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Today’s Falling Knife: Ryanair Holdings Plc Plunges 11%

Shares in Ryanair (LSE: RYA) (NASDAQ: RYAAY.US) fell by more than 11% in early trade this morning, following a half-yearly report that shocked the market.

The budget airline cut its profit forecast from €570m to around €510m, and will fall for the first time in five years. Management blamed a 2% dip in the price of average fares in the six months accounted for, and expects it to continue to slide over the winter.

Additionally, unit costs rose by 3% “largely due to a 7% increase in fuel prices”, while a multitude of one-off events were made prominent in the update that had a detrimental effect on profits, including French ATC strikes in June and weaker sterling.

However, the company is seeking to rectify this by stimulating traffic growth with aggressive fare promotions, while it also announced this morning that it will introduce allocated seating from February 2014.

Elsewhere, revenue per passenger increased by 2%, helping contribute to a record H1 profit of €602m — in line with previous guidance — while basic earnings per share lifted by 2% to 42.04 euro cents.

Chief executive officer Michael O’Leary commented:

“We are pleased to report slightly increased H1 profits, particularly against a backdrop of softer fares this summer.  Yields in Q3 have softened, which is good news for our customers and has led to strong growth in traffic (up 6% in Oct) and load factors (up 1%). 

“After 20 consecutive years of rapid growth, the next 12 months will see a brief pause in traffic growth, along with stable load factors.  We intend to use this period to further improve our industry leading customer service.

“However the continuing fare and yield softness means that full year profits will be lower than previously guided (€570m to €600m).  We now expect the full year outturn to be between €500m to €520m due entirely to this lower fare environment.”

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> Sam does not own shares in any of the companies mentioned in this article.