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Ryanair profit slumps 21% as overcapacity drives fares down

Ryanair profit slumps 21% as overcapacity drives fares down
FILE PHOTO: Passengers wait to board a Ryanair flight at Gatwick Airport in London, Britain. Aug 23, 2018. REUTERS/Hannah McKay/File Photo -
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Hannah Mckay(Reuters)
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By Conor Humphries

DUBLIN (Reuters) – Ryanair <RYA.I> reported a 21% drop in quarterly profit on Monday as price wars in several European markets drove ticket prices lower, but it stuck to its annual profit target as passengers continued to spend on onboard extras.

Average summer fares at Europe’s largest low-cost carrier will likely fall by 6% compared to last year, as airlines cut prices to stimulate demand, particularly in Germany and the United Kingdom, the airline said.

That helped push profit after tax down to 243 million euros (£218.6 million) for the three months to June 30 from 309 million in the same period last year, slightly ahead of an analyst poll forecast of 232 million euros.

Ryanair’s shares were up by 1.2% at 0845 GMT, having almost halved in value in two years as the Dublin-based airline grappled with overcapacity, pilot strikes, Britain’s plans to leave the European Union and delays in the delivery of the grounded Boeing <BA.N> 737 MAX.

Earlier this month Ryanair halved its growth targets for next year due to the 737 MAX delays.

But on Monday it reiterated its profit forecast for the year to March 31, 2020 of between 750 million euros and 950 million euros, saying demand for optional extras like pre-booked seats and on-board refreshments was strong.

Ahead of the results, a company poll of analysts showed an average forecast of 832 million euros profit for the year.

“The June quarter results were not quite as bad as feared,” Liberum analyst Gerald Khoo said in a note. “Current FY consensus is already in the bottom half of management’s guidance range, but there may be some slippage as higher estimates are reined in.

While the airline is in talks with Boeing about compensation, it is too early to say whether that would be cash or discounted aircraft, Chief Financial Officer Niall Sorohan said in an interview.

In the United Kingdom discounts were required to sell seats due to uncertainty around Brexit, while Germany has seen severe competition on price, he said.

In recent weeks Ryanair has been also been hit by the threat of fresh strike action by pilots in the United Kingdom and Ireland and cabin crew in Portugal.

Sorohan declined to comment on the likelihood of disruption in coming weeks, but described the timing of ballots for industrial action as “a little bit unusual” given concerns around the MAX and Brexit and said the airline was open to talks.

Average fares for the year to end-March 2020 will be towards the lower end of Ryanair’s guidance range of +1% to -2%, Ryanair said. Including optional extras, revenue per passenger will be up by 2-3%.

(Reporting by Conor Humphries; Editing by Louise Heavens and Kirsten Donovan)

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