Last updated: May 19, 2014 2:00 pm

Ryanair cautious after first earnings fall in 5 years

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Ryanair on Monday reported an 8 per cent fall in net income for 2013-14, its first earnings decline in five years, and issued cautious profit guidance for 2014-15.

Europe’s largest low-cost carrier by revenue described the profit fall as “disappointing”, and blamed the decline on cheaper fares, negative exchange rate movements and higher fuel costs.

It sought to reassure investors it could increase earnings in 2014-15 after embarking on a series of improvements to its much-criticised customer service, and several analysts said the profit guidance was conservative. In afternoon trading, Ryanair’s shares were up 9.6 per cent at €6.96.

The company expects profit after tax in 2014-15 to be between €580m and €620m, although it stressed the target was partly dependent on the fares it could secure from passengers next winter.

Average fares could fall by as much as 8 per cent in the second half of 2014-15, as Ryanair tries to woo business travellers by flying more between some of Europe’s larger airports.

Last year, the airline surprised several investors with two profit warnings, which it blamed on increased competition, weakening demand amid fragile European economic conditions, and sterling’s weakness against the euro.

The company, which last year was voted worst of 100 big brands in the UK market in terms of customer relations by readers of consumer magazine Which, pledged significant changes to its digital marketing and image, as well as its booking and network strategies.

Some analysts concluded the changes – similar to initiatives by rival easyJet – were an important effort by Ryanair to try to ensure success with plans for a new phase of growth based on buying 175 new Boeing aircraft.

Michael O’Leary, Ryanair’s chief executive, said on Monday there had been “a perception out there that we did not have very good customer service – we are [now] making real and meaningful improvements in the customer experience”.

He added that Ryanair’s average fares – or yields – should rise up to 2 per cent in 2014-15, although he warned these could fall by between 6 and 8 per cent in the second half of the year.

He stressed that expected post-tax profit of €580m to €620m was therefore “heavily qualified by [second-half] yield out-turn, over which we currently have zero visibility”.

Ryanair has the leanest cost structure in European aviation, but it expects expenses – excluding fuel – to rise 5 per cent in 2014-15, partly because it is flying to more of Europe’s larger airports, which have higher landing charges compared to smaller hubs.

These destinations should make the airline more attractive to business travellers who want to fly from airports such as Brussels Zaventem.

From August, Ryanair is planning to issue business tickets that will be higher than other fares, but will include features such as the right to fast-track through airport security.

The company reported revenue of €5bn in the year to March 31, up 3 per cent compared to 2012-13.

Net income fell to €523m from €569m the previous year. Diluted earnings per share fell 6 per cent to €0.37.

Gerald Khoo, analyst at Liberum Capital, said Ryanair’s profit guidance “may follow the usual pattern of starting low and rising through the year”.

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