Downgrades see Ryanair shares drop

SHARES in Ryanair fell by almost 6% at one stage yesterday after being downgraded by two brokers.

American investment Citigroup cut its rating on Ryanair from buy to hold, while Merrion Stockbrokers reduced its rating from add to reduce.

The downgrades saw Ryanair shares fall by 60 cents at one point, though they recovered to end the day down 31c at €7.74 on the Irish stock exchange yesterday.

Merrion’s aviation analyst John Mattimoe said the downgrade reflected the fact that Ryanair is already trading on a high price/earnings ratio. He said the long-term prospects for the carrier were sound, but he was concerned Ryanair’s yields - or average ticket prices - had not risen to compensate for higher fuel costs.

“The structural long-term bias to Ryanair’s average fare is down in order to support the airline’s growth strategy. However, following the 14% yield decline [in 2004] we expected there was scope for some improvement in yields once the 2004 price war ended,” Mr Mattimoe wrote in a research note.

Ryanair says it is on course to deliver profits of €290 million in the 12 months to end March 2006.

While the airline says it can cope with higher fuel prices, Mr Mattimoe said as the airline has not hedged out its fuel position beyond March, earnings could be hit by another surge in oil prices.