Ryanair shares have fallen by 4.7 per cent in Dublin this afternoon after Merrill Lynch cut its share-price estimate for the airline.
EasyJet, Ryanair's biggest competitor, and British Airways, Europe's third-largest carrier, also declined after Merrill lowered earnings estimates.
Merrill cut its price target for Ryanair by 7.3 per cent to €3.80 a share from €4.10, citing pressure from increasing fuel costs. By 2.40pm, Ryanair shares had dropped as much as 4.7 per cent to €2. Oil prices broke through the $125 mark earlier today.
European airlines are struggling with higher fuel expenses amid record oil prices. Ryanair is particularly exposed because it is essentially unhedged for the remainder of the current fiscal year.
EasyJet has contracts to buy jet fuel at $750 a metric ton for the second half of the current fiscal year, compared with a spot price of more than $1,000. British Airways forecasts fuel costs will rise 20 per cent this year.
"Over the long term, we believe Ryanair can create value," Merrill analysts Samantha Gleave and Paul Butler wrote in the note.
"In the nearer term, share-price volatility may continue reflecting short-term macro-related concerns, market sentiment and fuel-price movements."
Ryanair has dropped 39 per cent this year. EasyJet shares declined 4.67 per cent in London by 2.40pm at 286 pence while British Airways has lost 4.19 per cent to 228.5 pence.
Merrill lowered its forecast for Ebit, or earnings before interest and taxes, at British Airways by 56 per cent to £250 million ($488 million) for the fiscal year through March 2009 because of higher fuel prices.
The bank cut its forecast for EasyJet's profit before tax for the current fiscal year 15 per cent to £150 million pounds and 27 per cent to £160 million pounds for the following year.
Additional reporting Bloomberg
