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Ryanair profit jumps on increased passenger numbers

Ryanair Holdings Plc, Europe's largest discount airline, reported Q1 profit rose 66% on increased passenger numbers and higher ticket prices. Net income gained to €115.7 million, or 14.9 cents a share, in the three months ended June 30, from € 69.6 million, or 9.12 cents, a year earlier, the company said in a statement. Sales advanced 40% to €566.6 million. Ryanair carried 10.7 million passengers in the quarter, a 25% gain from the year earlier, helped by demand during the Easter holiday. The airline has replaced older Boeing Co. planes with fuel efficient 737-800s and boosted revenue by charging passengers for baggage. The carrier may be unprofitable in the Q4 because of competition and fuel costs, CEO Michael O'Leary said yesterday. „Passenger numbers are way ahead because of Easter and because network carriers and charter airlines aren't adding capacity so fast,” said Joe Gill, an analyst at Goodbody Stockbrokers in Dublin with a "buy” rating on Ryanair shares. "The outlook seems extremely cautious, they may be giving themselves the room to compete aggressively in the winter.” Shares of Dublin-based Ryanair fell 25 cents, or 3.2%, to €7.54 at the close of trading in Dublin. The stock has fallen 9.2% this year, compared with an 18% advance for EasyJet Plc, Europe's second-biggest discount carrier, which increased its earnings forecast July 7.
"The market is frustrated with the guidance”, said Penny Butcher, an analyst at Morgan Stanley in London with an "overweight/cautious” rating on Ryanair shares. "The results are excellent but the outlook seems stupid”. Ryanair will be able to give "better guidance” at the end of the first half, when around 85% of the airline's full-year profit will have been earned, CFO Howard Millar said at a press conference in London. He disputed that the outlook is too conservative. "Listen to me very carefully: There will be a modest increase in average fares in the second quarter,” Millar said at the conference. "And there are still many uncertainties about the winter.” Ryanair's profit beat the median estimate of €97 million in a Bloomberg News survey of seven analysts. Revenue from added products and services, such as car hire and in-flight shopping, rose 31%. Average fares increased 13%. The Q1 results "reflect a much stronger yield environment despite substantially higher oil prices,” O'Leary said in the statement.
Demand rose partly because the Easter holiday came later this year. The airline flew more than 1 million passengers during the Easter holiday between April 12 and April 19, an increase of 35% from last year's holiday. Charges for baggage, introduced in March, contributed to passenger revenue, the company said. Ryanair's charge for checked luggage is £2.5 per bag if paid in advance, or £5 if paid at the airport. On Sept. 1, the fees increase to 3.50 pounds and 7 pounds. "Implementing baggage charges was a risky move but seems to have paid off,” said Geoff Van Klaveren, an analyst at Exane BNP Paribas in London with an "outperform” rating on Ryanair shares. Ryanair's average fare including the baggage charge in the Q1 was €45.95, of which "about €1” is from baggage fees, Millar added. O'Leary has hedged 90% of Ryanair's fuel needs at $70 per barrel through October. He said Ryanair has hedged fuel costs for November and December at $74 per barrel. Ryanair is seeking to hedge at around the same level for the remainder of the financial year, which ends March 31, Millar said at the conference.
Fuel costs in the first quarter climbed 52% to €167.5 million. Total costs increased 6% in the quarter. Excluding fuel costs, they fell 2%, the company said. The carrier will take delivery of 27 aircraft over the winter compared with 15 aircraft last year, O'Leary said. Ryanair's full year outlook remains "cautious,” with expected profit growth of 5% to 10%, on concern average fares won't rise. "There will be very significant capacity growth this winter, resulting in lower yields, while oil could stay expensive,” said Millar in an interview. "That's why we're cautious.” EasyJet raised its earnings forecast July 7, as the carrier reported surging passenger numbers even as it lifted fares. The company predicted pretax profit will increase 40% to 50% in the fiscal year ending Sept. 30, the most in five years.
British Airways Plc, Europe's third-largest airline, may say on Aug. 4 that Q1 profit rose 39% to £125 million, according to the median estimate of eight analysts surveyed by Bloomberg. The company's shares are up 17% this year. Ryanair chose not to expand its fleet more slowly this winter because it has commitments to Boeing as well as to airports on new routes, Millar said.
Increased seating capacity on the European airline market will reduce ticket prices, hurting less profitable low-fare airlines such as SkyEurope Airlines AS and Wizz Air Ltd, Millar said. "You can't expect airlines like that to last long,” Millar said. "We'll be aggressively competing with Wizz in Hungary and Poland, and SkyEurope on Bratislava routes, you better believe it." The carrier also urged Grupo Ferrovial SA, the new owner of Stansted airport, to build a new terminal and runway for about £1 billion rather than the almost £3 billion planned by BAA Plc. A meeting with Ferrovial to discuss the plan will take place "soon," Millar said. Ferrovial, which bought BAA for £10.1 billion in June, said last month that it will decide by the end of the year whether to expand Stansted, northeast of London, for less money than BAA intended to spend. The review by Ferrovial, Spain's second-biggest construction company, should abandon the "Taj Mahal proposed by the BAA airport monopoly," Ryanair said in yesterday's statement. Ryanair's order contract with Boeing will end in 2012, when the carrier may upgrade to a new series of Boeing 737 planes, Millar said. The airline is looking at three sites in Europe for its new long-term main aircraft service facility. (Bloomberg)