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Ryanair profit guidance up

Ryanair boosted its annual profit guidance on Monday after rivals cut theirs as the Irish budget airline more than doubled its first-quarter profit citing a boost from its drive to improve customer service.

Europe’s biggest budget airline last year vowed to improve its service, adding seat allocations, easing restrictions on hand luggage and cutting penalty charges.

“We’ve made a lot of service improvements over the last six or seven months and we’re seeing the benefits in terms of rising profitability,” chief financial officer Howard Millar told Reuters in a telephone interview.

Ryanair raised its profit forecast for the year to March 2015 to between 620 million ($832 million) and €650 million, up from a range of €580 million to €620 million seen previously.

The strong numbers are evidence that Ryanair’s shift in strategy to improve customer service and focus on more primary airports is working, Cantor Fitzgerald analyst Robin Byde said in a note.

Ryanair’s improved outlook contrasts with warnings by Lufthansa and Air France-KLM, and comes nine months after a profit warning from Ryanair which flagged last year’s decline in profits, its first in five years.

Millar said paying to choose a seat was particularly popular with passengers and made up for the reduced charges elsewhere.

Ancillary revenues — charges for extras like carry-on baggage and on-board refreshments — rose four per cent in the first quarter in line with growth in passenger numbers.

Ryanair said strong forward bookings from a strategy aimed at tempting passengers to book their flights earlier increased its confidence for the year ahead.

It said it expected traffic growth of three per cent in the first half and fares to increase by six per cent subject to late bookings. That followed a nine per cent first-quarter rise in fares that helped Ryanair earn €197 million after tax, better than a forecast of €157 million in a poll of analysts conducted by the company.The result marked a jump of 152 per cent from a year earlier. Ryanair shares, which rose in advance of the results after Chief Executive Michael O’Leary told Reuters he did not plan to cut profit forecasts, were up 4.12 per cent higher at 7.12 euros by 0804 GMT.

Irrational exuberance

Ryanair, which plans to pay a 520 million euro dividend to shareholders in the fourth quarter, included a note of caution in its guidance, warning against any “irrational exuberance” in what it said continues to be a difficult economic environment. It expects a much softer pricing environment in the second half of its financial year as competitors cut fares and said it planned to raise winter capacity by eight per cent to take advantage of growth discounts and build business-friendly routes.

Analyst said increased capacity by budget airlines such as Ryanair, which will take on the first of 180 new Boeing jets in September, spells further bad news for carriers such as Lufthansa which last month lowered its profit targets for the next two years. “What we’ve seen out of Ryanair and easyJet shows that the European market is still quite healthy. For the flag carriers, excess capacity coming on from the low-cost airlines is the last thing they want to see,” said David Holohan, an analyst at Merrion Stockbrokers.

Air France-KLM last week unveiled plans to recapture market share from low-cost rivals, a move analysts said would be difficult to achieve and something Millar dismissed as unlikely.

“Air France have talked about this for many years and anything they’ve done has been a spectacular failure,” Ryanair’s finance chief said. “We don’t think they’re going to go through with any of this.”