Ryanair profit plunges

Low-cost airline Ryanair reported an 85 per cent fall in first quarter net earnings and was unlikely to make any profit this year in a battle against recession and high oil prices.

Shares in Europe's largest no-frills carrier dropped 25 per cent.

Ryanair said yesterday it planned to respond to the downturn in the UK and Irish economies by cutting fares more aggressively than competitors, which have less cash and need to pass on high fuel prices to passengers.

The airline said adjusted profit after tax for the three months to the end of last month was €21 million, well below a forecast of 48.8 million by brokerage Davy.

The adjusted figure excluded a writedown on the value of Ryanair's stake in Irish rival Aer Lingus by €93.6 million, reflecting recent big falls in global airline stocks.

The Dublin-based carrier said it expected a full-year result of between break-even and a loss of €60 million on the basis of its current fuel hedges, fourth-quarter oil prices at about $130 per barrel and average fares falling by five per cent.

"The outlook for the remainder of the fiscal year which is entirely dependent on fares and fuel prices remains poor," chief executive officer Michael O'Leary said.

Deputy chief executive officer Michael Cawley added that Ryanair was highly unlikely to make any profit this year unless there is a "precipitous" fall in oil prices in the fourth quarter of its financial year.

Mr O'Leary, who said last month that the group would only break even if oil stayed at $130 a barrel and fares increased by five per cent, earlier this month declined to forecast an annual loss, despite oil soaring past the $140 mark.

Oil prices have since fallen as low as $122.50.

"We continue to believe that Ryanair has the strongest business model and balance sheet to withstand and benefit from this cyclical downturn," Davy analyst Stephen Furlong said in a research note.

Ryanair said it had made use of a recent fall in oil prices and hedged 90 per cent of its fuel needs for September at $129 per barrel, 80 per cent for the third quarter at $124 per barrel, but remained unhedged for the fourth quarter.

First-quarter revenues grew by 12 per cent to €777 million. That was well below the €865.4 million average of five forecasts in a Reuters survey and lower than the most cautious of the five analysts, who predicted €836.4 million.

Mr O'Leary said Ryanair's more than €2.2 billion in cash will help it weather the industry downturn and anticipates a strong rebound in earnings as rivals with higher costs or less assets suffer.