Ryanair share price dips as profits miss forecasts

Europe's largest low-cost airline, Ryanair, failed to impress investors after missing market forecasts for second-quarter net profit.

Shares in the Irish airline dropped more than 4 per cent in early trade after a hefty fuel bill dashed expectations for a 40 per cent increase in quarterly profit, and the increase in full-year guidance, which had been expected, failed to compensate.

Second-quarter profits fell short with a 25 per rise to €313 million (271m) while the six-months figure was 17 per cent ahead at €452m.

As the company's shares fell 3 per cent to €4 in early trading, Ken Darmody, transport analyst at Goodbody Stockbrokers, said: "There's a little bit of disappointment, most people were expecting around €350m for second-quarter profit and they came in a bit behind that.

"Other people might be disappointed that the upgrade that came wasn't bigger because all the airlines across Europe have had upgrades in the past two weeks."

But chief executive Michael O'Leary said that the interim lift in profits was evidence of the robustness of the company's no-frills business model "which continues to deliver traffic and profit growth even during a deep recession".

He said Ryanair continued to gain market share across Europe from the three big flag-carriers, British Airways, Air France and Lufthansa. O'Leary said he expected this trend to continue.

However, last Friday BA boss Willie Walsh said his airline had "turned the corner", as it reported it was back in the black for the first time in two years, with a half-time profit of 158m. BA is currently merging with Iberia of Spain.

Also on Friday, the Office of Fair Trading launched a merger inquiry into Ryanair's near-30 per cent stake in Irish airline Aer Lingus. Ryanair built up the stake as part of its unsuccessful takeover bid for its Irish rival four years ago.

Ryanair revealed that its fuel bill soared 44 per cent to €660m due to higher oil prices and increased flights.

Most of its growth comes from the continent and it is reducing capacity in recession-weary Ireland, blaming a tourist tax introduced last year as part of government austerity measures.

O'Leary said the upgrade to annual profit expectations was due to better winter forecasts on yields - the profit airlines make as a percentage of the numbers of passengers flown. However, he said the hike in forecasts came with "the usual caveats about limited Q4 visibility".

Meanwhile, the airline cut its estimate of the costs of refunding tickets on flights cancelled during the latest period because of the volcanic ash cloud.It now plans to pay out €32m, down from €50m.

In a shot across the bows to the Irish airport authorities, O'Leary said Ryanair was to cut its capacity in Ireland, blaming the tourist tax.

He said: "We have cut out Dublin capacity by 15 per cent and have switched more aircraft to other European countries which have scrapped tourist taxed and cut airport charges."

Against the backcloth of the OFT probe, O'Leary also confirmed that Ryanair had no plans to make another bid for Aer Lingus unless the Irish government offered to sell its 25 per cent stake.