TURBULENCE rocked the airline sector yesterday as fuel price hikes and spending woes swept Ryanair towards a full-year loss.
Europe's biggest budget carrier – whose flamboyant boss, Michael O'Leary, has been bullish about the prospects for no-frills air travel in recessionary times – said first-quarter profits had plunged 85 per cent.
The Dublin-based group could now be
on course for its first full-year loss since entering the Irish and British stock exchanges in 1997.
Ryanair's gloomy update shook the airline industry, sending shares in British Airways and EasyJet down by 5 and 8 per cent respectively.
Analysts have questioned the Irish carrier's relentlessly positive stance on growth as it battles soaring oil costs and a slowdown in consumer spending.
Howard Wheeldon, senior strategist of BGC Partners, said yesterday that City concerns had fallen on the "deaf ears of Ryanair management".
In a note headed "Please wake up to reality", Wheeldon wrote: "Our view is that if Ryanair is to survive through this current crisis fully intact it needs to take drastic price-increase measures combined with severe capacity cutting action now."
Ryanair, which has its main Scottish base at Prestwick but has also been expanding services out of Edinburgh, posted a profit after tax of 21 million (£16.6m) for the three months to 30 June.
During the period, its fuel bill almost doubled to 367m. O'Leary said Ryanair expected, at best, to break even in the year to March 2009, although he warned the group could make a loss of up to 60m.
Despite the fuel cost pressures, 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 58 million passengers," he said.
The worse than expected first-quarter figures and grim outlook forced analysts to slash their forecasts for the year.
However, some argued the carrier was well placed to take a short-term profit hit in return for a bigger slice of the market.
Stephen Furlong, an analyst at Ryanair broker Davy, said: "We continue to believe that Ryanair has the strongest business model and balance sheet to withstand and benefit from this cyclical downturn."
Ryanair's results come ahead of numbers from German full-fare carrier Lufthansa, due tomorrow, British Airways, which is set to report on Friday, and Air France-KLM next week.
Last week, EasyJet warned of a potential 42 per cent drop in its full-year pre-tax profits and cuts in capacity growth.
Exane BNP Paribas analyst Geoff Van Klaveren said traditional airlines faced the prospect of weaker demand from both holidaymakers and lucrative business travellers looking to save cash. "None of the airlines will escape the current doom and gloom," he added.
• Italy's competition authority has fined Ryanair 54,100 for what officials ruled was misleading advertising.The full article contains 498 words and appears in The Scotsman newspaper.
