Ryanair Shares Plunge on Michael O'Leary's Profit Warning

Ryanair's shares took a hit in Dublin trading after the airline warned that full-year earnings could be lower-than-expected as rising competition and lower bookings force a reduction in fares and capacity in the coming months.

Europe's largest low-cost airline's stock price tanked by as much as 15% in opening trade on 4 September and was trading 13.78% lower to €5.84 at 2:41pm.

The Dublin-based carrier said that its full-year profit-after-tax could hover around the lower end of its guidance range of €570m (£481m, $751m) to €600m.

However, "if fares and yields continue to weaken over the coming winter there can be no guarantee that the full year outturn may not finish at or slightly below the lower end of (the) range," according to a Ryanair statement.

Ryanair Chief Executive Officer Michael O'Leary cited increased price competition, some capacity increases, weak economic conditions in Europe and weaker exchange rates, as the reasons for lower forward fares and yields in September, October and November.

He said the carrier would respond by "selectively reducing" winter capacity, and would roll out lower fares and "aggressive seat sales" in the UK, Scandinavia, Spain and Ireland.

"However, even at or slightly below this full year number of €570m PAT, Ryanair cash flows and balance sheet remain in rude good health and there is no change to our recently announced plans to complete share buybacks of at least €400m (€177m already completed in FY March 2014) and up to €600m via a combination of dividends and/or buybacks in FY March 2015," O Leary said in the statement.

"With the UK and Europe having one of the best summers in a long time, bargain holiday hunters chose to stay in the UK denting the fortunes of Ryanair. This surprise statement has rocked the sector, pulling down sector peers Easyjet and International Consolidated Airlines (IAG) in early trading this morning," said Tom Robertson, trader at Accendo Markets

Easyjet's stock price was trading 5.23% while IAG's stock price was trading 1.80% lower at 2:51pm in London on 4 September.

Ryanair's income flew into a tailspin in the first quarter after rising fuel costs, an early Easter travel season and the French air traffic controllers' strike in June hit Europe's largest low-cost airline's profits.

Profit after tax for the April to June first-quarter dropped 21% to €78m (£67m, $103m) from €99m a year ago. This is despite a 5% increase in revenue to €1.34bn from the first quarter.