Ryanair shares rise amid ‘cuddly Michael effect’

Shares in Ryanair were boosted yesterday after one of its smaller rivals — British low-cost airline easyJet — forecast profit growth of 14%, and on expectations that the Irish airline’s new “cuddly” customer-service focus is paying off.

Ryanair shares rise amid ‘cuddly Michael effect’

Ryanair shares have now risen 33% since the start of the year, helped by the “cuddly Michael effect”, said David Holohan, head of research at Merrion Capital, referring to Ryanair chief executive Michael O’Leary’s new focus on customer service at the airline.

The new policy has paid off by delivering passenger numbers and higher yields, Mr Holohan said.

Analysts expect a sparkling performance from Ryanair earnings for the first-quarter figures which it releases on Monday.

“With likely heavy discounting in the post-Easter April period, we expect more robust unit revenue performance the further we get into peak summer,” said Stephen Furlong at Davy Stockbrokers in a research note.

“The company attributes the strong volume performance to lower fares, its stronger forward bookings, and the continuing success of its ‘Always Getting Better’ programme.”

Davy forecasts Ryanair’s first-quarter net profit will increase by over 27% to €250.6m in the year.

The airline is the best performer in a basket of European airlines this year. The next best performer features Willie Walsh’s IAG, owner of British Airways and Veuling, and soon Aer Lingus, when it formally completes the acquisition of the carrier. EasyJet shares have been a relative underperformer.

However, figures released yesterday showed the performance of the British low-cost airline in the three months to the end of June was better than easyJet had forecast in May, boosted by increased demand for flights to southern European resorts such as Malaga, Alicante, and Faro from northern Europe, and Britain in particular.

Shares in easyJet, Europe’s second-biggest budget airline after Ryanair, gained 4.3% at one stage to 1,739 pence yesterday, their highest level since mid-May.

The strength of the pound against the euro is making holidays on the continent particularly appealing for Britons this year. The euro hit a seven-and-a-half-year low against the pound last Friday, having shed around 10% against sterling since the start of the year.

EasyJet did, however, warn that it faces a series of uncertainties in the future given the crisis in Greece, a bloody attack on tourists in Tunisia, the impact of a fire at Fiumicino airport in Rome, and various threats of industrial action.

Despite these uncertainties, it forecast profit growth of between 7% and 14% for the year to the end of September, putting it on track to meet analyst forecasts for a 10% rise.

Before yesterday, easyJet shares had fallen 9% since the statement in mid-May compared to a 10% rise in Ryanair’s stock. The divergent performances reflect concerns about Ryanair’s move into what has traditionally been easyJet’s territory, after the Irish carrier polished up its image and started adding more main city airports to its routes.

However, some analysts believe those fears are overdone. Ryanair and easyJet compete directly on less than 5% of routes.

Additional reporting Reuters

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