Ryanair cautious on 2015 after profits dip

Ryanair is taking a cautious view of 2015 after reporting that profits fell for the first time in five years in the 12-months to March 31st.

The airline yesterday reported that its after-tax surplus for its 2014 financial year, which ended in March, was €523 million, 8 per cent less than the €569 million it reported in 2013.

It was the first time in five years that the airline’s profits fell, but the outcome was better than the €500 million predicted in the second of two warnings it issued to the markets last autumn.

Investors reacted positively to the results, buying more than 7.2 million of its shares yesterday and driving their price up by 10 per cent to €7.02 by the close of trade on the Irish Stock Exchange.

Chief executive Michael O’Leary said in a statement that Ryanair expects to earn profits of between €580 million and €620 million in its current financial year.

However, Mr O’Leary cautioned that this guidance was heavily qualified by what could transpire in the second half of the financial year – October to March – over which the airline currently has no visibility.

A fall in demand, lower fares, weakened sterling and increased profitability all combined to hit the airline’s profits during that period in 2013-2014.

Head of marketing, Kenny Jacobs, explained that Ryanair is taking the view that those trends could be repeated.

“We will take the cautious view,” he said, adding that it was too early in the year to get any indication of how sales would perform during the second half. Ryanair expects passenger numbers to grow 4 per cent to more than 84.6 million, and, in contrast to 2014, when fares slid 4 per cent, the company expects them to grow by 2 per cent over the current financial year.

The airline said overall unit costs to be flat, largely thanks to a €70 million fall in fuel charges, which are 90 per cent hedged.

Some costs will increase, including charges for the primary airports into which the airline is increasingly moving and, significantly, a €25 million jump in marketing costs, to €35 million, associated with the image makeover that began last September.

Mr O'Leary said that it was "disappointing" that profits fell 8 per cent but added that the airline reacted quickly to falling demand in the autumn by cutting fares. Revenues grew 3 per cent to just over €5 billion from €4.9 billion while passenger numbers increased at the same rate to 81.7 million from 79.3 million. Earnings per share slipped 6 per cent to 36.96 cent.

Bond issue
Mr Jacobs confirmed that Ryanair is considering a bond issue to help pay for the 180 new aircraft that it has ordered from US manufacturer, Boeing, the first of which are due to arrive in September.

“We will be talking about that in the coming weeks and months,” he said.

Credit ratings agency Fitch last week handed the airline a BBB+ rating, meaning it considers the Irish company to be a relatively low risk for lenders. Standard & Poors gave it a similar ranking in at the end of March.

Fitch’s announcement on Friday paved the way for Ryanair to tap capital markets for some of the cash required to pay for its new craft.

The airline intends footing the bill for the 737-800s, valued at around $12 billion, with a combination of its own resources, bonds and other sources.

Ryanair had more than €3 billion cash on its balance sheet on March 31st.