Low cost airline Ryanair has announced record Q1 profits. The Ireland-based airline has been unaffected by the troubles which have afflicted many traditional flag carrying airlines and has, along with other low cost pioneers, helped to completely change the airline business model. However, in the long term, European railways may be the real losers.
In its financial report for Q1 2002, Ryanair has revealed profits of E39 million. This was an increase of over 67% compared to its profits of E23.2 million for the same quarter last year. Much of the increase was due to exceptional costs that the airline bore in Q1 2001 relating to the set up of new routes. Passenger volumes increased by 38%, higher than the 28.8% in operational revenues which demonstrates falling yields. The airline puts this down to its strategy of driving down prices.
Although Ryanair's CEO Michael O'Leary warned that profit increases would not continue at this rate, the company is in a very strong position. It aims to open a new base in Europe every year in addition to launching a raft of new routes between Ireland and the Continent. Its success has already forced the national flag carrying airlines to address their own business plans, and cut routes that compete with the low cost alternatives. However, there will be other less obvious impacts brought about by its success.
Flying between major cities is now in many cases cheaper and (depending on the passengers origin and destination) faster than traveling by train. European train services will be heavily impacted once a new network of air routes is up and running. The limiting factor is the capacity of European airports and airspace, and the need for low cost airlines to use better-located airports. However, if these conditions are fulfilled there will inevitably be questions asked about whether European governments should continue to subsidize loss making rail services when a perfectly profitable and more convenient alternative exists.
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