Analysis: Profits grow at Ryanair but so does uncertainty

Ryanair grew profits by 4 per cent to €256 million in the three months to the end of June, but has to cope with growing uncertainty in its biggest market, the UK, after the country's electorate voted to leave the EU.

As a result, chief executive Michael O'Leary and financial officer Neil Sorahan were cautious when discussing the airline's immediate future, even though Ryanair is sticking with a forecast that profits will grow 12 per cent to between €1.375 billion and €1.425 billion in its current financial year, which ends on March 31st, 2017.

O'Leary warned that Brexit has led to a "considerable period of political and economic uncertainty in both the UK and EU". Britain is Ryanair's biggest market, accounting for almost 40 million passengers and 28 per cent of its revenues. Its first response to the vote will be to cut frequency and capacity on routes out of London Stansted, although it will not axe any of them.

Over the next two years, it will shift expansion from UK airports to its EU bases. Likely targets include Germany, where Ryanair wants to increase market share; Italy, which plans to cut travel tax; and Spain, which intends to stimulate tourism growth as part of its effort to cut youth unemployment.

“There is pent-up demand in a lot of European airports that have been approaching us and we are happy to give them the field,” Sorahan said. “We are not going to stop growing in the UK, but you won’t see the kind of growth that since 2014 saw us going from 13 million passengers a year to 19 million at Stansted, any more.”

Air strikes

Another challenge is frequent air traffic control strikes, particularly in France. These cost the airline 1,000 flights during the quarter, including those travelling through the country's airspace as well as those to and from there.

Ryanair and its peers are campaigning for a binding arbitration system to tackle disputes, or to have neighbouring air navigation authorities take responsibility for French air space during stoppages. Even more out of its control are terrorist attacks, such as those in Munich and Nice, which are hitting tourism as they are making people more fearful of travelling.

The airline plans to deal with the collective impact of Brexit, strikes and terrorism in its usual fashion, by cutting fares.

The average cost of a seat was down 10 per cent in the first quarter at €39.92 and the airline expects a drop of 8 per across the first half of its financial year, which ends on September 30th.

A €200 million saving in fuel and a 4 per cent drop in other costs will help pay for this. The growth it expects in the current financial year will flow from a 10.4 per cent increase in passengers to 117 million. That figure, which is one million more than predicted in May, is helping to underpin the airline’s unchanged guidance on profit for 2017.