Ryanair issues profit warning after lower winter fares
Improved cost management and higher traffic numbers helped to ‘defray’ lower fares
Further profit warnings can’t be ruled out if unexpected Brexit or security developments arise. Photograph: Wolfgang Rattay/Reuters
Ryanair said yesterday that full-year profits could be about €100 million lower than expected in its second such warning in four months.
The Dublin-based airline lowered its guidance for the profit it will earn in its current financial year, which ends on March 31st, to €1 billion-€1.1 billion, from a prediction in October of €1.1 billion-€1.2 billion.
Ryanair blamed a 7 per cent fall in winter fares for what was its second profit warning in four months. In early October it told the markets that profits could be up to 12 per cent lower than the €1.25 billion-€1.35 billion it originally expected to earn in this financial year.
However, its shares ultimately shrugged off the news, closing 0.3 per cent up in Dublin at €10.095. They plunged more than 6 per cent in earlier trade, hitting a low of €9.548 before recovering as buyers moved into the market.
Michael O’Leary, the airline’s chief executive, said that while there was disappointment at this “slightly lower full year guidance”, a better-than-expected performance on costs, stronger traffic growth and good ancillary sales were all positive factors for the medium term.
He pointed out that there was overcapacity in European airlines. Mr O’Leary stressed that Ryanair would continue with its strategy of selling seats to fill its aircraft, no matter what the price.
“We believe this lower-fare environment will continue to shake out more loss-making competitors, with Wow, Flybe and reportedly Germania, for example, all currently for sale,” he said.
The Irish airline said it expected traffic growth to increase 9 per cent for the full year to 142 million passengers. It had previously said it expected 141 million passengers.
Additionally, Ryanair flagged that ancillary sales would be stronger “as more customers choose lower cost optional services” and slightly better unit costs in the second half of the year.
All of those factors help to “defray the impact of these lower-than-expected winter fares”, Mr O’Leary said, adding that the fact Ryanair was passing on lower cost benefits to customers is good for growth and market share. He said that was evidenced by the announcement by low-cost carrier Norwegian Air to close a series of bases where they competed with Ryanair.
Nevertheless, Mr O’Leary said further cuts to air fares and further profit warnings cannot be ruled out if unexpected Brexit or security developments arise.
In a note to clients, Davy stockbrokers said profit was likely to end at the lower end of the range. “The key question for the stock is what happens post winter,” Davy analysts said.