Capacity cuts could be end of good times

 
Elizabeth Fournier
FOR the first time in its 25 year history, Ryanair is cutting capacity. When winter 2011 rolls round the discount airline plans to ground 80 of its fleet including 50 new deliveries – even if the UK experiences an Indian summer that lasts until next February.

A winter pullback on capacity is not unusual, but pulling more than a quarter of its fleet out of service will inevitably hit passenger numbers. Chief executive Michael O’Leary seems happy to guide down at the moment, predicting that passenger growth will be limited to four per cent. He also said profits would be flat as oil prices push operating costs up by 13 per cent, versus an average rise in fares of 12 per cent.

The caution over forecasts is countered by a bullish line from Ryanair on the eruption of Iceland’s Grimsvotn volcano. The airline booked an exceptional charge of £26m from the cost of similar disruption last year after it had to ground around 10,000 flights, but O’Leary said yesterday he expected a much smaller impact this time round.

A share drop of six per cent yesterday was in line with the rest of the industry, but shares have fallen by more than ten per cent since the start of the year, and a wary outlook won’t help.

O’Leary will be hoping that the smoke clears sooner rather than later, and that expansion plans aren’t on the back burner for too long.