Ryanair boss issues cautious forecast despite profit boost

Ryanair boss issues cautious forecast despite profit boost

Ryanair saw annual profits soar by 10% as fares fell by 3% during a “year of over capacity” in Europe.

But chief executive Michael O’Leary warned that profits will slip this financial year in the face of higher fuel and staffing costs.

Europe’s largest budget carrier today reported an after tax profit of €1.4 billion for the 12 months to March 31 as passenger carryings rose by 9% to 130.3 million.

O’Leary said: “We are pleased to report a 10% increase in profits, with an unchanged net margin of 20%, despite a 3% cut in air fares, during a year of overcapacity in Europe, leading to a weaker fare environment, rising fuel prices, and the recovery from our September 2017 rostering management failure.”

He added: “We expect above average EU capacity growth to continue into full year 2019, which will have a downward effect on fares.

“This may be partly ameliorated by the switch of some charter capacity back to previously security challenged markets such as Turkey and Egypt.

“We expect later in the year, some upward pressure on pricing as significantly higher oil prices impact margins, especially those EU airlines who continue to expand despite having no prospect of achieving profitability.”

Looking forward, O’Leary described the outlook for the current 12 months as being “on the pessimistic side of cautious” as rising oil prices add more than €400 million to the carrier’s fuel bill and other costs rise by up to 6% due to annualised pilot and cabin crew pay increases. Traffic is projected to grow by 7% to 139 million passengers at flat load factors of 95%.

“We do not expect ancillary revenue growth to fully offset higher costs and lower fares, and so we expect full year 2019 profits will fall to a range of €1.25 billion to €1.35 billion,” he warned.

The airline suffered a decline in on-time performance from 88% to 86% in the past year, blamed on delays caused by increased air traffic control strikes and staffing shortages mainly in France, Germany and Italy.

“The delivery of air traffic control services in Europe is lamentable and creating unacceptable delays for our customers,” O’Leary said.

Ryanair’s punctuality in January to March was also affected by unusually adverse weather conditions, which led to multiple airport snow closures at key bases including Dublin and Stansted for a number of days.

O’Leary also repeated concerns about the likely impact of a hard Brexit and revealed that the carrier had applied for a UK air operating certificate which is hoped to be in place before the end of the year.

“While there is a general belief that an 18 month transition agreement from March 2019 to December 2020 will be implemented and further extended, it is in the best interest of our shareholders that we continue to plan for a hard Brexit in March 2019,” he warned.

“In these circumstances, it is likely that our UK shareholders will be treated as non-EU and this could potentially affect Ryanair’s licencing and flight rights.

“Accordingly, we intend to restrict the voting rights of all non-EU shareholders in the event of a hard Brexit, so that we can ensure that Ryanair is majority owned and controlled by EU shareholders at all times to comply with our licences.

“This would result in non-EU shareholders not being able to vote on shareholder resolutions.”

The airline’s ‘MyRyanair’ membership has grown to 43 million while the carrier’s website and app achieved more than one billion visits in the year.

Improved mobile and digital platforms have delivered a 13% increase in ancillary revenues to more than €2 billion.

“Ancillaries now deliver 28% of revenue and we are well on track to achieve our five-year goal of 30%,” O’Leary said.

“More guests are switching to our great value “plus” fares, reserved seating, priority boarding, and car hire. Ryanair Rooms penetration is rising steadily, albeit from a low base, as our guests recognise our unique combination of lowest hotel prices and travel credits.

“Our amended two cabin bag policy has improved boarding and punctuality, and we are expanding our offers in areas such as fast track, and ground transport connections.”

The aviation industry in Europe continues to consolidate into five large airline groups, according to O’Leary.

“In the last year, Monarch went bust, Lufthansa acquired Air Berlin, and more recently IAG made an offer to acquire loss making Norwegian,” he said.

“During the period, Ryanair established a Polish charter airline, Ryanair Sun, which started flying in April and looks set to trade profitably in its first 12 months of operation.

“In April, we acquired 24.9% of LaudaMotion, and are working to increase that stake to 75% – subject to EU merger approval – so that we can work with Niki Lauda and his team to re-launch LaudaMotion as Austria’s number one low fares airline, serving markets from Austria and Germany to sun destinations primarily in Spain.”

Fiona Cincotta, senior market analyst at Cityindex commented: “Ryanair has upgraded its traffic guidance for the current financial year, but it’s also expecting a much higher fuel bill than previously anticipated and doesn’t see fares rising at all.

“The pessimistic outlook statement contrasts markedly with more upbeat guidance on profits and fares provided by competitor easyJet.

“Ryanair may have been able to weather last year’s rostering debacle with a record annual profit.

“However, industrial relations issues have lingered, creating a lasting hangover that has pushed up staff costs that will eat into this year’s earnings.

“Overall, though, the company appears to be making solid progress hammering out pay deals with pilots and cabin crew.

“The shares may well take a knock today, but don’t forget that Ryanair remains the most competitive player in the business. Don’t be surprised if it beats its more cautious targets later in the year.”

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