Shares in Ryanair plummetted today after the airline announced profits fell by 85 per cent in its first quarter, as high oil prices almost doubled its fuel bill.
The budget airline warned it could make a loss of €60 million for the year, if oil prices stayed at around the $130 mark and fares fell by 5 per cent.
Despite increasing passenger numbers 19 per cent to 15 million during the period, and boosting its revenue by 12 per cent to €777 million, profit slumped to €21 million from €139 million in the same period in 2007.
Oil prices during the period rose from $61 to $117 per barrel, adding 93 per cent to the airline's fuel bill to bring it to €367 million. The firm said fuel now represented almost 50 per cent of total operating costs, compared to 36 per cent last year.
Lower fares also had an impact, with Ryanair calculating its average fare, including bag charges, as €42, a drop of 8 per cent.
Chief executive Michael O'Leary said the company had taken advantage of the recent drop in oil prices, hedging 90 per cent of its fuel requirement for September at $129 (€81) per barrel, and 80 per cent for the third quarter at $124 (€78) per barrel. However, the final quarter of the year remains unhedged.
The no-frills airline recently announced it was grounding 15 aircraft at Stansted for the winter, four in Dublin and that it would temporarily cut routes to some of its higher cost bases, including Budapest, Valencia and Krakow. Passenger volumes for the year are expected to 14 per cent to 58 million, just short of forecasts of 16 per cent.
The company said the outlook for the rest of the year was poor, but that it was dependent on fares and fuel prices.
"The emerging economic recession in the UK and Ireland caused by the global credit crisis and high oil prices means that consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year," Mr O'Leary said.
However, Mr O'Leary said higher oil prices wouldn't end low fare air travel.
"Higher oil prices will speed up the decline of high fare shorthaul travel this winter as many European airlines consolidate or go bust. We believe that oil prices of approx. $130 per barrel are unsustainable over the medium term, but we don't know when they are going to fall," he said.
"The airline industry is cyclical, and this downturn will provide enormous opportunities for strong, well financed airlines, such as Ryanair to grow."
Mr O'Leary said he believed Ryanair's earnings would rebound strongly once oil prices eased.
The news prompted aggressive selling of Ryanair stock on opening and it failed to recover during the day, eventually closing more than 22.5 per cent weaker as it lost 72.8 cents to €2.50. That had a knock-on effect on Aer Lingus which slipped back 23.9 cents to €1.311, a fall of 15.4 per cent.
A research note from stockbrokers Davy said previous guidance had been for Ryanair to break even for the fiscal year 2009, based on $130 per barrel oil and yields up 5 per cent. Although Davy has revised its estimates, it said it believed Ryanair's business model and balance sheet were strong enough to " withstand and benefit from this cyclical downturn".
NCB said it was expecting a €45 million loss for the year, based on the predicted fare decline of 5 per cent, and said it would later revise forecasts based on lower fare levels, a lower ancillary growth rate and further progress on costs savings.
