Good morning!
Dart (LON:DTG)
Share price: 230p
No. shares: 146.4m
Market Cap: £336.7m
Legal judgment - Shares in Dart have dropped about 30p today to 230p. This is the Jet2.com airline, package holidays, and also owns a road haulage business. The reason for the fall is that the Supreme Court has ruled that Jet2.com cannot appeal against an unfavourable judgment which will result in the company having to pay higher levels of compensation to customers whose flights were delayed in certain circumstances.
The contentious issue concerned whether technical breakdowns should be regarded as "exatrordinary", or as part of the normal course of events, and therefore trigger compensation payments to customers or not.
Dart says that it will make a £17m provision to cover historic claims, and the future cost is expected to be between £3-5m p.a.. So that's distinctly unhelpful, and in the context of profit of about £36m last year, it's probably going to put a noticeable dent in future profitability. On the other hand, airlines are benefiting from the lower price of fuel at the moment (to the extent that they haven't hedged), and this legal risk was a known factor that has been grumbling away for some time.
My opinion - the market tends to take issues like this in its stride. Forecasts will be adjusted, the share price has already adjusted down, so the only risk now is whether claims volumes (and the cost of handing them) might exceed estimates. Personally I doubt there will be a huge issue here - how many people are going to bother going through all the hassle of claiming a relatively small amount of compensation for a flight that was delayed more than (say) a year ago? I wouldn't bother - would you?
The company's track record in recent years has been good;
Ryanair Holdings (LON:RYA) - It's worth noting that Ryanair has put out a positive trading statement today, noting that unit costs fell 2% due to cheaper fuel (excluding fuel costs rose by 3%, so that's a big impact from cheaper fuel).
Note that they are locking in current oil prices by increasing hedging, time will tell if that was the right or wrong decision;
We have taken advantage of recent oil price weakness to extend our fuel hedges to 90% for FY16, at approx. $93…
