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Ryanair warns on fuel costs, dismisses ash worries

Ryanair warns on fuel costs, dismisses ash worries
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First Published: Mon, May 23 2011. 03 59 PM IST
Updated: Mon, May 23 2011. 03 59 PM IST
Dublin: Europe’s largest low-cost airline Ryanair said on Monday high fuel costs and a lack of growth in capacity would mean flat earnings this year after a 26% surge in 2010, sending its shares south.
A new volcanic eruption in Iceland prompted worries the ash cloud could affect airlines across Europe, but Ryanair said it did not expect a repeat of last year’s disruption which cost the airline 30 million euros and investors instead homed in on its subdued outlook.
The Irish airline, which operates more than 1,500 flights a day, said it expected traffic growth to slow to 4% in 2012 from 8% last year and that increases in average fares would be eaten up by higher fuel costs.
Longer, more lucrative routes and growth in France and Germany will help drive up fares, but this will be offset by higher costs and weakness in southern Europe and the Irish domestic market, CEO Michael O’Leary said.
“I see a lot of upside in us not growing for the next year or two, at least not growing in the top line,” O’Leary told a conference call with analysts. Ryanair will instead focus on cutting costs and increasing yields, he said.
Shares in Ryanair dropped in early trade, down 5.4% at 3.357 euros by 3:30pm.
“Given the fuel headwind and increased costs, they are being cautious, and this is what is weighing down the share price,” said Davy stockbrokers analyst Stephen Furlong.
O’Leary said he hoped the latest ash cloud would be less problematic than last year’s when European airspace was closed for six days and transatlantic flights hit.
“I think the regulators are a bit more sensible than they were last year,” O’Leary said. “I hope there will be no airspace closures -- there shouldn’t be, certainly not over any countries where we are flying.”
Ryanair’s competitor easyJet was down 4 % on Monday morning. Lufthansa, AirFrance-KLM and IAG were all down around 3%.
EUROPEAN CONCERNS
Ryanair’s 26% surge in net profit for 2011 to 401 million euros was at the top end of the company’s guidance and above the 382 million average forecast by analysts polled by Thomson Reuters.
“The results were ok, but the focus is on the outlook,” said Johannes Braun, an analyst with Commerzbank.
“Given that Ryanair is already fuel hedged by 90%, the very cautious outlook came a little bit as a surprise.”
The airline has 90% of its 2012 fuel needs hedged at a cost of $820 per tonne, a level it said would give it an advantage over competitors. Costs will increase 13% in 2012 but would have increased just 2% without rising fuel costs, Ryanair said.
Deputy CEO Howard Millar also warned it was difficult to see how Europe would emerge from its current economic problems.
“We have concerns about some countries like Ireland and Greece, Spain and Portugal,” Millar said. “It’s difficult to predict beyond the near future.”
Ryanair said adjusted earnings per share were 27 euro cent, compared with a forecast of 26 cent in a Thomson Reuters I/B/E/S poll.
O’Leary said Ryanair planned to pay out dividends towards the end of 2013 unless it made a major plane order before that. The company intends to build its cash stockpile to 4 billion euros for a major plane order, he told a conference call with investors.
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First Published: Mon, May 23 2011. 03 59 PM IST