Ryanair Lifts Forecast as Economy Seen Helping Discounter

Ryanair Holdings Plc upgraded its full-year profit goal for the second time this year, saying that any slowdown in the European economy could push people in its direction as efforts to attract business passengers pay off.

Europe’s No. 1 discount carrier surged 10 percent after it said earnings for the 12 months to March 31 will be at least 100 million euros ($125 million) higher than anticipated, days after top network rivals Air France-KLM Group and Deutsche Lufthansa AG said sluggish growth would weigh on demand.

Chief Executive Officer Michael O’Leary has refined Ryanair’s no-frills model to draw in corporate clients as he targets a return to annual profit growth following the first decline in five years in fiscal 2014. There’s no indication that a slowing economy will clip discount demand and it will most likely play in the Dublin-based carrier’s favor, he said today.

“I always have concerns about the European economy, but customers are getting more and more price sensitive and are switching to Ryanair even more,” O’Leary, who last month signed a contract that will keep him at the helm until 2019, said in a telephone interview. “The outlook is very strong.”

Shares of Ryanair, which signed an order for as many as 200 Boeing Co. 737 single-aisle aircraft in September, advanced as much as 76 cents and were trading up 69 cents, or 9.1 percent, at 8.29 euros as of 10:40 a.m. in Dublin. That takes gains this year to 32 percent, valuing the company at 11.5 billion euros.

Strike Damage

According to Ryanair’s new guidance, annual net income will be in the 750 million euros to 770 million euros range, versus the 620 million euros to 650 million euros previously forecast.

That’s after Air France-KLM said Oct. 29 that a two-week pilot strike wiped 330 million euros from earnings as staff resisted moves to expand low-cost flying, and that bookings for the current quarter are weaker than anticipated.

Lufthansa meanwhile cut its 2015 earnings outlook for the second time in six months on Oct. 30, citing a sluggish economy, and remains embroiled in its own strike saga over changes to retirement benefits.

Among major carriers, only IAG SA has so far shared O’Leary’s upbeat tone this earnings season, with CEO Willie Walsh saying the focus of its British Airways unit on still-healthy North American markets and cost cuts at the Spanish Iberia arm will allow it to ride out any downturn.

‘Cornucopia’

Ryanair’s passenger numbers in the fiscal second half -- the low season for European travel -- should increase by about

5.3 million, 2.2 million than previously estimated, the company said, boosting the full-year total 9 percent to 89 million.

“We’re really now seeing just how much grief the mess in European short-haul is causing Air France and Lufthansa,” said John Strickland, an aviation specialist at JLS Consulting Ltd. “They just can’t get the cost message across, unlike IAG, which has managed to make things stick in Spain, and certainly Ryanair, which now sees a cornucopia of opportunities.”

O’Leary is seeking to broaden the customer base, luring older travelers and families, as well as corporate clients, with paid-for perks including allocated seating and fast-track security clearance. The CEO said today that’s he has been “pleasantly” surprised by the uptake for its new products.

Ryanair plans to lift its passenger total to 120 million over the next five years, up 50 percent from the 2013 figure, during what O’Leary has said will be the “endgame” of a transformation in European short-haul flying.

Hit List

Carriers including Scandinavian Airlines, Alitalia SpA, Air Berlin Plc, TAP-Transportes Aereos Portugueses, the former Olympic Airlines SA of Greece and Ireland’s Aer Lingus Group Plc -- in which Ryanair has a stake -- are among those he says will shrink or merge, opening up new expansion opportunities.

Growth at Ryanair will be split about 50:50 between primary airports that the carrier is increasingly serving as it woos business people and more distant secondary ones better-suited to leisure travel, O’Leary said on Bloomberg Television.

Website enhancements have also allowed Ryanair to overtake BA and discount rival EasyJet Plc, which posts earnings Nov. 18, to become the No. 1 airline in the U.K. by site visits, he said, referring to Hitwise data. That’s up from third spot a year ago.

Ryanair fares gained about 5 percent on average in the first half through Sept. 30, while unit fell 2 percent excluding fuel and sales rose 9 percent to 3.54 billion euros. Ancillary revenue from items such as booked seats gained 4 percent to 741 million euros, or more than a fifth of the total.

For the full year, ticket prices will be about 1 percent higher as winter fares are cut to accommodate a 16 percent jump in seasonal capacity and turn the screw on network operators, O’Leary said, while adding that booking visibility is poor.

Second-quarter earnings rose 14 percent to 598.2 million euros. Analysts polled by Bloomberg had predicted quarterly net income of about 611 million euros, based on six estimates.

The company will return 520 million euros to shareholders via a special dividend to be paid at the end of February.

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