Ryanair Holdings Plc, Europe’s biggest discount airline, said first-quarter profit dropped 21 percent on higher fuel costs and an early Easter travel season.

Profit after tax for the three months ended June 30 declined to 78 million euros ($103 million) from 99 million euros a year earlier, the Dublin-based carrier said today. Sales increased 5 percent to 1.34 billion euros. Profit was also hurt by a French air-traffic controller strike, it said.

The airline’s fuel bill jumped 6 percent in the quarter and average fares retreated 4 percent due to the timing of Easter, offsetting the effect of a 3 percent increase in passenger numbers. The Irish company has a target of winning a 20 percent share of the European short-haul market by 2018 after flying 5 percent more passengers in fiscal year 2013 for a total of 79.3 million travelers.

“Our outlook remains cautious for the full year as market conditions are tough with recession, austerity, high fuel costs, and excessive Government taxes, most recently in Belgium, impacting air travel demand and yields,” Chief Executive Officer Michael O’Leary said in the statement.

Ryanair shares retreated 2.5 percent to 6.99 euros at 10:02 a.m. in Dublin. The stock has risen 48 percent this year, valuing the airline at 10 billion euros.
Heat Wave
Chief Financial Officer Howard Millar predicted second- quarter yields will rise, even when compared to a surge of bookings last year following the Olympics. Pricing has weakened in recent weeks, generally the busiest for the airline industry, because of the heat wave sweeping Northern Europe, Ryanair said. Full-year profit after tax will be 570 million euros to 600 million euros, Ryanair said.

The airline’s “overly cautious” outlook for fiscal full-year profit after tax “looks unlikely to be a challenge to beat, particularly given the increasing certainty on fuel pricing for the year,” Investec analyst James Hollins said in a note to investors today. Adjusted net income will be about 646 million pounds, according to the average estimate of 20 analysts surveyed by Bloomberg.

Ryanair said it’s fuel hedge stands at 90 percent at $980 per ton this fiscal year. The carrier has also extended next year’s hedge as the U.S. dollar has weakened delivering a 3 percent cut in per passenger fuel costs. It is 70 percent at $935 per ton for the first half of the 2015 financial year.

Network Rivals

EasyJet Plc, Europe’s second-biggest discount carrier, said on July 24 that it expects to beat analyst estimates for the year through September after adding customers on routes where network carriers are withdrawing.

Both discount airlines are expanding as companies including Air France-KLM Group, Deutsche Lufthansa AG and British Airways parent International Consolidated Airlines Group SA undergo the latest reorganizations of their unprofitable short-haul flights. O’Leary has described those efforts as “doomed to fail.”

Ryanair has also sought to consolidate its grip in Ireland last year with a revived bid in to buy Aer Lingus Group Plc.

The offer, which valued the smaller company at 694 million euros, was blocked in February by European Union regulators, who ruled that the combination would increase fares and reduce choice.

A separate inquiry by the U.K. Competition Commission may require Ryanair to reduce or dispose of its 29.8 percent holding in Aer Lingus. Ryanair said on July 23 that it’s willing to do so. O’Leary said today the airline would “strenuously appeal” any ruling by the regulator.

Ryanair agreed to buy 175 Boeing Co. 737-800 single-aisle jets in March, with the first due for delivery a year later, and has appointed a team to work on a follow-up deal to add 100 aircraft, most likely the Chicago-based planemaker’s new 737 Max model. The team aims to be in a position to report by the end of September, Millar said on Bloomberg TV.

Editors: Kim McLaughlin and Benedikt Kammel. To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

Photo Credit: Ryanair planes are seen parked at Girona airport Reuters