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Ryanair Shares Tumble After Warning Fares Will Fall Through 2017

Published on Jul 24 2017 11:10 AM in General Industry tagged: Ryanair / Lufthansa / easyjet / Etihad / Alitalia SpA

Ryanair Shares Tumble After Warning Fares Will Fall Through 2017

Ryanair Holdings predicted that ticket prices will decline through the rest of the year as Europe's biggest discount carrier competes to lure more customers amid excess capacity. The shares fell the most in four months.

The Dublin-based airline said fares will slide eight per cent in the six months through March, accelerating from a five per cent drop in the fiscal first half. Amid the competitive pressure, Ryanair reaffirmed its threat to shift planes out of the UK because of Brexit, saying it needs clarity by next year.

Europe's carriers are coming under pressure, as the low oil prices encourage airlines to add routes that might otherwise be unprofitable. Ryanair, which has the lowest operating costs in the industry, is adding fuel to the fire by increasing capacity. The company increased its passenger target for the fiscal year through March by 1 million people to 131 million.

"Our bookings are strong but it’s very competitive," Chief Financial Officer Neil Sorahan said in a phone interview on Monday. "With low fuel, there are guys in the market who possibly shouldn’t be there. There’s been a lot of capacity that’s come into places like Spain and Portugal, the Middle East, Tunisia and Turkey."

Ryanair shares fell as much as 5.6 per cent, the most since March 7, and were trading 2.7 per cent lower at €17.55 as of 9.43 am in Dublin. The stock has gained 21 per cent this year, valuing the company at €21 billion.

Buoyed by Easter shifting to April this year from March in 2016, net income jumped 55 per cent in the fiscal first quarter propped up by a one per cent increase in ticket prices. While Ryanair stuck by its full-year guidance for earnings of €1.4 billion to €1.45 billion, it cautioned that the remaining nine months will be difficult.

Alitalia Proposal

EasyJet, Europe’s No. 2 discount carrier, fell almost six per cent Thursday after cautioning that fares are set to drop into next year.

Ryanair had already warned that low oil prices would continue to support capacity growth and drag down per-seat revenue, saying in May that fares would drop by five per cent to seven per cent during fiscal 2018.

To explore further expansion opportunities, Ryanair has made an offer for insolvent Alitalia SpA, the highest-profile casualty of Europe’s capacity splurge and fare war, Sorahan told Bloomberg Television. The Irish company has a "genuine interest" in the Italian flag carrier and the survival of its long-haul operations, having offered to provide passengers via a feeder agreement, he said.

Alitalia accepted non-binding bids for its assets on Friday and also received proposals from carriers including EasyJet, Deutsche Lufthansa and existing shareholder Etihad Airways, according to the il Messaggero newspaper.

There’s a "strong likelihood" that Ryanair will convert 100 options for Boeing Co. 737 Max jets into firm orders, possibly including the larger Max 10 version launched last month, though a decision is only due in the next year, Sorahan said. The carrier ordered 10 additional Max 200s in June, for a total of 110, and has extended leases on 10 older 737-800s.

News by Bloomberg, edited by Hospitality Ireland

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