Ryanair stays bullish despite £50m loss

Jul 29 2008 Tony McDonough, Deputy Business Editor

AIRLINE stocks were sent plummeting yesterday after Liverpool’s biggest airline, Ryanair, said it was facing a full-year loss of almost £50m.

The airline’s chief executive, Michael O’Leary, bullishly declared it would carry on slashing fares but one leading City analyst said the company needed to “wake up to reality”.

That reality is a near doubling of its fuel bill which saw its first quarter profits plunge 85% to £16,6m.

Mr O’Leary said the company’s fuel bill rose 93% to £289.6m in the three months to June 30, representing almost 50% of its operating costs, compared with 36% last year. It expects a full-year result of between break-even and a loss of £47.3m.

The gloomy update from Ryanair, which operates more than 40 routes out of Liverpool John Lennon Airport, shook the airline industry, with shares in British Airways down by 5% and low-cost rival Easyjet 10%.

Despite the oil price pressure, Mr O’Leary said the airline remained committed to its guarantee of no fuel surcharges. “We will continue to absorb higher oil costs, even if it means short-term losses, while we continue to deliver Europe’s guaranteed lowest fares to our 58m passengers.”

Fares will reduce by 5% on average, it claimed. It said it will lead the aggressive pricing, to keep planes flying full.

This flies in the face of reports that analysts are expecting a 10% rise in airline ticket costs this year and next. The market is said to have called time on budget travel, with the end of the £1 flight in sight.

But Mr O’Leary insisted: “Higher oil prices won’t end low-fare air travel, it just increases the attraction of Ryanair’s guaranteed lowest fares, as consumers become more price sensitive and switch away from high fare/fuel surcharging airlines like BA.”

Collins Stewart analyst Andrew Fitchie said the figures were well below expectations and showed Ryanair was “directly in the path of the current economic storm”.

Howard Wheeldon, senior strategist at BGC Partners, was scathing about Mr O’Leary’s comments. He said Ryanair needed to “wake up to reality”.

“Management needs to climb off the high and mighty pedestal and accept that nothing short of at least a doubling of ticket prices will suffice,” he said.

“Instead of talking this crisis down as an opportunity for Ryanair to gain as more and more smaller airlines across the world go bust it must accept that as long as the price of oil remains at anywhere near current levels, that absolutely no one will gain.”