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Ryanair blames overcapacity for latest profit warning

Ryanair blames overcapacity for latest profit warning
FILE PHOTO: A Ryanair Boeing 737-800 plane takes off from Palma de Mallorca airport in Palma de Mallorca, Spain, July 28, 2018. REUTERS/Paul Hanna/File Photo   -   Copyright  Paul Hanna(Reuters)
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By Padraic Halpin

DUBLIN (Reuters) – Ryanair <RYA.I> cut its forecast for full-year profit for the second time in three months on Friday, 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 <EZJ.L> as Ryanair said short-haul overcapacity in Europe had led to fare cuts.

Europe’s largest low-cost airline now expects profit after tax for its financial year to March 31 – excluding start-up losses at its Laudamotion unit – of between 1 billion euros and 1.1 billion euros (£881.6 million and £970 million), compared to a previous estimate of 1.1 billion euros to 1.2 billion euros.

The airline had originally forecast profits of 1.25 billion to 1.35 billion euros 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 <NWC.OL> in his comments.

Norwegian Air announced on Wednesday that it would axe a number of routes and shut 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.


The new profit forecast range would represent a 24-31 percent fall from the record 1.45 billion euro 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 <FLYB.L>, is being rescued by a consortium including Virgin Atlantic, while Nordic budget airline Primera Air and Cypriot counterpart Cobalt both collapsed last October.

Ryanair shares, which in recent weeks have fallen to their lowest level in four years, were 0.9 percent lower at 0945 GMT, after initially falling more than 5 percent. EasyJet shares were 1.4 percent lower, while Wizz Air <WIZZ.L> erased earlier losses to stand 0.4 percent higher.

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 on Wednesday that unions in several countries had suspended talks in protest at the threat of base closures, the British pilots association confirmed on Friday that it was among them, warning of a potential return of the industrial unrest of 2018.

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

The lower fares have, however, been partially offset by stronger than expected annual traffic growth – now expected to grow by 9 percent 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.

(Reporting by Padraic Halpin in Dublin and Shashwat Awasthi and Noor Zainab Hussain in Bengaluru; editing by Susan Fenton and Jason Neely)

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