You just gotta love Ryanair (NASDAQ:RYAAY) management -- "no nonsense" doesn't quite do it justice. Not only is it completely realistic about the fact that customers value cheap fares and good service over almost anything else, but it's not afraid to speak its mind. Listening to management rail against "grandiose plans at Stansted Airport for a gold-plated second runway" or call out the Dublin airport as a "third-world facility" does provide a little extra juice on top of the regular quarterly performance information.
Fortunately for investors, the company has the track record to more than justify its outspoken tendencies. In an environment that has been brutal for air carriers, Ryanair posted 24% revenue growth (including 39% growth in ancillary revenue) and ex-goodwill operating margins declined only modestly despite a 50%-plus spike in fuel costs. As a result, the company managed a 19% increase in profits excluding goodwill.
I'm not sure there's much to say about Ryanair that hasn't already been said. The company continues to do a phenomenal job of controlling costs (particularly labor costs), and the company's cost structure allows it to offer incredibly low fares. At an average fare of 41 euro, Ryanair is well below its competitor easyJet and not even in the same arena as BritishAirways (NYSE:BAB). Top that off with leading service (at least in terms of on-time performance and baggage handling), and you've got an obvious winning formula.
I also like the fact that Ryanair management seems to understand that the airline business is actually a business -- something that I often wonder whether U.S. airline CEOs understand. As such, it's always on the prowl for new revenue sources or new ways of containing costs.
For instance, while Ryanair decided to strip out the in-flight entertainment systems that it was testing, the company is still optimistic about the potential of in-flight gambling and will explore this again in the future. Additionally, Ryanair had hedged 75% of its fuel needs for next winter. Personally, I'm amazed that more airlines don't hedge their fuel costs since it is a large part of their operating expenses.
That said, I'm afraid that Ryanair may be marking a top in oil prices. If I were to complain about anything regarding Ryanair management, it's that it generally isn't very good when it comes to forecasting oil prices. So, if Ryanair is now hedging its fuel exposure, you can bet that oil prices are set to soon tumble.
Teasing aside, there's much to admire about Ryanair. They've taken the Southwest Airlines (NYSE:LUV) model and not only replicated it in Europe, but may have in fact surpassed it already. It's tough for me to get excited about any airline as an investment, given the horrible history of the industry as a whole, but if you think that the airlines have seen their worst days, you should definitely take a look at Ryanair. Rising tides may lift all boats, but it's usually a good idea to get into the best boat you can find.
For more on the "friendly" skies:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
