Ryanair's first quarter profit jumps, cuts UK winter routes

Ryanair posted a better than expected rise in its first-quarter profit on July 31 and said it would beat full-year goals by cutting some winter routes rendered unprofitable by increased costs and taxes in the UK.
Shares in Europe's biggest low-cost carrier jumped as much as 13 percent after it said net profit in the three months to the end of June rose to 138.9 million euros ($189.9 million) from 115.7 million in the same period of 2006.
That was broadly in line with the most optimistic forecast in a Reuters poll of eight analysts, and well above the average prediction of 123.9 million euros. Ryanair said steady ticket prices, an 18 percent rise in passengers travelling on its growing network from a year ago and a 53 percent jump in ancillary revenues from services other than ticket sales were the main reasons for the profit rise.
In-flight sales of food and drinks, baggage charges and services such as car rental and travel insurance all helped boost ancillary revenues, which now account for 17 percent of the airline's total sales, to 117.1 million euros.
The Dublin-based carrier said its outlook for ticket prices remained cautious, however, with average fare yields in the second quarter seen "slightly down" on a year earlier while a drop of 5 to 10 percent is expected in the second half.
"We're expecting a tough winter when there could be significant price discounting by all airlines," Finance Director Neil Sorahan said, echoing earlier warnings by the company.
Sorahan told Reuters "zero visibility" on what will happen during the second half meant he was attaching a "health warning" to a forecast that net profit in the year to March 2008 is set to rise 10 percent, up from a previous 5 percent forecast.
"We could have a horrible winter and yields (average fares) would be through the floor," he said in a telephone interview. Davy analyst Stephen Furlong described the results as "very encouraging" given recent negative sentiment in the sector" and said he expected to raise his earnings forecasts for this year and next by just over 4 percent.
"We will also look at revising our price target - probably from 600 cents to close to the previous high of 633 cents," he wrote in a research note.
Ryanair said it had been able to raise guidance largely because it plans to reduce the number of aircraft operating out of London's Stansted airport this winter to 33 from 40.