Heading into this financial year, management at Ryanair (RYA) was on the “pessimistic side of cautious”. Rightfully so, as after-tax profit during the first quarter fell by a fifth to €319m (£285m). Costs have crept up, including a 40 per cent jump in “right to care” compensation when more than 2,500 flights were cancelled due to air traffic control strikes in France. The budget airline is bringing its grievances to the European Commission over “unacceptably frequent” disruptions in France. The cancelled flights also wiped 14 percentage points off Ryanair’s punctuality score, now at 75 per cent.
Staff costs added to the burden, up by more than a third on the back of pay increases and more flying hours. Ryanair recently began to recognise unions, and already around 66 per cent of its staff are covered by agreements. This related to employees based in the UK, Italy, and Germany; reaching deals with unions in Spain, Portugal and Belgium has proved more difficult.
Oil prices have also been on the rise. The cost of fuel increased from around $50 a barrel during the first quarter of 2017 to $80 a barrel during the reported period. Around 90 per cent of Ryanair’s fuel requirements are hedged at $58 a barrel, but the remaining unhedged balance will add at least €430m to the total fuel bill by the full year. Just over a third of required fuel is hedged at $58 per barrel for the first half of FY2020.
While Ryanair likes to boast about its low fares, it has perhaps got more than it bargained for. The average ticket price fell 4 per cent to €38.68, and this competitive environment is not expected to reverse in the near term. In this first quarter, the falling fares coupled with rising costs meant the net margin fell from 21 per cent to 15 per cent. Management now expects fares to rise by 1 per cent during the second quarter, down from original forecasts of 4 per cent.
Ryanair and fellow budget airline easyJet (EZJ) updated the market just days apart with dramatically different results. Both cancelled a similar number of flights due to the air traffic control strikes, but easyJet also managed to upgrade full-year pre-tax profit forecasts. Wizz Air (WIZZ) cancelled 145 flights during its first quarter, a fourfold increase on the previous year, which wiped 14 per cent (€50m) off profit.
Yet during the period Ryanair has had to deal with something that its peers have not: staff disputes. On top of air traffic control strikes in France, it’s also been faced with industrial action from Irish pilots. Its crew have gone on strike two days so far this summer, with another two days planned this season. This industrial action has dented the profitability of some routes through Ireland, prompting management to cut the Dublin-based fleet from 30 planes to 24 from this winter. These planes will be moved to more profitable areas, such as its Polish airline Ryanair Sun.
Ryanair is also less prepared for Brexit than easyJet or Wizz Air, which have both secured the necessary air operator certificates to continue to fly no matter the outcome of leaving negotiations. The Irish airline has applied for a UK air operator certificate to protect routes that fly to or from Britain, but warned that they may have to restrict the voting rights of non-EU shareholders in the event of a hard Brexit.
