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Ryanair set to hit profit targets after unit costs boost

Ryanair is expected to hit full-year profit targets when it reports to the market this week after having benefited from a higher-than-expected drop in unit costs.

The budget airline will release annual earnings on Tuesday, with c onsensus forecasts pointing to a pre-tax profit of 1.315 billion euros (£1.13 billion) for the 12 months to the end of March.

In February, Ryanair said it expected full-year unit costs, excluding fuel, to fall by 4% compared with forecasts for a 3% fall made after the first half of the financial year.

Unit costs are defined as total operating costs for the company divided by the number of passengers.

Beaufort Securities said it was encouraged by Ryanair's ability to offer lower fares while retaining net profit guidance.

"The key differences for Ryanair is its capability to continue lowering its unit costs, while delivering 'lowest passenger costs' amongst its EU peers, at the time of traffic growth and when competitors are forecasting flat or rising costs.

"This gap between Ryanair and its rivals will enable the group to maintain momentum and continue winning market share."

However, in its third-quarter results released in February, Ryanair reported an 8% drop pre-tax profits to 95 million euros (£81 million).

It said average fares fell 17% to 33 euro per passenger in the three months to December as it ramped up competition with rivals, with prices set to go even lower.

The low-cost carrier added that the sharp decline in sterling following the Brexit vote ate into profits.

Sector peer easyJet has also felt the pinch of the Brexit-hit pound and late timing of Easter, evidenced by the £236 million pre-tax loss in the six months to March 31, which compared with an £18 million loss in the same period last year.

But, like Ryanair, easyJet managed to maintain its full-year expectations.

Ryanair is seen to be on track for further growth in the next financial year, with full-year 2018 analyst consensus at 1.455 billion euros (£1.259 billion).

The company said in its third-quarter results that it expected pricing to "continue to be challenging" but would "respond to these adverse market conditions with strong traffic growth and lower unit costs."

"We expect our load factor active/price passive strategy will win market share from all higher cost EU competitor airlines, while we continue to open new markets."

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