Ryanair profit warning fails to dent airline shares

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Ryanair profit warning fails to dent airline shares
Ryanair profit warning fails to dent airline shares

Shares in Europe’s leading so-called low fares airlines rallied after a profit warning from market leader Ryanair sent them into an initial nosedive.Ryanair shares fell by over 5% after it issued a second profit warning in three months, and warned there could be more, ahead of formally issuing third quarter figures in two weeks’ time.Ryanair chief executive Michael O’LearyThe Ryanair stock is already down over 39% over the past 12 months and, in recent weeks, fell to a four-year low. However, it managed to close yesterday up by 0.25%. The airline’s chief competitor EasyJet closed up roughly the same, having dropped by 2% in early trading.Ryanair said it now expects post-tax profits for the 12 months to the end of March to come in at between €1bn and €1.1bn. That would be down by around 30% from the €1.45bn profit Ryanair reported for the 12 months to last March.In early October, the airline cut its current year profit guidance from a €1.25bn-€1.35bn range to a €1.1bn-€1.2bn range.The latest forecast cut has been made against a backdrop of lower-than-expected winter air fares – set to be down by 7% instead of just 2% – and Ryanair said a further guidance cut could be made due to Brexit uncertainty.READ MORE: Actors’ union: No-deal Brexit would be catastrophic“While we have reasonable visibility over forward fourth quarter bookings, we cannot rule out further cuts to air fares and/or slightly lower full-year guidance if there are unexpected Brexit or security developments which adversely impact yields between now and the end of March,” said chief executive Michael O’Leary.He said the lower fare environment is likely to continue to result in more consolidation amongst small airlines and “shake out more loss-making competitors”.Ryanair said the fall in fares and resulting lower profit guidance is being offset by stronger-than-expected passenger growth – likely to be up 9% to 142 million for the year, rather than 141 million as previously thought – and higher ancillary revenues.Both Ryanair and Lauda [the Austrian budget carrier Ryanair bought control of last year] will report stronger-than-expected traffic growth, an improving ancillary revenue performance and strong unit cost discipline this winter, which helps to defray the impact of these lower-than-expected winter fares,” said Mr O’Leary.“The fact that we are passing on these benefits, in the form of lower air fares, to customers is good for Ryanair’s traffic growth, good for our business over the medium and long term, and good for market share, as evidenced by Norwegian’s recent announcement of its plans to close bases in Rome, Gran Canaria, Tenerife and Palma, where they competed head-to-head with Ryanair,” he said.Ryanair’s guidance excludes any exceptional start-up losses at Lauda, which have been cut from €150m to €140m, the airline said.READ MORE: Ibec, UCC and CIT team up for future of work conferenceOn the back of the latest update, Davy said it is likely to move its Ryanair annual profit forecasts towards the lower end of the new guidance.“The key question for the stock,” analysts Stephen Furlong and Ross Harvey said, “is what happens post-winter.”“We expect the market will focus on the continued poor yield outlook and the extent of the weakness announced today,” said Goodbody Stockbrokers’ aviation analyst Mark Simpson.
Source: Business News