Ryanair Holdings Plc (RYA), Europe’s biggest discount airline, predicted earnings will fall this year as a slowing European economy prevents it from increasing fares sufficiently to make up for surging jet-fuel costs.
Net income rose 25 percent to 502.6 million euros ($643 million) in the 12 months to March 31, Ryanair said today in a statement. That figure may slip to between 400 million euros and 440 million euros this year, the Dublin-based company said.
Ryanair idled 80 aircraft last winter, curbing capacity and helping to boost average fares 16 percent for the year as costs rose 13 percent. The European slump mean it will be tougher to increase prices enough this year to fully offset an anticipated 320 million-euro jump in the kerosene bill, it said.
“It’s going to be a more difficult ask in the coming 12 months as we see the recession biting across Europe,” Chief Financial Officer Howard Millar said in an interview. “Spain is a lot weaker, Italy is getting weak and you can’t expect to raise fares forever when you have so much austerity.”
Ryanair fell as much as 6.6 percent and was trading 5.1 percent lower at 3.82 euros as of 9:14 a.m. in London.
The stock has gained 5.3 percent this year, valuing the company at 5.5 billion euros. That’s the third-best performance on the seven-member Bloomberg EMEA Airlines Index, trailing the 23 percent advance of EasyJet Plc (EZJ), Europe’s second biggest discount airline, while outperforming network carriers Air France-KLM Group (AF), International Consolidated Airlines Group SA (IAG) and Deutsche Lufthansa AG (LHA), which have all declined.
The Irish company forecast earnings for last year of 480 million euros on Jan. 30 and analysts had expected a figure of 487 million euros, according to the average of 17 estimates in a Bloomberg News survey.
Chief Executive Officer Michael O’Leary said on Bloomberg Television that he’s “cautious” on the outlook for the current year, though less efficient carriers are likely to suffer more and the slump could ultimately benefit Ryanair in the long term.
The fuel bill rose by 360 million euros last year and this year’s jump will be felt mostly in the first half, leading to a drop in first-quarter profit, Ryanair said in a statement.
The carrier said it’s “concerned” about next winter, for which it has “zero yield visibility,” and will struggle to repeat this year’s results as fares only partially offset the fuel bill, with ticket prices likely to fall at new or growing bases in Hungary, Poland, Spain and the U.K. provinces.
Still, Ryanair’s earnings forecast at the start of the fiscal year is often on the low side and later upgraded, said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin.
“It’s almost always the same at this point if you look at the last 10 years,” said Gill, who has a “buy” recommendation on the stock. “Visibility is non-existent and they have a fixed step up in fuel costs so they have a fairly conservative view.”
Annual revenue last year advanced 19 percent to 4.32 billion euros as customer numbers increased 5 percent to 76 million, Ryanair said, adding that passenger traffic should grow by the same degree this fiscal year to about 79 million people.
While the carrier cut winter capacity for the first time year-to-year, it took delivery of 25 more aircraft, opened six new bases and added 330 routes during the 12 months. At least 200 further services will be added this year, Millar said.
Ryanair confirmed it will pay a second special dividend of 34 cents a share, or 483 million euros, due in November, after awarding shareholders 500 million euros in 2010.
There are no plans to make a payment next year, though it’s possible that a further dividend could follow in two years, dependent on Ryanair’s aircraft-purchase commitments, O’Leary said on Bloomberg Television’s “Countdown” with Mark Barton.
Ryanair, which is targeting markets opened up by the collapse of Barcelona-based Spanair SA and Hungarian national carrier Malev Zrt, isn’t looking to acquire airlines which might become available as governments reduce their stakes, he said.
“If you look at what they’re selling it’s rubbish,” the CEO said. “There’s nothing out there, certainly not that we’d be interested in buying.”
Ireland’s Aer Lingus Group Plc (AERL), which Ryanair had sought to buy before being thwarted by regulators, is now most likely to be purchased by a foreign bidder and broken up, he said.
Ryanair has had discussions with Airbus SAS and Boeing Co. (BA) about adding aircraft but has no immediate requirement, O’Leary added, with planes in any case likely to become available via cancellations at other carriers if needed.
Any order for the C919 being developed by Commercial Aircraft Corp. of China, with which Ryanair has been cooperating, would be “slightly longer term,” he said.
O’Leary said it’s possible Ryanair might agree to take a “small minority stake” in London’s Stansted airport as part of a bid group, though only in return for guarantees over fees. Owner BAA Ltd. (FER) has been ordered by regulators to sell the site.
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