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Ryanair warns of profits 'storm' Ryanair warns of profits 'storm'
(about 1 hour later)
Budget airline Ryanair has warned that higher fuel costs and a decline in the value of the UK pound could cut into profit by as much as 50% this year. Ryanair has warned that its profits could be halved this year as fuel costs rise and as the UK pound weakens.
The warning came as Ryanair reported a drop in profits during the last three months of 2007, its first quarterly decline in more than a year. The warning came as the budget airline reported that net profit dropped 27% to 35m euros ($52m; £26m) during the October to December quarter.
Chief executive Michael O'Leary said that the weakening profits were part of a cyclical downturn in the industry. The drop was its first quarterly decline in a more than a year.
However, he warned there was a danger of a "perfect storm" hitting earnings. Chief executive Michael O'Leary said that the weakening profits were part of a cyclical downturn in the industry and a "perfect storm" may be lying ahead.
The company's shares tumbled 13% to 3.14 euros in early trading on Monday.
There is no visibility, it's just guesswork what they are doing at this stage Bloxham analyst Ross McEvoy See Ryanair's share price
"The European airline sector is presently facing one of these cyclical downturns, with the possibility of a 'perfect storm' of higher oil prices, poor consumer demand, weaker sterling and higher costs," said Mr O' Leary.
Gloomy outlook
Mr O'Leary said it was too early to make an accurate assessment of earnings for the firm's financial year beginning 1 April.
But he warned that if oil prices remained above $85 a barrel, and if consumer sentiment and the UK pound stayed weak, then the airline's earnings for 2008 could fall by up to 50% to 235m euros.
He said that the company had not taken out protection, known as hedging, against the oil price or weak pound.
"We remain essentially unhedged for next year," the budget airline said.
Not being hedged essentially means the airline has not used financial instruments to insure itself against rising fuel costs or adverse exchange rate moves.
The gloomy outlook is likely to weigh on Ryanair's share price, which has already slipped 18% this year, predicted Bloxham analyst Ross McEvoy.
"There is no visibility, it's just guesswork what they are doing at this stage," he said.