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Ryanair cautious on outlook as profits slide Ryanair cautious on outlook as air fares fall
(about 3 hours later)
Ryanair's profits fell by nearly a third last year to €1bn (£880m) as fuel costs rose and fares fell.Ryanair's profits fell by nearly a third last year to €1bn (£880m) as fuel costs rose and fares fell.
Europe's biggest discount airline added that profits could be lower this year as fares continue to fall. Europe's biggest discount airline added that profits might be lower this year, as fares could fall by up to 2%.
Chief executive Michael O'Leary said "artificially low prices" and "attritional fare wars" could dent profits for a year or two.
Ryanair's average fare is €37, down 6%, although this was offset by spending on services such as hotels and car hire.
For the current financial year, the carrier said it was "cautious" on pricing and had "zero" visibility for the second half of the year.For the current financial year, the carrier said it was "cautious" on pricing and had "zero" visibility for the second half of the year.
The figures exclude the loss of €139m from the Austrian airline Lauda it took over last year.
It said that while bookings in the first half of this year were slightly ahead of last year, "fares are lower and we expect this trend will continue through 2019".It said that while bookings in the first half of this year were slightly ahead of last year, "fares are lower and we expect this trend will continue through 2019".
The fuel bill is expected to rise by €460m, but the outlook will also depend on last-minute fares and any impact from Brexit,.The fuel bill is expected to rise by €460m, but the outlook will also depend on last-minute fares and any impact from Brexit,.
The airline estimates that profits could range between €750m and €950m.The airline estimates that profits could range between €750m and €950m.
Ryanair is delaying deliveries of five of the Boeing 737 Max planes, which have been grounded because of two fatal crashes, but said it had the "utmost confidence" in the aircraft.Ryanair is delaying deliveries of five of the Boeing 737 Max planes, which have been grounded because of two fatal crashes, but said it had the "utmost confidence" in the aircraft.
The craft have 4% more seats, are 16% more fuel efficient and noise emissions are 40% lower, but because of the delay to deliveries there will not be any cost benefit for Ryanair until the 2021 financial year. The delay to deliveries from the spring will lead it to cut capacity by one million passengers this year, but it ultimately expects the planes to drive down costs and, Ryanair said, lead to lower prices for passengers
The 737 Max planes have 4% more seats than comparable craft, are 16% more fuel efficient and noise emissions are 40% lower, but because of the delay to deliveries there will not be any cost benefit for Ryanair until the 2021 financial year.
The airline expect the planes to return to the air in July or August in the US, and September or October in the EU.
Despite a 7% increase in passenger numbers, earlier this year Ryanair was named the UK's least-liked short-haul airline for the sixth year running in a survey by consumer body Which?.
Neil Sorahan, Ryanair's chief financial officer, told the BBC that the airline did not spend too much time worrying about surveys and that the most important thing was being on time.
"Our customers enjoyed an average fare of €37 which was down 6% on last year. At the same time, however, they continue to spend money on our ancillary products [car hire etc] which helps offset that," he said.
Ancillary revenue rose 19% during the year.
Mr Sorahan said there was over-capacity in the market, and pointed to a wave of airline failures - such as Primera, Flybmi and WOW - caused by higher oil prices and lower fares.
Last week,EasyJet reported a loss of £275m in the six months to the end of March, compared with a £68m loss in the same period a year earlier, while troubled travel operator Thomas Cook is attempting to sell its airline to plug a gap in financing after reported a £1.5bn loss for the first half of the year.
Consolidation
Ryanair also announced it was buying back €700m of its shares which analyst at Liberum said would support the share price in the short-term despite the "disappointing" guidance on profits for this year.
"Ryanair remains the long-term winner in the European airline industry, based on its leading market position, extensive network, low unit costs and strong balance sheet. We see tougher market conditions in the short term as positive for the stronger airlines in the long term, since this clears out weaker competitors and aids consolidation in the market," the Liberum analysts said.
Mr O'Leary echoed this: "Frankly, if we are in a period where there's going to be attritional fare wars for a year or two that's good for Ryanair as... we have the lowest cost base... profits will suffer for a year or two and I think that is what our shareholders should expect.
"However it is clear in my mind that within the next four to five years you are seeing the emergence of four or five large European airline groups," he said.
He referred to Ryanair, Lufthansa, IAG (owner of British Airways), Air France-KLM and, probably, Easyjet.
Mergers of other airlines would lead to more "capacity discipline... and some upward pressure on pricing," he said.
"[Fares] will begin to rise again because they are artificially low at the moment," Mr O'Leary said.
Ryanair's figures exclude the loss of €139m from the Austrian airline Lauda it took over last year. It also operates the brand Buzz in Poland and central Europe.