Ryanair says '08 may be difficult

Ryanair Holdings Plc, Europe's biggest discount airline, said profit declined for the first time in seven quarters as increased competition hurt ticket prices.

Higher fuel costs and reduced consumer spending may hurt earnings next fiscal year, the company said.

Net income in the fiscal third quarter through Dec 31 fell to 35 million euros, or 2.35 cents a share, from 48 million euros, or 3.09 cents, a year earlier, Dublin-based Ryanair said in a statement yesterday. Sales rose 16 percent to 569 million euros.

Profit may drop by as much as 50 percent to 235 million euros in the year beginning April 1, when Ryanair is "essentially unhedged" against rising oil prices, it said yesterday.

A weakening UK pound and dwindling demand for flights as economies slow may also eat into future earnings.

"There are going to be earnings downgrades by analysts because of this," said Stephen Furlong of Davy Stockbrokers in Dublin, who has a "buy" rating on the shares. "It is going to be a struggle to grow profits in 2009."

Shares of Ryanair have declined 22 percent this year, reducing the company's value to 5.37 billion euros, amid concern about oil prices and consumer spending.

"The current outlook for the coming fiscal year is poor," Ryanair Chief Executive Officer Michael O'Leary said in yesterday's statement.

"The European airline sector is presently facing one of these cyclical downturns, with possibility of a perfect storm of higher oil prices, poor consumer demand, weaker Sterling and higher costs at unchecked monopoly airports."

Airline's costs

Fuel accounts for more than one-third of the airline's operating costs. Oil reached a record $100.09 a barrel on Jan 3 and crude for March delivery was recently priced at $88.84 in New York.

The company is hedged at $65 a barrel this fiscal year but is largely unprotected for the following 12 months.

"The price went against us," Chief Operating Officer Michael Cawley said.

"At this stage we'll take our chance on the spot price. It would be wrong to hedge if we felt there was a strong chance the market might fall."

Third-quarter earnings were in line with analyst predictions for a profit of 35.6 million-euros. Profit was clipped by a 4 percent decline in yields, a measure of average fares, a doubling in charges at the carrier's London Stansted hub and by an increase in average flight lengths.

The decline was accentuated by a 10 million-euro gain in the year-earlier period after a hotel operator canceled a cooperation contract, triggering a termination penalty.

Net income for the year through March should still increase by 18 percent to about 470 million euros, in line with previous guidance, the company said.

Ryanair and low-cost rivals including EasyJet Plc have expanded with new planes and routes in recent years as they seek to lower operating costs and grab market share.

Budget airlines account for about 30 percent of total airline seating in Europe, up 6 percentage points from last year.

Agencies

(China Daily 02/05/2008 page17)