Headwinds hit Ryanair with profit expectations lower

Cantillon: Low-cost carrier braces for year’s profit to be short by €100m

Ryanair says fares over the winter will be down 7 per cent instead of the 2 per cent originally predicted. Photograph: Kacper Pempel

Ryanair says fares over the winter will be down 7 per cent instead of the 2 per cent originally predicted. Photograph: Kacper Pempel

 

Ryanair’s second profit warning in four months shows that the air travel tide has turned sharply following years of growth that only ended in 2018.

The low-cost carrier expects profit for its financial year, which ends on March 31st, to be between €1 billion and €1.1 billion, rather than €1.1 billion to €1.2 billion. Ryanair says that fares over the winter will be down 7 per cent instead of the 2 per cent that it had originally expected.

However, it expects to carry 142 million passengers, one million more than predicted, over the 12-month period to the end of March. Earnings from ancillary sales, that is checked-in bags, on-board sales and so forth, will also be strong.

Those gains will offset some of the decrease in profits resulting from lower fares. The bottom line is that Ryanair will earn about €7 from every passenger that it will have carried over the 12 months to March 31st. Two years ago, this would have been €10.

It is still a fair return in an environment where costs such as fuel are rising while fares are falling because there is “overcapacity in the market”. This is just a polite way of saying there are too many airlines in Europe.

US flights

Other big aviation news, that Norwegian plans to drastically reduce its Dublin base, illustrates that even more clearly. Norwegian has been one of the stories of the decade, kicking off the next stage of the low-cost revolution by offering cheap flights to the US from Europe, audaciously ordering 200 new aircraft to do this.

Now it must cut costs by €205 million. While it wants to avoid redundancies where possible, it is hard to see how it can apply the knife without losing jobs, particularly as it is closing bases.

Ryanair’s profit warning and Norwegian’s cuts are contrasting reactions to the same shakeout in their industry. The process is likely to continue this year. This may not be good news for investors or airlines’ bottom lines, but it does mean travellers will be flying very cheaply this year.