A profit warning from Ryanair (RYA) means it’s not just customers feeling disgruntled and inconvenienced by flight cancellations. Indeed, investors sent the budget airline’s shares plummeting by nearly a tenth.
Given the state of affairs, this reaction didn’t seem overdone. Ryanair has cut its full-year profit guidance by 12 per cent to between €1.1bn (£980m) and €1.2bn, against previous guidance of €1.25bn and €1.35bn. This excludes Laudamotion, the Austrian airline in which Ryanair has acquired a 75 per cent interest.
The reasons for this downgrade are manifold – starting with coordinated strikes by pilots and cabin crews, which caused lower traffic and weaker fares in September.
These strikes came despite Ryanair’s move to recognise unions in December 2017. While progress has been made in the UK, Ireland and Italy, negotiations have been trickier in Spain, Portugal, Germany, Holland and Belgium.
And even though the airline managed to operate 90 per cent of its flights on strike days, chief executive Michael O’Leary said customer confidence had been hurt by cancellations. Fares in the second quarter fell 3 per cent, compared with previous expectations of a 1 per cent increase. A recovery had also been expected in the third quarter, but those hopes now appear dashed. Ticket prices in the second half are now forecast to fall by 2 per cent.
What’s more, Mr O’Leary said Ryanair couldn't disregard the potential for further disruptions this year, which "may require full-year guidance to be lowered further". This could lead to "further trimming of loss-making winter capacity". Winter capacity has already been cut 1 per cent, mainly on flights from the Netherlands and Germany.
Meanwhile, higher oil prices are, of course, not an airline-specific problem. But preparations for such fluctuations can be. Around 10 per cent of Ryanair’s fuel requirements were unhedged, so the oil price rise to $82 (£63) per barrel means that fuel costs will be €460m more than last year. Analysts at Numis cut full-year post-tax profits from €1.2bn to €0.92bn, primarily on the back of fuel cost inflation. They believe a return to growth is "unlikely".
This update differs from easyJet’s (EZJ) recent pre-close trading statement, where it confirmed that headline pre-tax profit would hit the upper end of expectations at between £570m and £580m – despite a £115m loss on its recently acquired Belin Tegel operations. Capacity increased by 4.2 per cent to 90.3m seats, although this was slower than expected due to disruptions from Tegel and air-traffic controller strikes.
