Ryanair to ground 10% of planes and slash profit forecast
01.06.08
Ryanair will announce plans to ground at least 10% of its fleet over the winter on Tuesday, according to analysts. The budget airline, which is reporting full-year results, is also set to slash profit forecasts for the current year because of soaring oil prices, according to the Observer.
Last winter, Ryanair took 7 of its 160-plane fleet out of action. As many as 20 planes could be grounded this winter, analysts told the Observer, because of the consumer spending downturn and escalating costs.
Analysts expect pre-tax profits of about €530m (£416m), close to a 20% operating margin. However, UBS analysts predict profits over the coming year could fall to a third of that as oil prices continue to climb.
Michael O'Leary, the airline's chief executive, has already warned that if oil prices go to $135 and the yields earned from passengers fall by 5% this year, it will only break even.
UBS analyst Tim Marshall told the Scotland on Sunday that it is inevitable all airlines will have to raise prices this year. He said: ‘Demand elasticity will be the key issue to focus on in the results.'
‘Airlines will need to increase prices to offset the higher fuel cost, and the extent to which this impacts demand will likely determine profitability. As low fares have stimulated demand, higher fares will presumably have the opposite impact.’
Analysts will want to hear how bad Mr O’Leary thinks things are going to get. And shareholders will be particularly interested to know his plans for either cutting capacity or forging ahead and trying to take advantage of weaker rivals.
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