Ryanair Holdings Plc (RYA), Europe’s biggest discount airline, increased fiscal second-quarter profit 23 percent and raised its forecast for full-year earnings after strong summer sales helped boost fares more than anticipated.
The stock rose the most in nearly four years after Dublin- based Ryanair said net income for the three months ended Sept. 30 jumped to 496.8 million euros ($637 million) from 404 million euros a year earlier. Analysts had expected earnings of 440 million euros, based on the average of five estimates.
Ryanair raised average fares 7 percent while adding 8 percent more passengers, buoyed by a surge in U.K. bookings after the end of the 2012 Olympic Games. Annual earnings will be in the range of 490 million euros to 520 million euros, versus 502.6 million euros in fiscal 2012, it said in a statement.
“Consumers are very price sensitive and low-fare carriers generally do very well in that environment,” Chief Financial Officer Howard Millar said in a telephone interview. The carrier said it remains “cautious” about demand this winter, when it will ground as many as 80 planes, the same number as last year, with little visibility over fourth-quarter bookings and yields.
Ryanair stock rose as much as 9.9 percent, the biggest gain since Dec. 8, 2008, and was trading 6.3 percent higher at 4.84 euros as of 12:23 p.m. in Dublin, taking gains this year to 33 percent and valuing the company at 6.97 billion euros.
Quarterly sales advanced 17 percent to 1.82 billion euros, Ryanair said, while fuel-cost performance was better than it had expected, with the bill increasing 21 percent to 581 million euros. The company had previously forecast annual profit would shrink to between 400 million euros and 440 million euros.
“We’d expected the company to up its profit guidance, but this is a bigger jump than we’d imagined, because they’re quite cautious,” said Gert Zonneveld, an analyst at Panmure Gordon in London with a “buy” rating on Ryanair. “Relatively small increases in yields can have a big impact on bottom line.”
Chief Executive Officer Michael O’Leary, seeking to sustain growth by expanding in Eastern Europe, said today that new bases in Warsaw and Budapest -- the latter added after the collapse of local carrier Malev Zrt. -- have stimulated strong demand.
Ryanair reiterated today that European Union regulators should give the go ahead to a 694 million-euro bid for local rival Aer Lingus Group Plc (AERL) and said it has found “multiple up- front buyers” willing to buy slots on routes where the two Irish operators have a duopoly, guaranteeing competition. The recent combination of British Airways and fellow-U.K. carrier BMI and the planned all-Greek merger of Aegean Airlines SA and Olympic Air, announced Oct. 22, are setting new precedents, it added.
Ryanair renewed its pursuit of Aer Lingus in June, five years after European Union regulators blocked a first takeover attempt, arguing it would create a monopoly over Irish flights.
The offer has drawn opposition from local politicians and Aer Lingus management, and O’Leary said in September he’d consider selling Ryanair’s existing minority stake should regulators turn down a “revolutionary” package of concessions.
The CEO said today that the “jury is still out” on whether the EU will fairly consider Ryanair’s proposals, adding that Aer Lingus “will get broken up and die” without a takeover.
Ryanair lured 79 million passengers in the year to Sept. 31 and said today it could profitably grow to 120 million over 10 years. The carrier currently controls 12 percent of the European short-haul market, versus a 21 percent market share at Southwest Airlines Co., the top U.S. discount operator, Millar said.
Air France, Lufthansa
Still, O’Leary has reined in capacity growth during the economic slump -- leading to an easing in pressure for deep discounting that underlies the gain in fares, Zonneveld said.
Ryanair already has sufficient aircraft to meet its growth requirements next summer, the CEO said, adding that there’s no need to order more planes before 2016 or 2017. Some 20 or 30 jets may become available from backlogs at failing competitors to augment a fleet that currently stands at 298 Boeing Co. (BA:US) 737- 800s, he said at a press conference in London.
Europe’s network airlines have also posted earnings that beat estimates as they seek to cut costs on low-margin European operations. Regional no. 1 Air France-KLM Group increased operating profit 27 percent in the third quarter, it said Oct. 31, adding that 1,300 jobs will go at its Dutch arm in addition to 5,000 already being eliminated at the French unit.
Deutsche Lufthansa AG (LHA), which is cutting 3,500 office posts and as many as 1,000 in catering, said the same day that the cost-reduction plan had helped boost quarterly operating profit 6.2 percent, though margins remain inadequate.
While global airline-industry earnings will drop by more than half this year, capacity curbs and mergers mean profits will be a third higher than once estimated, the International Air Transport Association trade group said Oct. 1.
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