Ryanair reported its weakest annual profit in four years and said earnings could fall further as Europe suffers what Chief Executive Michael O’Leary described as “attritional fare wars.”
Shares in the airline, Europe’s largest low-cost carrier, fell 6 percent on Monday after its profit forecast for the year to next March fell short of analyst expectations.
Ryanair, which had already signalled a sharp fall in profitability in two warnings last year, saw after-tax profits fall to 1.02 billion euros ($1.14 billion) for its financial year to March 31 from 1.45 billion euros the previous year.
Profit for the year to March 2020, which will include its recently acquired and loss-making Laudamotion unit for the first time, will be between 750 million and 950 million euros compared to an equivalent figure of 880 million for the previous year.
A company poll of over 10 analysts published ahead of the release had forecast an after-tax profit 977 million euros for the year to March 2020.
Liberum analyst Gerald Khoo described the profit forecast and guidance of non-fuel costs rising 2 percent as “disappointing.” Davy Stockbrokers said it would cut its forecast by 9 percent but believed the “nadir point” had likely been reached.
SECTOR SHAKE-OUT
Several rival airlines have warned of a worse trading environment – partly due to overcapacity and partly because European travellers are holding off booking their summer holidays for fear of how the Brexit process will pan out.
While O’Leary said weakness in fares may ease in the winter, he warned investors that the European airline sector was experiencing a cyclical fall in profitability.
“Frankly, if we are in a period where there are going to be attritional fare wars… profits will suffer for a year or two and I think that is what shareholders should expect,” O’Leary said in a video presentation.
“However it is clear in my mind that within the next four of five years we will see the emergence of four or five large European airline groups… with much more capacity discipline …and some upward pressure on pricing,” he said.
Average fares for the full year to March 2020 will likely be between 2% lower and 1% higher than last year, he said.
737 MAX
Ryanair has also taken a hit from delays in the delivery of the Boeing 737 MAX after its worldwide grounding in March following a fatal Ethiopian Airlines crash.
The airline, which has ordered 135 737 MAX 200s and has options on 75 more, was expecting to receive its first five planes between April and June but now expects them to by flying by November.
It expects most of the first batch of around 50 aircraft to be flying by next summer, O’Leary said.
The grounding has forced Ryanair to cut around 1 million seats in the year to March 2020. But it still expects to fly 153 million passengers in the year to March 2020 up from 139 million this year.
The delay contributed to an expected 2 percent increase in non-fuel costs in the coming year, it said. The airline plans to have a conversation with Boeing about “modest compensation”, Chief Financial Officer Neil Sorohan said.
Ryanair’s shares were trading down 6 percent 10.14 euros at 0724 GMT, down 48% from a peak of 19.39 euros in August 2017, before the airline was hit by a wave of industrial unrest, fare weakness and the grounding of the MAX.
In what O’Leary described as a vote of confidence from the board, Ryanair will begin a 700 million euro share buyback in the coming days.
