€1.1 billion wiped off Ryanair as fall in bookings sparks profit warning

More than €1.1 billion was wiped off the value of Ryanair yesterday after a fall in bookings and weaker sterling prompted the airline to issue a profit warning.

Chief executive Michael O’Leary said the airline’s full- year profit would be at the lower end of its forecast range of €570 million to €600 million, sending its shares tumbling by more than 11 per cent to close at €6 in Dublin.

The fall meant the company was valued at €8.58 billion at yesterday’s closing price, compared with €9.7 billion at Tuesday’s final quote of €6.78.

The carrier said full-year profit may be lower than forecast after a heatwave across Europe trimmed bookings, something it had highlighted when publishing first quarter results in July.

“If yields, a measure of fare prices, continue to weaken, profit may end up at or slightly below the lower end of this range,” the company said.

“In recent weeks we have noticed a perceptible dip in forward fares and yields into September, October and November,” its chief executive Michael O’Leary told analysts.

Increased competition
He added that there was increased price competition and increased capacity in Ireland, Britain, Spain and Scandinavia.

Mr O'Leary pointed out that there was evidence that rivals such as Norwegian, Aer Lingus and Easyjet had all moved to cut prices, leading to the dip in yields – that is, average revenue per mile per passenger – for September, October and November. "I have no doubt that the market will be weaker than the industry is expecting over the next couple of months, and we are going to respond to that by being out there first and being aggressive with pricing," he said.

The company plans to launch seat sales in those countries where it has seen signs of tougher competition, namely Ireland, Britain, Spain and Scandinavia.

Mr O’Leary said the main reason for the profit warning was weakness in sterling, the currency in which it does around one quarter of its sales, compared with last year.

Weaker sterling
Finance chief Howard Millar said the weaker sterling could wipe up to €50 million off the company's profit.

Following the news yesterday morning, the shares fell by 15 per cent, dipping close to €5.76 before regaining some ground. They spent much of the day below the €6 mark.

Ryanair’s woes had a knock-on effect on the rest of the sector as investors weighed up whether or not the problems were industry-wide.

Aer Lingus, in which Ryanair holds 29.8 per cent, fell 5.84 per cent in Dublin to close at €1.58.

Another rival, Easyjet, fell by almost 5.1 per cent in London to end the day at 1,215 pence sterling.