Low-cost airline Ryanair reported an 85 percent fall in first quarter net earnings and was unlikely to make any profit this year in a battle against recession and high oil prices. Shares in Europe's largest no-frills carrier dropped 25 percent.
Ryanair said on Monday it planned to respond to the downturn in the UK and Irish economies by cutting fares more aggressively than competitors, which have less cash and need to pass on high fuel prices to passengers.
The airline said adjusted profit after tax for the three months to the end of June was 21 million euros ($33 million), well below a forecast of 48.8 million by brokerage Davy. The adjusted figure excluded a writedown on the value of Ryanair's stake in Irish rival Aer Lingus by 93.6 million euros, reflecting recent big falls in global airline stocks. The Dublin-based carrier said it expected a full-year result of between break-even and a loss of 60 million euros on the basis of its current fuel hedges, fourth-quarter oil prices at about $130 per barrel and average fares falling by 5 percent.
"The outlook for the remainder of the fiscal year which is entirely dependent on fares and fuel prices remains poor," Chief Executive Michael O'Leary said. Deputy Chief Executive Michael Cawley added that Ryanair was highly unlikely to make any profit this year unless there is a "precipitous" fall in oil prices in the fourth quarter of its financial year. O'Leary, who said in June that the group would only break even if oil stayed at $130 a barrel and fares increased by 5 percent, earlier this month declined to forecast an annual loss, despite oil soaring past the $140 mark.
Oil prices have since fallen as low as $122.50. Shares in Ryanair traded 13.5 percent lower by 0841 GMT at 2.785 euros, above an earlier low at 2.4 euros. The wider Irish market was down 2.1 percent.
Shares in rivals easyJet and British Airways, which like Ryanair have announced cuts in winter capacity or capacity growth, were down 8 percent and 5 percent, respectively. "We continue to believe that Ryanair has the strongest business model and balance sheet to withstand and benefit from this cyclical downturn," Davy analyst Stephen Furlong said in a research note.
Ryanair said it had made use of a recent fall in oil prices and hedged 90 percent of its fuel needs for September at $129 per barrel, 80 percent for the third quarter at $124 per barrel, but remained unhedged for the fourth quarter. First-quarter revenues grew by 12 percent to 777 million euros.
That was well below the 865.4 million average of five forecasts in a Reuters survey and lower than the most cautious of the five analysts, who predicted 836.4 million. O'Leary said Ryanair's more than 2.2 billion euros in cash will help it weather the industry downturn and anticipates a strong rebound in earnings as rivals with higher costs or less assets suffer.
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