Ryanair Profit Outlook Cut Spooks Investors
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Irish budget airline Ryanair cut full year profit forecasts to the lower end of its range Monday due to falling yields, sending its shares down 10 percent and impacting the broader airlines sector.
Investors shrugged off the carrier's better-than-expected first quarter profit, which was largely boosted by lower fuel costs, and focused instead on its warning that full-year net profit would come in towards the bottom of the EUR200 million - EUR300 million previously guided range due to falling yields.
"The downgrade in terms of profits that spooked the market," one Dublin-based trader said.
"I think people generally didn't believe him (CEO Michael O'Leary) at the full-year stage when he was guiding yields down 15-20 percent and now that he is guiding them down further than that, guys are getting a bit scared."
O'Leary's reality check hit share prices across the airline sector, and Ryanair's stock was the biggest loser on the main Irish index at midmorning.
"The profit warning is not the biggest surprise in the world, but it shows that yields are tougher than expected, and that reads across negatively to pretty much everybody. If you are putting a lot of growth in, yield management has to work pretty hard," said Andrew Fitchie from Collins Stewart.
Despite the sobering outlook Ryanair, which prides itself on sacrificing comfort to cut costs, is still expected to roughly double its full-year profit unlike rivals British Airways and Virgin Atlantic which are both expected to suffer heavy losses as premium customers tighten their belts during the recession.
Famed for its zealous attitude to costs, which has seen customers heavily penalized for excess luggage and failing to check-in on the Internet, Ryanair is hoping to mop up business from travelers willing to rough it during the global recession.
The group, one of the world's largest airlines by market value, expects passenger numbers to grow by 15 percent this year.
Average fares are expected to fall by 20 percent or slightly more.
"We still have only 10 percent of total market in Europe so there's plenty of scope for us to reduce fares to stimulate that growth," deputy chief executive Michael Cawley said.
COIN-OPERATED TOILETS
Ryanair, which prides itself on sacrificing comfort to cut costs, has considered coin operated toilets and extra charges for heavier passengers.
O'Leary said Q2 yields will be significantly lower than last year, at or slightly above the minus 15 to 20 percent range previously guided for the carrier's key profitable quarter.
Ryanair, which had already taken a hedge for 90 percent of its fuel needs for the first three quarters of 2010 and 5 percent for Q4, further hedged for 60 percent of fuel for Q4 at an average USD$610 per tonne.
