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Saturday 22 October 2016

Profit-fuelled Ryanair plans to hit rivals with fares battle

Published 03/11/2015 | 02:30

Michael O'Leary, chief executive officer of Ryanair
Michael O'Leary, chief executive officer of Ryanair

Ryanair wants to drive fares down this winter to put pressure on its competitors, chief executive Michael O'Leary said.

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The airline yesterday posted a 37pc jump in after-tax profit for the first half of its financial year - to €1.088bn - excluding a one-off gain of €317.5m from the sale of its stake in Aer Lingus.

It said it expected full-year net profit to be at the upper end of its guided range of €1.175bn to €1.225bn. In July it became the first EU airline to carry 10 million passengers in one month, the airline said. "We have enjoyed a bumper summer due to a very rare confluence of favourable events including stronger sterling, adverse weather in northern Europe, reasonably flat industry capacity and further savings on our unhedged fuel," Mr O'Leary said. He told CNBC's Squawkbox that "everything is so good it's worrying".

He said the key feature "is that profits are up about 37pc with pricing essentially flat. We expect into this winter that there will be a decline in pricing, we're forecasting flat in Q3 up to Christmas and then down 4pc in our fourth quarter.

"Winter pricing will tend to be softer only because we're expanding in so many markets across Europe. We intend to keep driving prices down, because it keeps widening the gap between us and every other airline. The industry never looked so scarily good for us... our concern at the moment is not a competitive one, costs are well under control. "Unit costs are down 6pc this year, it's more what's going to happen, some extraneous event which always befalls the airline industry when it looks this good," he added. Mr O'Leary has previously said Ryanair will take an active role in the campaign to keep Britain in the EU.

Goodbody equity analyst Mark Simpson said Ryanair's release was the best of the results season. In a note circulated yesterday morning he said Goodbody was reviewing its share price target for Ryanair.

"The prices environment is being driven by Ryanair... the competitors are going to have to respond to Ryanair," he said.

Mr Simpson said Ryanair will exploit the dip in unit costs to take market share from its rivals. Ryanair shares opened down yesterday but by mid-afternoon they were trading up over 3.25pc.

Mr Simpson said some of the comments made during a conference call with analysts suggest that there may still be upside to current guidance.

He said that on yesterday's market opening, "it was marked down because you could have said, 'well the increase was due to fuel benefits'. Then as the details began to be digested and the conference call went on, the market realised that there's actually longevity to that growth. And that's what's led to the stock now being up."

Davy analyst Stephen Furlong said the airline had "an exceptional performance, underscored by a further rise in the FY 2016 traffic target from 104 million to 105 million".

Mr O'Leary said the airline had hedged 95pc of its fuel needs for the next fiscal year, and expected to save €430m on the back of that.

Irish Independent

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