Leave it to Ireland's Ryanair (NASDAQ:RYAAY) to out-Southwest Southwest (NYSE:LUV). While these two low-fare carriers do not compete against each other, Ryanair has not only adopted the Southwest model of "low everything" (as in low fares, low costs, etc.), but in some ways surpassed it.
Results for the company's fiscal first quarter confirm again that it's doing something right. Revenue jumped 40% as traffic rose 25% and yields improved 13%. Costs continue to be a mixed bag; the company is doing a very good job of controlling those costs where it can exercise discretion and influence, though fuel costs continue to rise. To that end, operating income rose 71% (and margins improved about four and a half points) on the way to an 80% jump in adjusted profits.
Even accounting for an Easter boost to results (the holiday fell in this quarter this year and so lifted comparisons), it's clear that management continues to make the most of a challenging environment for other carriers. Some of that is scheduling -- Ryanair increasingly offers flights to the places people want to go -- but much of that is simple operational skill as it continues to "out-Southwest Southwest" by pushing its costs per passenger lower than anybody else and, accordingly, pricing fares lower than anybody else on average.
Better still, it's in a good competitive position. As I see it, neither British Airways (NYSE:BAB) nor Air France (NYSE:AKH) can afford to compete on price with Ryanair's routes. And while easyJet is also seeing good numbers, I think the number of low-fare competitors will be limited -- many more may emerge, but most will be destined to eventual bankruptcy, as it's not easy to run a low-cost model and still find the capital to buy and maintain the planes.
For a long while now, I've liked Ryanair as a company just fine but have found the stock too expensive. That's still the case today, but perhaps management's cautious guidance and worries about fuel costs could ultimately produce a bargain. Though ongoing pressure in fuel costs will ultimately hurt this company, that could be a good buying opportunity for patient investors with a longer-term view on this low-cost Irish operator.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
