2nd Feb 2015 09:12
LONDON (Alliance News) - Irish airline Ryanair Holdings PLC Monday announced a EUR400 million share buyback, as it raised its full-year guidance for a fourth time on the back of falling fuel prices and said it swung to a profit in the third quarter of the financial year compared with a loss a year earlier.
However, its shares fell as it urged shareholders and analysts to temper their expectations for its next financial year, fiscal 2016. It said it expects profit growth next year to be modest, and said it expects fares to come under pressure because some rivals who haven't hedged forward fuel needs will benefit from the full impact of the recent oil price declines and will lower fares.
Europe's low-cost carrier said it had already noticed some softening in prices on forward bookings during the first few weeks of January, but it is now expecting a 5% decline in unit costs for the financial year as a whole. It is therefore raising its net profit guidance for the year to end-March to between EUR840 million and EUR850 million, from its previous guidance of between EUR810 million and EUR830 million.
The airline hedges most of its fuel needs, meaning prices are locked in, but about 10% of its fuel needs are unhedged, and therefore it's feeling some of the benefit from the recent steep fall in oil prices.
Ryanair said it will start a EUR400 million share buyback on February 12 which will last for six months. It said the move reflects its improved profitability and cash flow. That's on top of the EUR520 million, or EUR0.375 a share, special dividend that it had previously announced and that it will pay on February 27.
The airline reported a EUR49 million profit for the three months to December 31, its fiscal third quarter, compared with a loss of EUR35 million a year earlier. Revenue rose to EUR1.13 billion, from EUR964 million, as passenger numbers rose to 20.8 million, from 18.3 million. Basic earnings per share were 3.53 euro cents, compared with a loss of 2.50 cents.
Airlines and travel companies traditionally make little or no money during the winter months, making most of their profits in the summer months when demand is at its peak.
The company also cited higher load factors for the profit improvement, saying its recently-launched service aimed at business travellers and improvements to its general customer service were pulling in more passengers and ensuring its planes are more full. Its third-quarter load factor rose to 88%, from 82% a year earlier.
"Our new winter routes and bases are performing well. Our significantly expanded winter schedule, which includes more primary airports, city pairs and business friendly frequencies has converted millions of new customers to flying Ryanair. 3 new bases in Bratislava, Copenhagen and Ponta Delgada (Azores) will open in March/April with the benefit of stronger than expected forward bookings as the Ryanair low fare brand is already well known in these countries," Ryanair said in a statement.
Ryanair had previously raised its full-year guidance in early December, citing the rise in passenger numbers after it launched its business service. It had also raised guidance in early November, after reporting strong growth in profit and revenue in the first half, driven by higher passenger numbers, average fares and lower fuel costs, after first raising guidance in September.
However, it's being cautious about its next financial year.
"As lower oil prices kick in over the next two years, Ryanair intends to pass on much, if not all, of these savings to our rapidly growing customer base in the form of lower fares and therefore our profit growth expectations will be modest in fiscal-year 2016," Ryanair said.
The airline said it has taken advantage of the recent dips in oil prices to further extend its fuel hedges into the financial year ending in 2017. It is 90% hedged for the current year at USD95 a barrel and for next year at USD92 a barrel. It's now 35% hedged for fiscal 2017 at approximately USD68 a barrel.
It said its US dollar operational expenditure is 90% hedged at USD1.33 for fiscal 2016, and 60% hedged at USD1.21 in fiscal 2017, which would deliver an indicative reduction in its fuel cost per passenger of approximately 8% in fiscal 2016 and approximately 16% in fiscal 2017. Its capital expenditure programme is fully hedged to September 2017 at a rate of USD1.35, which locks in significantly lower cost aircraft deliveries over the next two years.
Ryanair declined to comment further on International Consolidated Airline Group SA's attempt to acquire Irish flag carrier Aer Lingus, in which Ryanair is the biggest shareholder.
"Since Ryanair has received no formal approach, or offer for our shares in Aer Lingus, we will not engage in any speculation about this proposal, other than to restate our position which is that the Board of Ryanair will carefully consider any such offer, should one be received, from IAG or any other party, in due course," it said.
Ryanair shares were down 3.8% at 10.01 pence Tuesday morning, on the back of the cautious guidance for fiscal 2016.
"We suspect this is an attempt to keep a lid on fuel-driven upgrades," Liberum analyst Gerald Khoo said of the caution on fiscal 2016. Khoo, who is retaining a Buy rating on the stock with a EUR10.50 price target, added that while Ryanair trades at a deserved clear premium to the rest of the European airlines sector, there is limited scope for significant re-rating from here, and management's caution may restrain earnings upgrades.
Cantor Fitzgerald also reiterated its Buy rating on Ryanair, and put its EUR10 price target under review, saying that the airline's third-quarter results beat its expectations. However, Cantor analyst Robin Byde sees scope for small upgrades to consensus for financial years 2015-17 after management raised its full-year guidance for fiscal 2015.
By Steve McGrath; [email protected]; @stevemcgrath1
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