Ryanair: Will Fuel Hedging Hurt Profits?
Davy Transport Analyst Stephen Furlong comments on Ryanair’s profit outlook and the effect of the airline’s $92/barrel fuel hedge on profits.
Ryanair has said that lower oil prices will have a downward affect on air fares next year and thus limit profit growth for the airline.
Ryanair, Europe’s largest airline by passenger numbers, increased its annual profit forecast and announced a €400m (£301m) share buyback program. “In our view, (the share buy back) emphasizes the ongoing strength of Ryanair’s balance sheet and cash generation, even if management wants to inject some caution into the outlook for 2016,” analysts at Liberum said.
Net profit for the year ending in March will be between €840m and €850m – up from earlier guidance of €810m to €830m. Last year the company made a profit of €523m. In the third quarter to 31 December, passenger numbers increased 14% as the airline increased ASMs and load factors rose by 6 percentage points to 88%.
Michael O’Leary, the chief executive, said Ryanair had improved performance largely because of its discovery of the benefits of emphasizing customer service. Ryanair has allowed more carry-on baggage, allocating seating and cut punitive charges. It has also improved its website and launched a service for business customers.