Ryanair and EasyJet, Europe's two biggest discount airlines, had their earnings estimates cut by analysts at Numis Securities who cited the impact of higher fuel costs and slowing sales.
Ryanair's pretax profit for the 12 months through March 2009 will be about €127 million ($197 million), compared with an earlier prediction of €272 million, Numis said today in a note to investors.
EasyJet will probably report a pretax profit of £121 million for the year ending September 30th, down from an estimate of £150 million, the note said.
"The industry is facing twin shocks - high oil prices and a declining revenue pool," London-based Numis analysts Wyn Ellis and Richard Carter said. "The bottom in terms of sentiment will be reached in the autumn/early winter. Until then, in our view it is too early to build weightings in the sector."
At least 11 carriers have already gone bankrupt this year and Michael O'Leary, chief executive officer of Dublin-based Ryanair, Europe's biggest discount carrier, in February warned of a "perfect storm" of slowing economic growth and higher fuel costs. Luton, England-based EasyJet said March 19 that record oil prices will eat into earnings this fiscal year.
Ryanair fell as much as 10 cents, or 3.5 per cent, to €2.73 as of 10.01am on the Iseq. EasyJet declined 6.25 pence, or 2.1 per cent, to 285.5 pence before trading at 289.75 pence.
Numis also cut its estimate for earnings per share at Ryanair to 7.6 cents from 16 cents and reduced its share-price target to €2.59 from €2.42.
EasyJet's EPS estimate was reduced to 20.6 pence from 26.2 pence and the price target was revised to 265 pence from 242 pence. The analysts reiterated their"reduce" recommendations on both stocks.
"A crisis point is fast approaching for the aviation industry and, in our view, all airlines will need to take urgent action to preserve profitability and cashflows," Numis said.