Ryanair puts expansion plans on hold despite profits

Ryanair, the Irish low-cost carrier, has said it could abandon plans for rapid expansion over the coming years in favour of redistributing cash to shareholders.

The announcement follows news that talks with Boeing about the purchase of 200 aircraft have reached a stalemate, with neither side willing to budge on price.

It also comes as Ryanair unveils an 80 per cent rise in interim profits, helped along by the carrier's aggressive fare-cutting strategy as well as plummeting fuel costs.

Ryanair has traditionally operated a no-dividend policy which sees takings that would normally go to shareholders being reinvested into the business.

But with the latest spike in profits – up 80 per cent to €387 million (£348 million) over the past six months – the airline is now thinking twice about that approach.

CEO Michael O'Leary explained that the results are less favourable than they might seem, being distorted by a 42 per cent fall in fuel costs. They also mask a 17 per cent decline in airfares, which Ryanair plans to cut by another 20 per cent over the next two quarters.

What's more, overall yields are expected to tumble further due to the weak sterling and the rise in Air Passenger Duty, pushing Ryanair into the red during Q3 and Q4.

Amid these tightened trading conditions – which will nonetheless see Ryanair posting full-year profits, analysts say – a row over the purchase of 200 new Boeing aircraft has forced the low-cost carrier to slam on the brakes over planned expansion to its route network.

"We would prefer to grow," Mr O'Leary confirmed. "But if Boeing doesn't share our vision, then I believe that Ryanair should change course before the end of this fiscal year and manage the airline over the next three years to maximise cash for distribution to shareholders.

"We see no point in continuing to grow rapidly in a declining yield environment, where our main aircraft partner is unwilling to play its part in our cost reduction programme."

Ryanair has long had a reputation for driving a hard bargain, prompting some industry experts to question whether its apparent U-turn is tactical posturing. Mr O'Leary himself has admitted that, despite falling passenger yields, overall traffic is up 18 per cent.

That burgeoning demand would appear to make route expansion a virtual certainty, but without extra planes to support its current fleet Ryanair's hands will be tied.

Shares in the low-cost carrier fell 3.7 per cent in morning trading on Monday to €2.835 – an early indication that investors could be deterred by the more cautious growth strategy. The airline had been due to take delivery of the 200 Boeing jets between 2013 and 2016.

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