a considerable increase in operating profit. It is because of the negative effect of the financial crisis and surge increasing fuel price. In general, Ryanair’s ROCE and ROSF are better than that of EasyJet all of the time. Only in 2009 Ryanair’s ROCE is negative -3.6% and -6.98% while that of EasyJet’s is 2.1% and 5.45%. Efficiency ratios and Liquidity ratios analysis Fixed asset turnover: EasyJet’ fixed assets turnover is higher than that of Ryanair during the period. In other words, EasyJet has been more effective in utilizing its fix-assets to generate sale revenue than Ryanair. In fact, in 2010 if EasyJet invested €1 in fix-assets, it would generate €1.2 in revenue. However if Ryanair invested €1 in fix-assets, it would generate only €0.66 in revenue. Trade Receivables collection period: Ryanair’s trade receivables collection days stay low level around 5 to 6 days, while that of EasyJet are very high over 20 days in 2009. It means Ryanair needs around 5 to 6 days to collect money from their customers; meanwhile EasyJet needs more than 20 days to get the receivables settled. It shows that the ability to management of Ryanair’ cash flows much better than that of EasyJet. Trade payable payment period: The number of days that Ryanair take to pays for its suppliers is longer than EasyJet all of these years. In other words, Ryanair has been more and more using free source of finance provided by its supplier than EasyJet. It primarily due to Ryanair’s is bigger of the business scale and it achieves the favorable conditions from its suppliers. In addition, both companies have trend increasing the use of free source of finance provided by suppliers to their business.

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Current ratio: There is decrease in ability to pay the debt in both companies during the period between 2006 and 2010. In fact, in 2006 Ryanair had ₤2.43 in liquid assets for every ₤1 it owes. However, in 2010 Ryanair had only ₤1.98 in liquid assets for every ₤1 it owes. The figural for EasyJet was much lower in 2006 ₤2.11 in liquid assets for ₤1 borrowing and in 2010 ₤1.42 for ₤1 it owes. However, the ratio of both is quite good, and it does not have short-term debt problems in both companies. In addition, Ryanair’ ability to pay its short-term liabilities is better than EasyJet all the time. Gearing ratio: The gearing ratio of Easy is slightly higher than that of Ryanair. In 2006, 54% of financial resource of Ryanair came from borrowing, however, the figure in 2010 rose 60%. In the same time, the figure for EasyJet was 54% in 2006 and 63% for 2010. To sum up, both Ryanair and EasyJet are being more relied on external finance to run their business Investment ratio analysis EPS: The trend in earnings per share of Ryanair decreased from 40 pence per share in 2006 to -11.44 pence per share in 2009 and then recovered to 20.68 pence in 2010. In contrast, there was a fluctuation in earning per share of EasyJet between 16.9 pence per share and 34.8 pence per share during this period of time. To sum up, EPS of EasyJet is more stable than that of Ryanair. So the prospect of EasyJet seems to be more stable than Ryanair’s. P/E ratio: Two airline companies’ P/E fluctuates during 5 years period. Therefore, the confidence of two airline companies’ shareholders varies. However, in 2010 Ryanair’s P/E is higher than that of EasyJet, so it may indicates investors will expect a better future prospect of Ryanair. Employee ratio: Turnover per employees ratio of EasyJet is higher than that of Ryanair all of the time. It means that easyJet’employees is higher productivity in comparison to that of Ryanair in terms of generating revenue. However, in case of profit per employee, each employee of Ryanair generates more profit than EasyJet’s during 5 years period. It due to Ryanair is better off reducing unnecessary operating expenses.

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Overall Conclusion: To sum up, although Ryanair is expanding its businesses, in terms of number of pasengers, new routes, fleets, employees, the financial perfomance of Ryanair during 2006 to 2010 is not so impressive. It is because of negative effects such as surging oil price as well as strong competition in airline industry. However, the financial performance of Ryanair is much better than the closest competitor Easyjet as well as other low fair airlines as a whole.

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