Thursday 14 December 2017

Ryanair warns cheap fuel will boost rivals and knock profits

Michael O'Leary, CEO of Ryanair. Photo: Damien Eagers
Michael O'Leary, CEO of Ryanair. Photo: Damien Eagers
John Mulligan

John Mulligan

Ryanair has warned investors not to get carried away with profit forecasts, with its shares tumbling nearly 7pc yesterday as it predicted intensified fare competition across Europe.

The stock slide masked what was a strong performance by the airline in the three months to the end of December as the low-cost airline significantly exceeded analyst expectations.

Ryanair posted revenue of €1.13bn in the third quarter, with net profit soaring to €49m compared to a €35m loss in the third quarter of the previous financial year. Analysts had expected the airline, headed by chief executive Michael O'Leary, to post a net profit of €30m for the latest period.

The airline also raised its full-year profit guidance, from a previous range of between €810m to €830m, to €840m to €850m. That was the fifth time this financial year that Ryanair has bumped up its profit guidance.

Ryanair carried 20.8m passengers in the three months to the end of December, up 14pc year-on-year. It expects to have carried about 90m passengers this financial year.

Despite announcing a €400m share buyback and confirming a previously announced €520m special dividend that's due to be paid at the end of this month, Ryanair stock sank as it warned of headwinds.

"We would counsel shareholders and analysts to temper expectations for full-year 2016," it said, noting that any growth in profits for the next financial year will be "modest".

"There's a degree of irrational exuberance out there," Mr O'Leary told investors. "I've seen it - some of the forward-looking numbers, that everyone is going to trouser all the fuel savings. Life just doesn't work that way."

"Periods of lower oil prices are generally followed by periods of downward pressure on fares," he said.

Ryanair has hedged 90pc of its fuel requirement to the end of March at an average price of $95 a barrel. For the next financial year, it has hedged 90pc at $92 a barrel. For 2017, it has so far hedged 35pc of fuel requirements at $68 a barrel.

But some rivals don't have such an active hedging policy, meaning they can take better advantage of lower fuel costs.

That means they can lower their fares and intensify competition with Ryanair.

Ryanair intends to unveil the first of its bases in Germany within the next couple of months. The huge country is a largely untapped market for Ryanair.

Speaking to the Irish Independent, Ryanair chief financial officer Neil Sorahan said he expects that the airline could capture between a 15pc and 20pc share of the German market within the next five years.

That would make it the second-biggest player there after Lufthansa and ahead of Air Berlin, which is nearly 30pc-owned by Gulf carrier Etihad.

Ryanair chief marketing officer Kenny Jacobs said the airline will roll out more improvements this year as part of its "Always Getting Better' programme, which has seen it adopt a more customer-friendly approach.

It will trial on-board video streaming and wi-fi this year.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business