Profit fall of 20% for Ryanair in Q1 despite 7% traffic growth

posted on 23rd July 2018 by Justin Burns

Ryanair today reported a 20 per cent fall in first quarter (Q1) profits to €319 million but it did post strong traffic growth of seven per cent for the quarter.

The Irish low-cost carrier also reported there was overcapacity in Europe, particuarly in the German market and said the earlier timing of Easter led to a four per cent decline in average fares while higher fuel and staff costs offset strong ancillary revenue growth in Q1.

Ryanair welcomed 37.6 million passengers in Q1, up on the 35 million in Q1 last year, and the load factor average was 96 per cent.

But profit after tax dipped to €319 million from €397 million in Q1 2017. Revenue was up nine per cent to €2,079 million from €1,910 million in Q1 last year.

The carrier took delivery of 14 Boeing 737s in Q1 (bringing its fleet to over 440 aircraft) and launched 239 new routes for summer 2018 and it said bookings are “slightly ahead” of last year, but at lower fares.

O’Leary said fuel prices have risen substantially from $50pbl at this time last year to almost $80pbl in Q1 and with fuel at $80pbl some weaker, unhedged, European airlines are suffering a significant cash flow squeeze and/or are close to breaching debt covenants.

He added: “We expect this will lead to further airline failures and consolidation this winter, which will provide growth opportunities, hopefully at stronger yields for Ryanair’s low fares/low cost model.”

For the remainder of FY19, Ryanair will continue to invest in people, systems, and business as it scales up to take delivery of 210 B737 MAX-200s which have four per cent more seats and 16 per cent lower fuel cost, and it expects them to deliver unit cost reductions from FY21 onward when it starts to retire older B737-800s.

O’Leary said strikes across Europe are affecting the carrier and warned a 3rd strike of Irish based pilots is planned for tomorrow 24 July and cabin crew have also threatened strikes in Spain, Portugal, and Belgium on 25 & 26 July.

Ryanair said it has minimised the impact of these strikes on customers by cancelling a small proportion of its flight schedule, well in advance of the day of travel, to allow customers to switch flights or apply for full refunds.

O’Leary said: “While we continue to actively engage with pilot and cabin crew unions across Europe, we expect further strikes over the peak summer period as we are not prepared to concede to unreasonable demands that will compromise either our low fares or our highly efficient model.

“If these unnecessary strikes continue to damage customer confidence and forward prices/yields in certain country markets then we will have to review our winter schedule, which may lead to fleet reductions at disrupted bases and job losses in markets where competitor employees are interfering in our negotiations with our people and their unions. We cannot allow our customers flights to be unnecessarily disrupted by a tiny minority of pilots.”

As for Brexit, Ryanair said it remains concerned” by the danger of a hard (no-deal) Brexit in March 2019 and while there is a view that a 21-month transition agreement from March 2019 to December 2020 will be implemented (and extended), recent events in the UK political sphere have “added to this uncertainty”, and it believes the risk of a hard Brexit is being “underestimated”.

O’Leary said: “It is likely that in the event of a hard Brexit our UK shareholders will be treated as non-EU. We may be forced to restrict the voting rights of all non-EU shareholders in the event of a hard Brexit, to ensure that Ryanair remains majority owned and controlled by EU shareholders.”

Ryanair has applied for a UK AOC to protect itsdomestic UK routes and hopes to receive it before the end of 2018.

As for the rest of the FY19, Ryanair expects profit after tax to be in a range of €1.25 billion to €1.35 billion but this guidance is “heavily dependent” on close-in Q2 fares, crew strikes, continuing ATC staff shortages/strikes, the absence of unforeseen security events and no negative Brexit developments.

Laudamotion is not included in this guidance. Ryanair hopes to increase its investment from 24.9 per cent to 75 per cent over the coming weeks having just received EU competition approval to do so.

O’Leary said: “However, current trading for LaudaMotion has been adversely impacted by lower than expected S.2018 fares due to the late release of LaudaMotion schedules, and considerable damage caused by Lufthansa who have refused to pay invoices, delivered nine instead of 14 aircraft at lease rates that are substantially above market rates.”

He said Lufthansa recently attempted to trigger a contract termination so it could give these aircraft to a competitor airline, Eurowings, which is in “clear breach” of Lufthansa’s competition commitments to the EU following its purchase of Air Berlin.

O’Leary said: “In addition, LaudaMotion faces substantial cost headwinds especially in fuel, where it is unhedged and exposed to recent higher oil prices of close to $80pbl. We now expect LaudaMotion will lose approx. €150 million in its first very difficult year, but these results will improve substantially to break even by year three of operations.”