Ryanair shares slump on news of 85% fall in profit

ALMOST €1.1 BILLION was wiped off the value of Ryanair's shares yesterday after it published weak first-quarter results and warned that it could lose up to €60 million this year.

Shares in the budget airline closed yesterday at €2.50, down 22.5 per cent. The shares have fallen in value by about 46 per cent over the past 12 months.

Ryanair's market value at the end of yesterday's trading in Dublin was just under €3.7 billion, compared with about €4.8 billion at the close of trading last Friday.

Ryanair said its fuel bill in the three months to the end of June rose by 93 per cent to €367 million. Fuel now represented half of its total operating costs, compared to 36 per cent last year, it added.

Ryanair has trimmed its forecast for passenger growth this year from 16 per cent to 14 per cent. This would give it 58 million passengers for the year.

The reduction in passenger growth is due to its decision to ground 19 aircraft this winter at Stansted and Dublin airports, its two biggest bases. This is a reflection of higher oil prices and weak consumer demand at a time of economic downturn in many European economies.

In spite of the sharp deterioration in its operating costs, Ryanair said it would reduce its average fare this year by about 5 per cent.

The airline has hedged 90 per cent of its fuel requirement for September at $129 a barrel and 80 per cent from October to December at $124 a barrel.

"On the basis of our existing fuel hedges, Q4 [fourth quarter] oil prices at approximately $130 per barrel, and average fares falling by 5 per cent for the full year, we expect to record a full-year result of between breakeven and a loss of €60 million," Ryanair chief executive Michael O'Leary said in a statement.

Ryanair posted an adjusted after-tax profit of €21 million in the three months to the end of June, an 85 per cent decline on the same period of 2007. The airline said this was due to the timing of Easter and rising fuel costs.

Its average fare fell by 8 per cent to €42. Its costs excluding fuel fell by 6 per cent. Costs rose by 18 per cent when higher oil prices are included.

Revenues climbed by 12 per cent to €777 million, while passenger numbers were up 19 per cent at 15 million.

The airline said it had €2.2 billion in cash on its balance sheet. It took an impairment charge of €93.6 million in relation to the decline in value of its holding in Aer Lingus.

Speaking to The Irish Times, Michael Cawley, Ryanair's deputy chief executive, acknowledged that it had changed its mind on hedging at oil prices above $100 a barrel.

"Since last October no airline has hedged successfully and neither have we," he said. "It's just a guessing game, particularly when the market is so volatile. At least now we have certainty for three or four months."

He said the airline was right to continue to cut its average fares, with 15-20 per cent of tickets given away for free.

"The overriding imperative for us is to increase passenger numbers by 14 per cent this year," he said. "We reckon it will take a 5 per cent reduction to do that."