Ryanair says cancellation fiasco won't stop record profit

By Conor Humphries

DUBLIN (Reuters) - Ryanair (RYA.I) is on course to post record annual profits despite a rostering mess-up that forced it to cancel 20,000 flights, and does not expect problems hiring the pilots to expand by 50 percent in the next six years, it said on Tuesday.

Europe's biggest airline by passenger numbers saw 2 billion euros (£1.76 billion) knocked off its market value in the weeks after it announced the cancellations, an emergency measure to free up standby pilots to ensure the smooth operation of its 400 planes.

But it recovered around half of that loss on Tuesday when the shares climbed over 6 percent, after it told investors that forward bookings were better than last year and it would not need to change the profit forecast to pay the 70-million-euro cost of compensating passengers and increasing pilots' pay.

Analysts said this gave them greater confidence the Irish airline will be able to cope with the longer term fallout from fiasco, which Ryanair reiterated would be lower passenger growth next year and 100 million euros per year in pay increases.

"Ryanair’s attractive long-term fundamentals, underpinned by its low cost base, remain intact," Liberum analyst Gerald Khoo said in a note, reiterating a "buy" rating on the stock.

The airline's decision to make a rare cut in its passenger growth target - to 129 million for the year to the end of March from 131 million - is likely to help lift average ticket prices above previous forecasts in the coming months, chief executive Michael O'Leary said.

Meanwhile the fall of Air Berlin (AB1.DE), Britain's Monarch [MONA.UL] and Alitalia [CAITLA.UL] into administration is set to help Ryanair by cutting capacity and freeing up pilots, he said.

"Is the underlying business model continuing to deliver? Yes it is," O'Leary told investors on a conference call. "Can it cope with the occasional fuck-up? Yes it can and I think that is what we are demonstrating with these numbers."

Ryanair shares were up 6.9 percent to 16.84 euros at 1240 GMT, but still down around 7 percent from 18.03 euros before the cancellations were announced on Sept. 15.

PILOT PROBLEMS

In the wake of the cancellations, Ryanair has replaced its rostering team and hired back its former director of flight operations from Malaysia Airlines, Peter Bellew, as chief operations officer to spearhead an effort to better retain and attract pilots.

O'Leary said the airline was hiring around 40-50 pilots per week and it was seeing a "flood of applications" from pilots who worked for Monarch Airlines and Air Berlin.

He said Ryanair was beginning to see a reversal of a loss of pilots to Norwegian Air Shuttle (NWC.OL).

Pay increases would not threaten the company's cost advantage over rivals, O'Leary said. The bill for this year will be 45 million euros if all 87 bases accept it, he added.

He said more than 15 bases had approved a new pay deal. While pilots say a majority of the bases have rejected the deal, O'Leary would only say "a number of bases" had.

Chief Financial Officer Neil Sorahan said "the door remains open" to talks with bases who have rejected the offer, but warned it would not be improved. While existing pilots at England's Stansted airport have rejected the pay increase, it is being given to new recruits, he said.

There will be consequences for any pilot bases where industrial action occurs, including the possible withdrawal of planes, O'Leary said.

Ryanair said it had cut fares by 5 percent in the six months to months to Sept. 30, the first half of its financial year, in line with its guidance six months ago, due to growth in capacity in Europe's short-haul market.

But it said fares for the six months to March 31 would fall less than earlier forecast - by between 4 and 6 percent rather than the 5 to 7 percent guided in July.

Ryanair reported profit after tax of 1.293 billion euros for the six months to Sept. 30, in line with an average forecast of 1.298 billion euros in a company-provided poll of analysts.

It reiterated its forecast for a profit after tax of between 1.4 billion and 1.45 billion euros in its financial year to March 31, 2018.

(Reporting by Conor Humphries; Editing by Jason Neely and Mark Potter)