Ryanair shares jumped more than 5% despite the airline warning that earnings in its financial year could fall by at least 7%.
The airline met expectations with its latest annual results showing an 8% increase in revenues to €7.1bn, for the 12 months to the end of March, and a 10% jump in post-tax profit to €1.45bn.
It warned that rising operating costs, in the form of fuel and staff costs, will weigh on earnings in its financial year and lead to a first fall in profits for five years.
The company has warned that post-tax profits will fall to between €1.25bn and €1.35bn.
An ongoing share buyback programme is expected to benefit earnings per share in its current year.
Ryanair said it sees fares remaining flat this year and rising ancillary revenues not offsetting higher costs and lower fares. It is not expected to increase fares until there is more consolidation in the European airline industry. Average fares in the year fell by 3%.
“Operating costs are a headwind in the coming year, with fuel costs expected to rise by 20%-25%, adding €400m to operating costs in the 2019 financial year. While this will weigh on profitability, hedging has been effective given that crude oil prices have increased by 65% over the last year,” said Merrion analyst Darren McKinley.
“Ryanair has no hedging in place for 2020 yet. Of this €400m in additional fuel costs, €150m is due to growth plans and the balance is due to the increase in crude oil prices. At current prices, fuel costs would be a similar headwind in 2020, but currency movements should somewhat offset this.”
The latest earnings figures showed Ryanair bounced back from its September pilot-rostering mess, which led to mass flight cancellations, with passenger numbers up 9% to over 130m.
More than 90% of pilots have agreed new terms, including a 20% salary rise, with strong progress made on pilot and cabin crew agreements across a number of markets.
Fresh demands for new working practice agreements by Ryanair’s Irish pilots union has raised the possibility of strike action here.
Ryanair boss Michael O’Leary said he doesn’t expect any strikes or disruptions, although he did not rule them out.
He said he expects Ryanair to remain an employer of choice in the EU airline sector. While management will continue to deal “openly and fairly” with unions, he said the company “will not make concessions on pay or productivity which threatens either our low-cost model or our cost leadership in Europe”.
Mr McKinley said: “Labour costs are expected to increase by €200m in financial year 2019, due to €100m in greater terms to existing pilots and €100m related to growth plans. On a per-passenger basis, staff costs have increased by 20%.”
Fiona Cincotta, a senior market analyst at City Index in London, said: “The pessimistic outlook statement contrasts markedly with more upbeat guidance on profits and fares provided by competitor easyJet.
“Ryanair may have been able to weather last year’s rostering debacle with a record annual profit. However, industrial relations issues have lingered, creating a lasting hangover that has pushed up staff costs that will eat into this year’s earnings.