Ryanair’s wings clipped by cancellations debacle

This Week: Airline’s first-half results will reflect investor jitters. Also: AIB’s egm

Ryanair’s traditional nonchalance towards customer outrage was tested to its limit last month following the cancellation of thousands of flights. Photograph: Eric Gaillard/Reuters

Ryanair’s traditional nonchalance towards customer outrage was tested to its limit last month following the cancellation of thousands of flights. Photograph: Eric Gaillard/Reuters

 

Monday October 30th

Results: Mondelez.
Indicators: Euro zone consumer and business confidence (Oct), service, economic and industrial sentiment (Oct); UK consumer credit (Sep), mortgage lending and approvals (Sep), lending to individuals (Sep); German import prices (Sep), retail sales (Sep), unemployment (Sep, Oct), inflation (Oct).

Tuesday October 31st

Results: Ryanair, Geberit, Electronic Arts, Fitbit, Kellogg’s, Mastercard, New York Times, Pfizer, Time Warner, Under Armour, Yelp.
Indicators: Euro zone inflation flash (Oct), unemployment (Sep), GDP growth flash (Q3); UK consumer confidence (Oct); US consumer confidence (Oct).

Ryanair’s traditional nonchalance towards customer outrage was tested to its limit last month following the cancellation of thousands of flights.

The financial impact of that disaster will be settled a little further down the line, but analysis in the run-up to first-half results on Tuesday is already reflecting investor jitters.

Goodbody believes that, following roster errors (blamed by Ryanair as the source of its woes), the market is revising down forecasts for the first half of its 2018 fiscal year.

With €20 million in compensations costs and weak end-September yields compounded by lost capacity, there is a reversal on what seemed to be a strong quarter.

“We expect profit after tax to be €913 million, flat year-on-year. Additionally, we expect no buy-back to be announced,” it said.

Add to the noise the cost of pilot pay increases and bonuses – anywhere between €70 million and €100 million, depending on how things pan out – and things are not looking good.

“However, there is good news amongst the negatives,” says Goodbody. “We believe that the low cost/high growth model is intact, internal reporting issues are being addressed, positive cash flow will fund further buy-backs this year and ancillaries/pax will grow again in FY19 [full year 2019].”

Davy, for its part, expects modest profit growth in the second quarter – net income of €944.3 million (+3.5 per cent) driven by yields that were down 8 per cent. Traffic growth was 10.4 per cent in the quarter, with loads at a company and industry record of 97 per cent, it said.

The airline expects lower yields in the next two months, and so Davy sees the third quarter falling in the range of minus-10 per cent, although the fourth quarter “could end up better than guidance”. Ryanair itself has maintained its full year 2018 outlook.

Wednesday November 1st

Results: Glanbia, Smurfit Kappa Group, Paddy Power Betfair, Facebook, Kraft Heinz, Molson Coors, Motorola Solutions, Office Depot.
Indicators: Irish unemployment (Oct), manufacturing PMI (Oct); UK manufacturing PMI (Oct); US mortgage applications and rates (Oct), manufacturing PMI (Oct), vehicle sales (Oct).
Meetings: US Fed interest rate decision; Learn Inbound digital marketing conference (Mansion House, Dublin 2); Dublin Information Sec 2017 on cyber security trends and threats (RDS, Dublin 4).

Thursday November 2nd

Results: DSM, Tate & Lyle, Alibaba, Apple, Becton Dickinson, Ferrari, Ralph Lauren, Starbucks.
Indicators: EU manufacturing PMI (Oct); UK construction PMI (Oct); German manufacturing PMI (Oct).
Meetings: Bank of England interest rate decision; ESRI Seminar: “Mobility and the Lifetime Distributional Impact of Tax and Transfer Reforms” (ESRI, Sir John Rogerson’s Quay, Dublin 2).

Friday November 3rd

Results: Air France KLM, Amadeus IT Group, Kennedy Wilson Europe.
Indicators: Irish services PMI (Oct), industrial production (Sep); UK services PMI (Oct); US exports and imports (Sep), inflation (Oct), average hourly earnings (Oct), non-farm payrolls (Oct), unemployment (Oct).
Meetings: Allied Irish Banks egm (Ballsbridge Hotel, Dublin 4); Art Summit Ireland on sector investment (Merrion Hotel, Dublin 2).

Although everyone hopes to avoid any future financial meltdown, plans are being put in place to structure financial institutions accordingly.

On Friday, AIB is to hold an extraordinary general meeting (egm) setting out its plans to meet new European rules on minimising future taxpayer bailouts.

This essentially means the creation of a holding company at the top of its corporate structure.

This company will be in a position to issue junior and senior debt in future that would be eligible to be “bailed in” in the event of a future crisis. Meanwhile, deposits will be afforded greater protection, held in a separate operating company.

The egm has been ordered by the High Court, which must rubber-stamp the restructuring process. AIB has been guided on its approach by Goodbody Stockbrokers and Morgan Stanley. Bank of Ireland underwent a similar restructuring during the summer.

Equity investors – including the State, which maintains its 71 per cent stake in AIB – will hold shares in the holding company.

Friday’s egm is required to secure shareholder approval for the restructuring.

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