Ryanair shares in tailspin as oil soars
SOARING oil prices wrought havoc with Ryanair's share price yet again yesterday, with the low-cost carrier closing down 3.7pc to €2.89 amid oil-fuelled sell-offs and write-downs.
The share-price slide began in the morning, as investment bank Merrill Lynch cut its targets for Ryanair, easyJet and British Airways, citing prevailing oil prices.
Ryanair is essentially unhedged for the financial year ending March 2009, and chief executive Michael O'Leary has warned profits for that year may halve to €235m. Mr O'Leary has also insisted Ryanair will benefit from any "bloodbath" by remaining profitable while competitors die.
"Over the long term, we believe Ryanair can create value," Merrill analysts Samantha Gleave and Paul Butler wrote, while cutting Ryanair's forecasts by 7.3pc. "In the nearer term, share-price volatility may continue reflecting short-term macro-related concerns, market sentiment and fuel-price movements.''
The bank retains a "buy" recommendation on Ryanair and a "neutral" recommendation on easyJet and British Airways. BA retreated 8.2pc, while Lufthansa slipped 4.9pc and Air France-KLM sank 5.9pc yesterday.
Oil later climbed to a new peak of $126 (€81) per barrel in New York, as the dollar weakened against the euro and yen, prompting investors to buy commodities.
Weak
"Oil is a safe haven because of the weak dollar and how badly the financial sector has been doing," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
"There are also geopolitical concerns about places like Nigeria and Venezuela that are propping prices up."
The dollar has dropped 10pc since mid-September, when the Federal Reserve, America's central bank, began cutting rates to ease financial-market strains and stave off a recession. The US central bank cut rates seven times while the ECB has left rates unchanged.
Goldman Sachs analyst Arjun Murti said this week that "the possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months". Mr Murti first wrote of a "super spike" in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.
Meanwhile, the Organisation of Petroleum Exporting Countries, the producer of more than 40pc of the world's oil, may meet before September to consider increasing output in an attempt to rein in record crude-oil prices, said Shokri Ghanem, a senior OPEC figure from Libya.
The record oil prices prompted a wide-spread sell-off of aviation stocks, with all Europe's major carriers closing the day in negative territory.
Ryanair's shares have shed close to 40pc of their value this year. The airline had promised profits of €470m at its June 3 full-year results announcement, and is expected to update the market on hedging and the 2009 outlook at that stage.
- Laura Noonan
