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Published on Friday, January 18, 2019

Ryanair issues profit warning as air fares plunge






 


Ryanair has warned its profit this year will be about €100 million lower than expected due to a 7% fall in airfares, caused by excess capacity this winter on European routes.

It has revised its full year profit guidance down from a range of €1.1 billion to €1.2 billion to a new range of €1 billion to €1.1 billion.

The airline said it could not rule out further cuts to air fares if there are 'unexpected Brexit or security developments', which could put a further dent in its profit.

Ryanair chief executive Michael O'Leary predicted the current low-fares environment would 'continue to shake out' more of its loss-making competitors, pointing out the Flybe and Wow were already up for sale. Flybe recently announced it had been bought by a consortium led by Virgin.

For its part, Ryanair said it had managed to partly off-set the lower fares with stronger traffic growth, which is up 9% to 142 million, stronger ancillary sales and slightly better than expected unit cost performance in the second half of the year.

Its guidance excludes start up losses in Lauda, which have been cut from €150m to €140m on the back of better than expected unit cost performance during the winter period.

O'Leary said:"While we are disappointed at this slightly lower full year guidance, the fact that it is the direct result of lower than expected H2 air fares, offset by stronger than expected traffic growth, a better than expected performance on unit cost and ancillary sales is positive for the medium term.

"There is short haul over capacity in Europe this winter, but Ryanair continues to pursue our price passive/load factor active strategy to the benefit of our customers who are enjoying record lower air fares. We believe this lower fare environment will continue to shake out more loss making competitors, with WOW, Flybe, and reportedly Germania for example, all currently for sale.

"Both Ryanair and Lauda will report stronger than expected traffic growth, an improving ancillary revenue performance, and strong unit cost discipline this winter, which helps to defray the impact of these lower than expected winter fares.

"The fact that we are passing on these benefits, in the form of lower air fares, to customers is good for Ryanair's traffic growth, good for our business over the medium and long term, and good for market share as evidenced by Norwegian's recent announcement of its plans to close bases in Rome, Gran Canaria, Tenerife and Palma, where they competed head to head with Ryanair."

"While we have reasonable visibility over forward Q4 bookings, we cannot rule out further cuts to air fares and/or slightly lower full year guidance if there are unexpected Brexit or security developments which adversely impact yields between now and the end of March."

He said shareholders would be updated in detail on these developments following the release of Ryanair's third quarter results on February 4.

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