Ryanair suffers from recession and fuel costs

It's not often a firm reports a 25 per cent increase in profits then sees its share price drop five per cent, but rising fuel costs and a recession in Europe are making life very difficult for Ryanair.

The Dublin-based budget airline says revenues increased 19% in the 12 months to the end of March to €4.325bn, while profits before tax came in at €567.7m, against a consensus forecast of €553.4m.

Ryanair's profits after tax were €503m, up 25% on the prior year.

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But the company has some major strategic problems which explain why the stock fell nearly 5% in early trading.

The first is the fuel bill, which is dependent on the price of oil. It rose €360m last year, with a further €320m expected this year .

The company says it has hedged 90% of its supplies for 2012/2013 at $1011 per tonne, or $101 per barrel, a 22% increase on 2011/2012 .

The second problem facing Ryanair is the macroeconomic weakness in its home European market. The group says it expects passenger numbers to rise 5% to 79m this year but the increase in fuel costs will see first quarter profits fall.

The company also warns: "We remain concerned about next winter as we have zero yield visibility but expect recession, austerity, currency concerns and lower fares at new and growing bases in Hungary, Poland, Provincial UK, and Spain will make it difficult to repeat this year's record results."

Ryanair has also announced a second, special dividend of 0.34 cents per share will be paid in November.

BS