Investors plunge on Ryanair despite company caution

Around 5pm yesterday, there were probably a few people kicking themselves that they did not take advantage of the plunge in Ryanair’s share price just over six months ago, after it issued its profit warning.

Over €1.1 billion was wiped off the company’s value on November 4th, when, for the second time in two months it said profits would come in somewhere between €500 million and €520 million instead of the €570 million to €600 million that it had predicted.

The warning sent its shares into freefall. The stock shed 12 per cent to close at €5.33. By contrast yesterday, after the airline came out with a set of results that were very close to what it predicted last October, its stock soared, adding 10 per cent to close at €7.02.

The sell-off was probably overdone last November. Just weeks earlier, the company and its outspoken chief executive, Michael O’Leary, appeared to have had a road to Damascus moment and completely changed their views on customer service, resolving to be much nicer to people from then on.

There were still question marks over whether the company and O’Leary would manage to pull it off. It meant an overhaul of the website and extra marketing costs, which will rise by €25 million to €35 million.

It also came just months after the airline had ordered 175 new craft and unveiled plans to grow passenger numbers by 40 per cent to 112 million over five years. A profit warning, resulting from lower fares, against that background, was almost certain to leave the markets with a fit of nerves.

It is unlikey that yesterday's figures were what excited investors enough for them to buy more than 7.2 million Ryanair shares by close of business in Dublin.

They are more likely to have been taken with the company’s predictions which indicate that it expects growth in passenger numbers and post-tax profits to end up somewhere in between €580 million and €620 million. It will manage this while keeping costs flat.

This was clearly enough to satisfy the markets, which plunged back in, possibly ignoring the note of caution sounded by the company.