Ryanair to cut fares as profits rise 43% to €1.24bn

Ryanair executives raised the prospect of an air fares price war in Europe yesterday after the carrier reported that 2016 profits were up 43 per cent to more than €1.24 billion.

The airline carried more than 106 million passengers in the 12 months ended March 31st, its financial year, generating €6.54 billion in revenues, 16 per cent more than in 2015.

After-tax profits rose 43 per cent to €1.242 billion during that period, from €867 million in the 12 months ended March 31st, 2015, while earnings per share climbed 48 per cent to 94 cent.

In a statement chief executive Michael O’Leary, signalled that Ryanair is likely to cut fares to fill its planes as both it and its rivals add more capacity in coming months.

Mr O’Leary pointed out that the airline has always been load active/yield passive, that is, it aims to fill its planes irrespective of the price at which it sells seats.

As a result he said “we expect – with very limited visibility – average fares to fall approximately 7 per cent this year”.

Price war

Chief marketing officer

Kenny Jacobs

said that, while early bookings for summer are 2 per cent ahead of where they were this time last year, customers are paying less for their tickets.

“We are adding 9 per cent more capacity and other airlines are adding more seats,” he said.

“So everyone is dropping their fares to stimulate demand.”

Mr Kenny added that Ryanair planned to be "aggressive" about pricing and promotions, particularly in markets where it is focused on growing its share.

Other factors, such as the 200 cancellations caused by air traffic control strikes in the current quarter and lingering anxiety from the Brussels terror attacks, are also having an impact.

“We are expecting that it is going to be a summer of discontent,” Mr Kenny said.

“But passengers are benefitting from lower fares.”

Ryanair’s profits were slightly ahead of the €1.17 billion to €1.22 billion guidance given by the airline to the markets earlier this year.

The figures excluded a one-off €317.5 million accounting gain from the sale of its Aer Lingus stake to International Consolidated Airlines Group, which was distributed to shareholders, when Ryanair passed on the entire €398 million proceeds from the deal in November.

Share buyback

The airline is more than 80 per cent through an €800 million share buyback programme announced in February and expects to complete this in the autumn.

At the end of March it had net cash of €312 million, after a capital spending bill of €1.2 billion, debt repayments of €385 million and payouts to shareholders of €1.1 billion.

Ryanair expects profits for the current financial year, which ends on March 31st, 2017, to grow 13 per cent to between €1.375 billion and €1.425 billion.

However, Mr O’Leary, cautioned that this depends on the strength of summer bookings and earnings from passengers next winter, along with the continued strength of sterling, the absence of shocks and no further cancellations due to air traffic control strikes.