High fuel costs hit Ryanair profits

Net profits at Irish low-cost airline fall 85 per cent as fuel costs soar.

The Irish airline has led a decade-long boom for low-cost airlines [EPA]
The Irish airline has led a decade-long boom for low-cost airlines [EPA]

“The emerging economic recession in the UK and Ireland caused by the global credit crisis and high oil prices means that consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year,” he said in a statement.

At about 12:00 GMT, the share price of Ryanair had slumped by 13.9 per cent to $4.37 in Dublin, while the carrier’s earnings news weighed on the market value of other airlines, including British Airways.

Panmure Gordon, a broker, maintained its “hold” rating on Ryanair’s stock and its target price of $4.25, but added in a note to clients: “Given the weak economic conditions, we do not expect earnings to recover strongly in the near term.”

Fuel bill

Ryanair said that its fuel bill had soared by 93 per cent in the first quarter from a year earlier.

“Fuel now represents almost 50 per cent of our total operating costs compared to 36 per cent last year,” added O’Leary.

Howard Wheeldon, an aviation expert at the brokerage firm BGC partners, said that while there is no possibility that Ryanair will shut down, it is clear the airline has been deeply affected by the fall.

“This was a massive profits fall in one quarter by any standards,” he told Al Jazeera.

“It will get worse in quarter two or three and the airline itself had to tacitly admit it will make a loss in the current year.”

Crude oil prices have struck a series of record highs this year, the latest on July 11 when they reached above $147 a barrel for the first time.

In a bid to further reduce fuel costs, Ryanair said on Monday that it planned to trial flights carrying no large luggage items.

Ryanair recently said it would slash flights from Dublin in the 2008-2009 winter season, blaming the move mostly on the high cost of jet fuel, which is refined from crude oil.

Advertising fines

Meanwhile, also on Monday, Italy’s antitrust authority fined Ryanair US$85,500 for what the authority found was misleading advertising.

The regulator said in a statement that airline failed to include an additional cost in an ad posted on its web site in 2007, offering one-way tickets starting from $15 tax included.

The authority said Ryanair did not include the fee that has to be paid if the purchase is made by credit card.

“As a consequence, the real price paid by consumers can turn out to be quite different from the advertised one,” the regulator said. The cost does appear at a later stage of the purchase.

Ryanair could not immediately be reached for comment.

Source : Al Jazeera, News Agencies


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