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UPDATE 4-Ryanair warns on profit, blaming weak Europe and sterling

09/04/2013 | Reuters

* FY profit to be at bottom or below 570-600 mln euro range

* Analysts had forecast profit of around 645 mln euros

* Ryanair sees weak autumn in European aviation; shares fall

* To respond with "aggressive seat sales"

(Adds investor comment, updated shares)

By Conor Humphries

DUBLIN, Sept 4 (Reuters) - Europe's biggest budget airline
Ryanair could miss its annual profit target for the
first time in a decade, it said on Wednesday, blaming lower
demand across the continent and a weaker currency in its largest
market, Britain.

Shares in the Irish group, which has routinely beaten profit
forecasts in recent years, dropped as much as 15 percent to a
five-month low, dragging down other airline and travel stocks.

While some indicators suggest Europe's economy is starting
to emerge from years in the doldrums, Ryanair said there had
been a noticeable dip in bookings for the coming months. It also
blamed a weaker sterling for hitting demand and lifting costs in
Britain, where it makes about a quarter of revenues.

"I have no doubt that the market will be weaker than the
industry is expecting over the next couple of months and we are
going to respond to that by being out there first and being
aggressive with pricing," Chief Executive Michael O'Leary said.

Analysts said it was too early to know whether the weakness
was specific to Ryanair or a broader industry problem.

"Ryanair's rivals certainly haven't indicated they have seen
this kind of weakness, though Ryanair has a history of calling
things early," said Davy Stockbrokers' Stephen Furlong.

At 1542 GMT, Ryanair shares were down 11 percent at 6.028
euros, posting the biggest fall by a European blue-chip stock
and dragging the European transport and leisure index
down 1.6 percent. Rival easyJet fell 5.1 percent
while tour operator TUI Travel was off 3.2 percent.

But Barry Norris, chief investment officer at Argonaut, one
of the airline's top 20 institutional investors, dismissed talk
of a serious downturn in previously robust industry trends and
said the announcement appeared to be aimed at starting a price
war to discourage weaker competitors from running more flights.

"Ryanair management clearly believe that short-term
shareholder pain will result in longer-term gain. As such we
have been buying shares today, believing that the ... fall in
the shares is an overreaction," Norris told Reuters.


Airlines across Europe have been struggling with weak
economies, high fuel prices and costly fleet upgrades. Ryanair
has fared better than most thanks to its low cost base, but
said price competition had increased in recent weeks as airlines
faced weak demand in the coming months.

Ryanair, which last month became embroiled in a row about
potential safety issues, said net profit for the year to March
2014 was likely to be at the bottom end of its previous forecast
range of 570-600 million euros ($750-789 million). O'Leary said
if pricing remained weak through to March next year profit
"might slip slightly below" that range.

Ryanair said it would respond to weak bookings by grounding
70-80 aircraft in the winter, up from an earlier plan to ground
50, and with "aggressive seat sales" particularly in Britain,
Scandinavia, Spain and Ireland.

Analysts had become too optimistic after Ryanair had
repeatedly beaten forecasts in recent years, O'Leary said. A
Reuters poll before the statement forecast a full-year net
profit of 645 million euros compared with 570 million last year.

The last time Ryanair warned profit would be at the bottom
of a previously guided range was 2009, which was also the last
year in which the company reported a fall in profit. The last
time Ryanair missed its profit forecast was in 2004.

There was evidence Norwegian Air, Aer Lingus
and easyJet had all moved to cut prices, leading to a
"perceptible dip" in yields - average revenue per mile per
passenger - for September, October and November, O'Leary said.

O'Leary said the main reason for the profit warning was
weakness in sterling compared with last year - which finance
chief Howard Millar said could wipe up to 50 million euros off
the company's profit.

Although sterling has strengthened to around 85 pence per
euro in recent days, it is still trading well below the levels
of around 79 pence this time last year.

($1 = 0.7601 euros)

(Additional reporting by Sinead Cruise in London; Editing by
Pravin Char)

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