May 23, 2011
Low cost Irish airliner Ryanair (NASDAQ:RYAAY) will cut capacity for the first time in its over 25-year history as rising fuel costs could potentially make dozens of routes unprofitable for the company.
"It's the first time ever that we'll go negative on traffic," CEO Michael O'Leary said in an interview. "We take delivery of 50 aircraft this winter so instead of running around trying to open up new bases and routes in November and December we'll sit them on the ground. With higher oil prices it makes no sense."
Even with a planned 12% fare increase, O'Leary expects net income for the year to be no higher than last year's $563 million. He also said he'd ground about 80 of 300 jets and make layoffs for the company's slow season beginning in October.
Ryanair has transformed the landscape of the European airline sector since O'Leary took over in 1990 after studying the growth of Southwest Airlines (NYSE:LUV) in the U.S., offering flights between cities not previously served by air and enticing customers from established carriers with bargain-basement fares and a no-frills service.
The airliner became the largest in Europe last year as measured by total scheduled passengers carried, with 72.7 million, after 2 decades of high growth.
Ryanair Holdings has a potential upside of 59.6% based on a current price of $28.51 and an average consensus analyst price target of $45.5.
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