General Industry

Michael O'Leary Says 'Recessionary Feel' May Be Limiting Air Ticket Price Rises

By Reuters
Michael O'Leary Says 'Recessionary Feel' May Be Limiting Air Ticket Price Rises

Ryanair CEO Michael O'Leary said on Monday that a "recessionary feel around Europe" could be a factor in slower-than-expected growth in airfares as the low-cost carrier posted record annual profits slightly ahead of expectations.

O'Leary warned two weeks ago that summer fares would likely be lower than the 5% to 10% rise it expected as recently as late April. The airline said its fresh forecast of flat to modest year-on-year peak summer price growth was 'heavily dependent' on last-minute summer bookings.

Consumer Sentiment

With less than 50% of bookings made for July to September, the quarter the airline makes most of its profit, O'Leary said summer pricing could still "go either way".

Ryanair shares, which fell sharply when O'Leary gave the surprise May 7 warning, were down 1.25% at 18.10 euros at 1035 GMT. Rival easyJet was also more cautious with its outlook last week.

'A Bit Surprising'

"It is a bit surprising that pricing hasn't been stronger and we're not quite sure whether that's just consumer sentiment or recessionary feel around Europe but we still see peak travel demand certainly through July and August being strong," O'Leary said in an investor presentation.

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O'Leary's surprise stems from the fact that delays in new aircraft deliveries and issues with engine parts has constrained capacity in Europe, something airline executives expected to lead to further fare increases during another busy northern hemisphere summer.

Ryanair's average fares rose 21% in its financial year ended March 31.

Medium-Term

Chief Financial Officer Neil Sorahan told Reuters that the airline had to reduce fares in particular for mid-week flights in April and May to boost demand and while the trend may continue into June, it should then improve.

O'Leary said the short-term weakness would not alter the outlook for the next two to three summers of constrained capacity pushing fares modestly higher.

"I don't believe the medium-term story has changed one whit," he told an analyst call.

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Boeing Improvements

The Irish airline, Europe's largest by passenger numbers, also said it would be 23 jets short of the number Boeing was due to deliver by the end of July and there remained a risk - although 'unlikely' - that deliveries could slip further.

O'Leary said production quality was improving and in a potentially positive sign, Ryanair looks set to receive seven jets from Boeing in July versus the three it originally thought.

O'Leary said Ryanair will receive "modest" compensation from Boeing for the delays but that the amount does not reflect the quantum of losses suffered from having to recently cut its forecast traffic growth for the year to end-March 2025 to 198 million to 200 million passengers from 205 million.

Annual Profit

Ryanair flew a record 184 million passengers to the end of March this year, contributing to the 34% year-on-year increase in annual profit to €1.92 billion euros.

The result was slightly ahead of the €1.905 billion profit expected in a company poll of analysts. Ryanair cut its after-tax profit forecast to a range of €1.85 billion and €1.95 billion in January after some online travel agents suddenly stopped selling its flights.

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It said it was too early to be able to provide profit guidance for the current financial year.

Share Buyback

Ryanair also announced a €700-million share buyback, its first since the COVID-19 crisis.

"While the buyback is good news and shows confidence, and while FY24 is broadly in-line with most parts of FY25 guide as expected, we fear the further softening of pricing commentary may win the day," analysts at Deutsche Bank wrote in a note.