Ryanair profit jumps, warns UK rates hurting

Ryanair posted a 33 per cent jump in annual net profit yesterday, helped by higher ticket prices, but said profit growth would slow as higher UK interest rates prompted thrifty travellers to seek cheaper deals.

Europe's biggest low-cost carrier said it expected profit growth of only about five per cent in the year ahead, with average ticket prices falling as higher borrowing costs curb consumer spending in Britain, Ryanair's biggest market.

Ryanair shares fell more than seven per cent as a warning for investors to be "cautious and conservative" on the year ahead overshadowed news that Ryanair would use its growing cash pile to buy back shares.

Once adjusted to exclude one-off items, profit after tax at the airline rose to €401.4 million in the 12 months to end March, versus 301.5 million a year earlier.

The profit was higher than the 393.5 million average of 12 analysts' forecasts. Chief Financial Officer Howard Millar pointed out that, in common with rivals such as easyJet, its planes were not as full as a year ago. Data yesterday showed Ryanair's load factor fell to 80 per cent in May from 82 per cent a year earlier.

"Interest rate rises in the UK are starting to have an effect on the whole industry, how consumers are spending; they've less money available," he said.

The Bank of England has raised rates four times since August. It is seen holding them at 5.5 per cent this month, but most economists expect at least one more increase this year.

Ryanair said an expanding route network would mean a 22 per cent increase in the number of passengers it carries to over 52 million in its current business year, but cautioned average ticket prices, known as yields, were set to fall five per cent.

Stronger-than-expected ticket prices last year forced Ryanair to revise its initially cautious guidance, but Mr Millar said the company was facing a different environment.

"We're generally conservative with our guidance, but we think there is something fundamentally changing in the market," he said.

"People will say, 'Look, they said this last year', but nobody expected this time last year that average fares would rise by nearly seven per cent. We're not seeing anything like that."

NCB analyst John Sheehan said the ticket price guidance from Ryanair was worse than the two per cent decline he had been expecting and also pointed to UK weakness as the prime culprit.

"We expect the stock price to come under downward pressure on the back of the results. However, this should be partially offset by the prospective share buy back," he added.

Shares in Dublin-based Ryanair had already fallen about 15 per cent from April's all-time high of €6.38, following a string of downbeat comments from executives.

Ryanair, which had cash reserves of €2.2 billion at the end of March, also said it planned to buy back and cancel €300 million worth of its ordinary shares from tomorrow. The offer does not apply to its US-traded ADRs.

Analysts believe the carrier may buy back more stock if the European Union blocks a long-standing bid for Irish rival Aer Lingus and forces a sale of its existing 25.2 per cent stake, but Ryanair said it wanted a strong balance sheet to fund growth and see it through any prolonged ticket price war.

Millar said Ryanair had no plans to sell its Aer Lingus shares, however, and colleague Neil Sorahan told reporters in Dublin there would be no more buybacks for at least three years.