Ryanair overcame its pilots rota failure last September to record a 12% rise in quarterly profits to €106 million – but issued a warning over Brexit uncertainty.
The performance for the three months to December 31 came as carryings grew by 6% to 30.4 million passengers as average fares fell 4% to €32.
Ancillary revenue grew by 12% year-on-year in the quarter with the budget carrier’s ‘My Ryanair’ initiative on track to reach 40 million members by March.
Annual traffic is forecast to grow by 6% in the next financial year starting in April to 138 million passengers.
But very early indications are that summer 2018 fares will remain under pressure, chief executive Michael O’Leary cautioned as he also highlighted worries about the impact of Brexit.
“Costs will rise next year as our fuel bill increases by over €300 million and a further €100 million is added to staff costs as up to 20% pilot pay increases annualise,” he said.
“The lack of clarity on Brexit continues to overhang fares and pricing on routes to/from the UK.
“We would, even at this early date, urge extreme caution on investor and analyst assumptions for fares in full year 2019.
“We will provide a more detailed full year guidance during our full-year results and investor roadshow in May 2018.
“While we have practically zero visibility on full year 2019 fares, and our budget is not yet finalised, we do not share the optimism of competitors and market commentators for summer 2018 fare rises.”
Addressing anxiety over Brexit, O’Leary said: “We remain concerned at the continuing uncertainty surrounding the terms of the UK’s proposed departure from the EU in March 2019.
“There remains a worrying risk of serious disruption to UK-EU flights from April 2019 unless a UK-EU bilateral (or transitional arrangement) is agreed in advance of September 2018.
“We, like other airlines, need clarity on this issue before we publish our summer 2019 schedules in mid-2018 and time is running out for the UK to develop and agree these solutions.
“We believe the UK government continues to under-estimate the likelihood of flight disruptions to/from the UK.
“We have applied to the UK CAA for a UK air operator’s certificate as part of our Brexit contingency planning.
“We expect this process to take several months but to be complete well in advance of September 2018.”
Reviewing the past quarter, Michael O’Leary said: “We are pleased to report this 12% increase in profits during a very challenging Q3 [third quarter].
“Following our pilot rostering failure in September, the painful decision to ground 25 aircraft ensured that punctuality of our operations quickly returned to our normal 90% average.
“After 30 years of successfully dealing directl with our people it became clear in December that a majority of pilots wanted to be represented by unions.
“In keeping with our policy to recognise unions when the majority of our people wanted it, we have met pilot unions in Ireland, UK, Spain, Germany, Italy, Portugal, Belgium and France to discuss how we can work with them on behalf of our people.
“We have successfully concluded our first recognition agreement with Balpa in the UK, a market which accounts for over 25% of our pilots.
“When this process has completed, we expect to have similar engagement with cabin crew unions.
“While union recognition may add some complexity to our business and may cause short-term disruptions and negative PR it will not alter our cost leadership in European aviation, or change our plan to grow to 200 million traffic per annum by March 2024.”
And O’Leary warned: “As we finalise union discussions along similar lines to that agreed in the UK, we expect some localised disruptions and adverse PR so investors should be prepared for same.
“In certain jurisdictions unions representing competitor airlines will wish to test our commitment to our low cost, high pay/high productivity model to disrupt our operations.
“We are fully prepared to face down any such disruption if it means defending our cost base or our high productivity model.”
He added that aircraft allocations “may alter by base as we capitalise on new growth opportunities in France and Scandinavia.
“European airline consolidation and bankruptcies are providing more growth opportunities in the UK, Italy and Germany in particular.
Fiona Cincotta, a senior market analyst at spread betting and foreign exchange trader Cityindex, said: “Ryanair has had one of the toughest quarters in its history, but it’d be hard to tell from looking at these profit numbers.
“Passenger volumes have continued to climb despite the rostering debacle in September inspiring so much customer outrage.
“One negative aspect of the flight cancellations was a fall in yields, as Ryanair lowered prices to lure back travelers. But ticket prices have ended up falling less than expected and the company has kept its profit guidance intact, despite rising fuel costs.
“Michael O’Leary’s cautious words on the summer yield outlook, rising costs and possible union ‘complexity’ could dampen sentiment. The surprise share buyback will provide counteractive support to the share price.
“Overall this is a strong result that demonstrates the resilience of the Ryanair brand and business model.”