Ryanair shares short of all time high as it warns of low visibility

Ryanair carried three times as many passengers than expected, sending profits soaring 66% higher.

Europe’s largest airline on passenger numbers continues to reap the rewards of the ‘being nicer’ initiative it was more or less forced to adopt after its previous cheap-and-nasty image came home to roost a couple of years ago, leading to a string of profit warnings and flyers deserting it for its arch rival easyJet.

Passenger numbers increased 11% to 90 million, compared with the 4% targeted at the start of the year, with 100 million expected to fly with the Irish airline in its current financial year.

In a resounding return to previous form which saw the Ireland-based carrier more often than not trump market profit forecasts, it reported on Tuesday that it made a €867m profit after tax in the year to March, having itself forecast a profit of €840m.

This is very likely to be a major reason why, so far this morning the market is largely shrugging off the carrier’s decidedly guarded mood music about the year ahead.

“No visibility”  vs. Low visibility

Profit growth in the year ahead is likelier to cruise higher at a more sedate pace of c. 10%, with the airline forecasting a range of €940m to €970m.

Ryanair has also been sure to point out early on that it has “no visibility” over the yield outlook for the second half the financial year, although elsewhere in its final 2014 report the Dublin-headquartered firm did say H2 yields were likely to be “down 4% to 8%” following a flat yield outcome IN H1, bringing the full-year total to a 2% fall.

Some of Ryanair’s (or perhaps to be more accurate CEO Michael O’Leary’s) well-known competitive rhetoric versus its rivals remains, even after their makeover to a more polite attitude.

That’s judging by an accusation in the full-year report that the likes of easyJet and other low-cost airlines are likely to resort to “irrational pricing” in the new fiscal year.

That could lead to Ryanair—in its view the custodian of a higher ground in terms of competitive tactics—suffering periods of fare or yield weakness, especially during the H2 winter season, it said on Tuesday.

Either way, the Irish airline looks set to continue lagging rival easyJet on load factor, according to its own guidance for a rise to 90% in FY2016, whilst the UK-based carrier already saw an average of 89.7% in its year to March.

Descent may start soon

For now, the market has decided to look past these cautions for 2016; Ryanair’s stock on Tuesday morning rose back to a within a wing tip of its highest ever peak of €11.63, last reached in April.

With that level now very likely to pose resistance, momentum indicators assume greater importance.

Whilst the Slow Stochastic gauge seems to give a green light to continued upward progress over the next few days, the Moving Average Convergence Divergence (MACD; see the first sub-chart) seems a better reflector of management’s more cautious signal to the market, with the ‘slower’ MA (dark line) diverging.

Classically, divergence in price direction from the underlying direction will tend to call an end to the most recent trend.

Since the stochastic chart, on the bottom, still has room to rise, price consolidation may not happen quickly.

A pause appears to be more urgent in the shorter-term time frame I’ve used to assess City Index’s Ryanair Daily Funded Trade.

The half-hourly view suggests that should a more cautious tone prevail, the title could lose at least 2% from its current 1141 level.

Considering the gap between Friday and this morning’s trade, the correction could be sharper in the near term.