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News : Irish Last Updated: Nov 5, 2012 - 8:21 AM

Ryanair raises earnings guidance for year as profit rises 10% in first half-year of financial year to September 2012
By Finfacts Team
Nov 5, 2012 - 8:13 AM

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Ryanair, the low-fares airline, today raised its earnings guidance for the year as profit rose 10% in the first six months of its financial year to September 2012. Traffic increased. The airline said it would raise its earnings guidance for the year from between €400m and €440m to between €590m and €520m.

First-half profits rose 10% to €596m as revenues increased 15% to €3.11bn, traffic grew 7% to 48m passengers, while average fares rose 6%. Unit costs were up 8% mainly due to a 24% (€218m) increase in fuel. Excluding fuel adjusted unit costs rose by 2%.

Ryanair said that the combination of higher oil prices and EU wide recession continues to drive significant change in European aviation. A number of EU airlines have closed this summer including Windjet (Sicily), OLT Express (Poland), and bmibaby (UK). These follow earlier collapses of both Malev (Hungary) and Spanair (Spain) in 2012. Legacy carriers including Air France\KLM, IAG, Lufthansa, SAS, and Air Berlin have all announced restructurings that include significant contraction of their short-haul operations. Charter airlines such as Thomas Cook are also cutting fleet sizes. "In contrast Ryanair continues to find profitable opportunities for growth across Europe as higher cost and less efficient competitors struggle to survive. Our new bases in Budapest and Warsaw have stimulated strong demand at Ryanair’s very low fares while expansion of existing bases in Spain, the UK and Germany has delivered impressive volume and profit growth."

Michael O'Leary, CEO, said: "Ryanair carried 48m passengers during H1 (79m on a 12m rolling basis), and now accounts for approx. 12% of Europe’s short-haul air travel market. Analysis of that market shows an industry dominated by loss-making, unreliable and inefficient airlines producing substantial revenues but unsustainable aggregate losses. Ryanair estimates about 580m short-haul passengers are travelling at substantially higher fares with intra EU airlines that are either loss-making or producing meagre profit margins. This represents a major opportunity for Ryanair’s lowest fares model- given our substantial unit cost advantage -to grow profitably to 120m passengers per annum over the next 10 years."

Results detail

The following is an update in relation to the Aer Lingus offer:

Michael O’Leary said: “Consolidation is an essential part of making EU airlines more competitive. It has already taken place in core EU countries via IAG (Iberia and BMI merger), AF\KLM (including their investment in Alitalia) and Lufthansa (via takeovers of Austrian, Brussels Airlines and Swiss). That process is now spreading to peripheral countries as Aegean merges with Olympic in Greece, TAP is sold in Portugal and Ryanair bids again for Aer Lingus.

As part of the EU’s Phase 2 review which began on August 29, Ryanair has submitted an unprecedented remedies package, under which multiple up-front buyers will commit to open new bases in Ireland, and enter all of the Ryanair/Aer Lingus crossover routes which are not currently served by other substantial airline competitors. We believe this is the first EU airline merger where the remedies proposed delivers not one, but at least two up-front buyer remedies, and where all of the “merger to monopoly routes” are remedied not just by passive slot divestments but by active up-front buyers and new market entrants.

Ryanair is determined to explore all commercial options to address any competition concerns the EU may have in order to secure approval for its proposed merger. The recent BA/BMI (Phase 1) merger approval and the subsequent Aegean/Olympic merger proposal vindicate Ryanair’s view that its offer for Aer Lingus along with the radical remedies package will - if fairly assessed - secure EU competition approval.”

Dónal O'Neill of Goodbody commented: "Ryanair reported Q2 numbers this morning which came in well ahead of our and consensus forecasts as yields, ancillaries and costs came in better than expected. Management has raised guidance for the full year to a range of €490m to €520m, from €400m to €440m. We expect the stock to perform well today on the back of these results.

Total revenue came in at €1,822m, 1.9% ahead of Goodbody and 2.7% ahead of consensus. Scheduled revenue of €1,254m was 0.8% ahead of our forecast as yield growth in Q2 was 6.6% versus our estimate of 5.7%. Ancillary revenue came in at €298m, up 25% yoy and beating our estimate by 7.5% thanks to a strong performance from reserved seating.

On the cost line, the fuel bill, at €581m, came in €19m (3%) below our estimate of €600m. Elsewhere, depreciation was some 11% below our estimate, while marketing and distribution costs were 13% higher than forecast. Total costs of €1,242m were 1.4% better than we had forecast and consequently, PAT of €497m was 10.5% above our estimate of €450m.

Arguably of greatest interest in these results is the H2 yield guidance. Management has guided for 4% yield growth for the full year to March 13, which implies yield growth of c.2% in the winter quarters. It has still cautioned on the outlook for Q4 given its lack of visibility, but we suspect Q3 is shaping up reasonably well at this point. It has also raised full year profit guidance to a range of €490m to €520m. Taking the Q2 result and management guidance, we expect FY13 PAT in the region of €510m, an upgrade of c.8%.

This is a very impressive set of results from Ryanair and given the outlook from management, we expect the stock to perform very well today. Looking forward we continue to like the stock in terms of valuation and cash generation. We expect the dividend at the end of November to underpin the share price and with a sizeable upgrade from the Q2 results we expect Ryanair to outperform near term and recover some of the relative underperformance versus easyJet. Retain BUY."

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