Ryanair Raises Full-Year Profit Goal as Routes to Spur Sales

Jul 28, 2014 3:12 am ET

(Updates with shares in fifth paragraph.)

July 28 (Bloomberg) -- Ryanair Holdings Plc lifted its fiscal full-year profit goal as Europe’s biggest discount carrier rolls out more routes and reduces unit costs.

Profit after tax for the year through March 2015 should be in the range of 620 million euros to 650 million euros ($832 million-$873 million), compared with the 580 million euros to 620 million euros previously forecast, according to a statement.

Ryanair is seeking a return to annual profit growth after the first decline in five years in fiscal 2014 as it refines a no-frills approach to draw business passengers, older travelers and families. Profit for the first quarter ended June 30 more than doubled as Easter fell in the period, though a surge in additional seating could weigh on second-half fares.

“We are going to invest in our route network this winter,” Chief Financial Officer Howard Millar said in a telephone interview. The boost in profit guidance “is due to a larger number of passengers, which reduces unit costs, so it’s a cost-driven increase,” he said.

Ryanair rose as much as 5.2 percent, or 35.6 cents, to 7.201 euros, and traded at 7.17 euros at 8:08 a.m. in Dublin. The stock has risen 15 percent this year, valuing the company at 9.94 billion euros.

Passenger numbers advanced 4 percent to 24.3 million in the first three months and should gain about 5 percent to 86 million in the full year, backing up the earnings upgrade, Ryanair said.

‘Irrational Exuberance’

First-quarter profit increased to 197 million euros from 78 million euros a year earlier, beating the 157 million euros predicted by analysts, based on five estimates. Average fares gained about 9 percent and sales surged 11 percent to almost 1.5 billion euros as the timing of Easter bolstered demand.

Ryanair began selling its summer schedule earlier and has been promoting forward bookings, helping to drive load factors, aided by measures including allocated seating, reduced baggage charges and a simplified website.

Still, the Dublin-based carrier cautioned against “irrational exuberance in what continues to be a difficult economic environment.” Pricing in the second-half is likely to be “much softer” as competitors lower fares and Ryanair itself boosts winter capacity by 8 percent, it said.

EasyJet Plc, Europe’s second-biggest discount airline, suffered its biggest intraday stock slump in more than two years on July 24 after saying the addition of capacity at London Gatwick airport would put fares under pressure.

Bigger Cushion

“We see the cost-benefits remaining, but fleet growth -- a lower proportion of the fleet grounded to fund investment in frequency -- may see temporary pressure on profitability,” Damian Brewer, an analyst at RBC Capital Markets in London, said of Ryanair, while adding that it has a “greater profit cushion for the year” than in fiscal 2014.

Ryanair will open four new bases during the traditional low season and plans to ground fewer jets, Millar said. The company is also adding frequencies to key destinations and will have at least two flights a day on more than 200 routes, compared with about 110 last year, he said.

The Irish carrier and EasyJet are expanding as network operators including Deutsche Lufthansa AG and British Airways parent International Consolidated Airlines Group SA seek to re- invent their own short-haul units along low-cost lines.