By Andras Gergely
DUBLIN (Reuters UK) - Irish budget airline Ryanair (RYA) sent a fresh warning to planemaker Boeing (BA) over a large order, saying it could curb its once unstoppable growth as limits emerge in its quest for cutting costs.
Ryanair, already close to being Europe's biggest airline, said on Monday it still saw "massive" expansion opportunities, but analysts said it could not sustain a 15 percent annual rate of traffic growth without cutting fares too low to make money.
"It's difficult to see how they can keep squeezing costs out of the business," said Panmure Gordon analyst Gert Zonneveld. "At the end of the day, you need your two pilots, you need a number of crew per aircraft."
Shares in Ryanair fell 4 percent after it failed to meet expectations it would raise its full-year outlook and as an 80 percent rise in first-half profit owed much to cheaper fuel and belied falling fares and revenue.
Ryanair said talks with Boeing on ordering 200 aircraft for 2013-16 delivery had not progressed much, adding it could end its traditional relationship with the U.S. aircraft maker.
"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," chief executive Michael O'Leary said.
"If we cannot invest our surplus cash efficiently in new aircraft, then we should distribute it to shareholders," said O'Leary, who has so far stuck to building Ryanair's 2.5 billion euro cash pile further without paying any dividends.
BOEING VS AIRBUS
O'Leary, renowned in the industry for driving hard bargains, famously placed a massive order for 100 new Boeing aircraft and options on 50 more at rock bottom prices in the wake of the September 11 attacks on the United States.
"I still believe that they are very keen to buy new aircraft," the Dublin-based trader said. "I don't interpret what is happening as a dramatic change in their strategy yet."
O'Leary, who has said Ryanair could stop growing beyond 2012 if no deal was reached with Boeing, has been hinting for months he would be prepared to switch allegiance to Airbus.
Ryanair, which has thrived on consumers trading down in the recession, said it was still winning substantial market share from major flag carriers Air France-KLM (AIRF), British Airways (BAY) and Deutsche Lufthansa (LHAG).
With many rivals going out of business or giving up their independence, and even relatively lean rival easyJet (EZJ) cutting its growth, Ryanair is virtually on its own in pursuing double-digit growth.
"The message is there is another strategy which they can comfortably pursue for quite a few years which does not require another big deal with Boeing or Airbus (EAD)," Zonneveld said.
Ryanair said first-half profit was boosted by a 42-percent fall in fuel costs and concealed a 17-percent decline in fares which was set to accelerate to 20 percent in the second half.
Ryanair expects to make a loss in the third and fourth quarters of the 2009/10 fiscal year, though affirmed its forecast for full-year net profit at the lower end of a 200 million to 300 million euro range.
"The market expectations had been considerably higher than that," one Dublin-based trader said.
Ryanair, which has mounted two unsuccessful hostile bids for Aer Lingus (AERL), reiterated it was unlikely to make a third bid but it would respond positively if -- as it expects -- the government asked it to bail out the loss-making Irish rival.
Ryanair's net profit before exceptional items in the six months to the end of September came in at 387 million euros (339.6 million pounds), compared with a forecast of 377 million euros by Ryanair's house brokers Davy.
Revenue fell 2 percent in the first half to 1.77 billion euros as the decline in fares outweighed a 15 percent growth in traffic.
(Additional reporting by Antonella Ciancio, Rhys Jones; Editing by Hans Peters, David Cowell, Tim Hepher)
