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Ryanair Blames Overcapacity For Latest Profit Warning

Published on Jan 23 2019 11:47 AM in General Industry tagged: Trending Posts / Ryanair

Ryanair Blames Overcapacity For Latest Profit Warning

Ryanair has cut its forecast for full-year profit for the second time in three months, this time blaming lower-than-expected winter fares, and said it could not rule out a further downgrade if Brexit causes disruption.

Shares in the Irish-based carrier fell on the news and also weighed on rivals such as EasyJet as Ryanair said short-haul overcapacity in Europe had led to fare cuts.

Ryanair now expects profit after tax for its financial year to March 31 - excluding start-up losses at its Laudamotion unit - of between €1 billion and €1.1 billion, compared to a previous estimate of €1.1 billion to €1.2 billion.

The airline had originally forecast profits of €1.25 billion to €1.35 billion before a profit warning in October after a series of strikes across Europe during the summer that hit traffic and bookings.

Chief Executive Michael O'Leary said pressure on low-cost carriers was likely to reshape the industry and that growing passenger numbers for the Irish carrier augured well for the medium term.

"We believe this lower fare environment will continue to shake out more loss-making competitors," O'Leary said in a statement.

He pointed to problems facing rival Norwegian Air Shuttle in his comments.

Norwegian Air has announced it is axing a number of routes and shutting several bases as it seeks to cut costs. In December, Norwegian said it was struggling to fill its aircraft as capacity growth far outpaced demand.

"Too Aggressive"

The new profit forecast range would represent a 24%-31% fall from the record €1.45 billion post-tax profit Ryanair booked in its most recent financial year.

"Lower air fares is the fault of the industry being too aggressive with expansion plans as there is now over-capacity in the short-haul market," investment group AJ Bell said in a commentary after the Ryanair warning.

"This situation could get even worse unless more airlines go bust," it added.

Britain's biggest domestic airline, Flybe Group, is being rescued by a consortium including Virgin Atlantic, while Nordic budget airline Primera Air and Cypriot counterpart Cobalt both collapsed last October.

While Ryanair got through Christmas without any industrial action, having made progress with a number of unions representing pilot and cabin crew, it received a blow this week in its efforts to draw a line under a year of labour unrest.

After the European Cockpit Association said last week that unions in several countries had suspended talks in protest at the threat of base closures, the British pilots association confirmed on Friday January 18 that it was among them, warning of a potential return of the industrial unrest of 2018.

Ryanair, which reports third quarter results on February 4, said in its profit warning that its fares in the second half of its financial year were set to fall by 7%, rather than the 2% previously flagged.

The lower fares have, however, been partially offset by stronger than expected annual traffic growth - now expected to grow by 9% to 142 million passengers - slightly better than expected unit costs and stronger ancillary sales.

O'Leary said a further downgrade of the profit outlook was possible given uncertainty about the terms of Britain's planned departure from the European Union at the end of March.

"While we have reasonable visibility over forward Q4 bookings, we cannot rule out further cuts to air fares and/or slightly lower full year guidance if there are unexpected Brexit or security developments which adversely impact yields between now and the end of March," O'Leary said.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition. 

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