Ryanair profit hits four-year low, warns of further pain

Ryanair said it expected summer fares to be lower than last year although they could improve in the winter to leave fares for the full year to March 2020 between 2 per cent lower and 1 per cent higher than last year. — Reuters pic
Ryanair said it expected summer fares to be lower than last year although they could improve in the winter to leave fares for the full year to March 2020 between 2 per cent lower and 1 per cent higher than last year. — Reuters pic

DUBLIN, May 20 — Ryanair reported its weakest annual profit in four years on Monday and said earnings could fall further next year as Europe suffers what chief executive Michael O’Leary described as “attritional fare wars.”

But he said he expected Europe’s short-haul sector to consolidate and fares to rise within five years.

Europe’s largest low-cost carrier, which had already flagged a sharp fall in profitability in two warnings last year, saw after-tax profits fall to €1.02 billion (RM4.7 billion) for its financial year to March 31 from €1.45 billion the previous year.

Profit for the year to March 2020, which for the first time will include its recently acquired its loss-making Laudamotion unit, will be between €750 million and €950 million.

A company poll of over 10 analysts published ahead of the release had forecast an after-tax profit of €1.03 billion for the year to March 2019 and 977 million for the year to March 2020.

The profit forecast is “disappointing” compared to market expectations, Liberum analyst Gerald Khoo said in a note, pointing to continued increases in non-fuel costs, forecast by Ryanair to hit 2 per cent in the coming year, as “the main disappointment.”

Traders said they expect shares in Ryanair to fall between 3-5 per cent in early deals.

Several rival airlines have warned of a worse trading environment — partly due to overcapacity and partly because European travellers are holding off booking their summer holidays for fear of how the Brexit process will pan out.

While O’Leary said he was hopeful that the performance in Britain would improve this summer and fares may be stronger across Europe in the winter, he warned investors that the European airline sector was experiencing a cyclical fall in profitability.

“Frankly, if we are in a period where there are going to be attritional fare wars... profits will suffer for a year or two and I think that is what shareholders should expect,” O’Leary said in a video presentation.

“However it is clear in my mind that within the next four of five years we will see the emergence of four or five large European airline groups... with much more capacity discipline ...and some upward pressure on pricing,” he said.

Ryanair said it expected summer fares to be lower than last year although they could improve in the winter to leave fares for the full year to March 2020 between 2 per cent lower and 1 per cent higher than last year.

737 Max

The Irish airline has also taken a hit from delays in the delivery of Boeing 737 MAX after its worldwide grounding in March following a fatal Ethiopian Airlines crash.

Ryanair, which has ordered 135 737 MAX 200s and has options on 75 more, was expecting to receive its first five planes between April and June but now expects them to by flying by November.

It expects most of the first batch of around 50 aircraft to be flying by next summer, Chief Executive Michel O’Leary said.

The grounding has forced Ryanair to cut around 1 million seats in the year to March 2020. But it expects to fly 153 million passengers in the year to March 2020 up from 139 million this year.

While future orders may be slightly backed up, Ryanair expects to hit its medium-term growth target of 200 million passengers by 2024.

The airline plans to have a conversation with Boeing about “modest compensation”, Chief Financial Officer Neil Sorohan said.

Ryanair’s shares closed on Friday at €10.81, down more than 40per cent from a peak of €19.39 18 months ago, before the airline was hit by a wave of industrial unrest, weakness in European short-haul fares and the grounding of the MAX.

In what O’Leary described as a vote of confidence from the board, Ryanair will begin a €700 million share buyback in the coming days. — Reuters

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