Shares in Ryanair dropped by some 15 per cent after the airline's chief Michael O'Leary said its profits could fall by half in the coming fiscal year due to a combination of high oil prices, lower fares and sterling's weakness.
While the stock recovered ground to close 1.67 per cent weaker at €3.54 last night, almost 31 million Ryanair shares changed hands after a warning that brought down the shares of other European airlines.
Shares in rival carrier Easyjet lost 2.95 per cent to close at 453p (603.19 cent) in London and shares in Aer Lingus, in which Ryanair has a 29.4 per cent stake, lost 2.87 per cent in Dublin to close at €2.27.
As Ryanair reported a 27 per cent drop in adjusted after-tax profits to €35 million due to "very adverse market conditions" in the three months to December, Mr O'Leary reiterated guidance for full-year net profit growth of 17.5 per cent to €470 million in the year to March.
But he warned of a "perfect storm" in the European airline sector due mainly to the spike in oil prices and waning consumer confidence, stating that there was a "significant chance" of Ryanair's profits declining next year.
With oil at $90 (€60.68) per barrel, Ryanair has virtually no hedging deals in place to guard next year against higher oil prices from April when contracts that fix its current requirements at $65 per barrel expire.
"At our most optimistic, a combination of flat yields and $75 oil would see profits grow by 6 per cent to approximately €500 million, but at our most conservative, if forward oil prices remain at $85 and consumer sentiment/sterling weakness leads to a 5 per cent reduction in yields, then profits in the coming year could fall by as much as 50 per cent to as low as €235 million [ excluding profits from aircraft disposals]."
House broker Davy said this assessment was "excessively bearish" given supply constraints into next summer and indications from Ryanair that competitors were withdrawing capacity.
But the news had an immediate impact on Ryanair's stock, which went down rapidly before lunchtime in advance of a recovery later in the day.
The airline plans a new €200 million share buyback, an initiative that follows its recently-completed €500 million buyback.
Adjusted after-tax profits in the third quarter excluded a €12.1 million gain net of tax from the sale of five Boeing 737-800 aircraft.
These aircraft, from a batch of 28 acquired under a 2001 contract, were sold to make way for "more efficient" aircraft acquired under a 2005 deal.
Deputy chief Michael Cawley said Ryanair has signed contracts to sell another 15 planes from the 2001 consignment and hoped to sell the remaining eight "and maybe a few more as well".
Stating that Ryanair has confirmed orders for another 136 aircraft under the 2005 deal, he said it was not the case that the airline has more aircraft than it can use.
