Thursday 29 September 2016

Ryanair flies higher as profits soar and €800m share buyback planned

Published 02/02/2016 | 02:30

Ryanair chief Michael O'Leary. Photo: Matthew Lloyd/Bloomberg
Ryanair chief Michael O'Leary. Photo: Matthew Lloyd/Bloomberg

Ryanair shares soared yesterday after it said third-quarter profits more than doubled year-on-year and said it would buy back €800m worth of stock.

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The airline made a €103m after-tax profit in the quarter to the end of December - the third quarter of its financial year - according to its latest trading statement.

Ryanair also announced plans for an €800m share buyback, in light of its "rising profitability and improving cashflow", and raised its passenger number guidance for its financial year to 106 million from 105 million.

In Dublin its shares closed up almost 6pc. "Our low fares policy delivered strong Q3 traffic and profit growth," chief executive Michael O'Leary, inset, said.

"Following a strong first half of Q3, we noted weaker pricing and bookings immediately after the terrorist events in Paris and Brussels.

"We reacted to this softness by running price promotions and discounted fares to stimulate double-digit traffic growth.

"While average fares fell 1pc...this was offset by lower unit costs," he added.

The airline updated the market on its fuel hedging - an area where it has faced criticism for locking in 90pc of its fuel for the current financial year at $92 a barrel. That turned out to be well above the market price.

Last week chief marketing officer Kenny Jacobs defended Ryanair's hedging record and said the airline wants certainty.

For its next financial year, 95pc of its fuel is locked in at around $62 a barrel. Yesterday the airline said that for the first half of the year after that, more than 50pc of its fuel is locked at around $52 a barrel.

It said it plan to pass fuel savings to customers in the form of lower fares.

The update was welcomed by analysts at Goodbody and Davy. "On the hedging front, it's an art rather than a science. They were always going to hedge FY18... it allows $300m savings and obviously there's more to come. They're unhedged on a lot as well," Davy's Stephen Furlong told the Irish Independent. "It's a bit higher than we had in our models but I don't think investors are too focused on 2018."

Goodbody analyst Mark Simpson said the update means that Ryanair "look substantially better than EasyJet, who clearly are in their sights and yet again were being highlighted in the presentation as an area where they continue to take share".

"The thing to bear in mind is that for this coming summer season, they're probably about $100 a metric tonne cheaper than EasyJet on their hedgebook," he added.

"Going beyond that, extending into FY 18, as they say this is a volatile environment, they don't know but they're taking an educated guess - 50pc cover for that first half sort of takes you up to September in 2017 calendar period.

"They are locking in as they like to do on their larger cost base so they can then flex everything around that. From that perspective I don't think it's a bad thing.

"I think the other big story, and probably the critical thing that's driving positive sentiment is... the unit cost performance outside of fuel, which really is the big change in expectations.

"Ryanair said unit costs are on track to fall 2pc in this financial year - they're talking about hitting a 2pc FY16 to March reduction.

"That means they're going to do at least a 6pc reduction in Q4. That's partly a reflection of cutting some marketing budgets, which will fall into next year. It's partly a reflection of a bulking up of staff cost in Q3, which won't be repeated as they were obviously opening bases last quarter.

"That's an impressive performance, the word they use in themselves in the statement is impressive, and I would agree, it is impressive," Mr Simpson said.

Irish Independent

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