Ryanair’s share price dropped 6% on the market’s opening this morning before recovering and then immediately dropping around 3% again after the budget airline reported a 40% plunge in profits. At one point the company’s share price hit a four-year low and it remains to be seen if it can hold above that until the end of the day. The disappointing profit report was accompanied by a warning that things might get worse for Ryanair before they get better again.
Higher oil prices increasing fuel costs, reductions to ticket prices in the face of intense competition in the industry and an aggressive market-entry strategy from Laudomotion, Ryanair’s new European subsidiary, which saw it flood the German market with cut price tickets, all contributed to the hit to profits. Another big impact on profitability was the 28% increase in the airline’s labour costs to €945 million – a direct result of the company’s pilots unionising and forcing through significant pay increases.
Ryanair warned investors that higher fuel costs, lower margins on summer ticket sales, Brexit uncertainty and delays to it taking receipt of new fuel-efficient Boeing 737 Max models which have been grounded due to two crashes involving the aircraft, would continue to weigh on profitability this year. Austrian-registered Laudomotion is also expected to continue to rack up losses.
Ryanair carries more short-haul passengers than any other European airline with its 445 aircraft transporting a total of 142 million passengers over the year ending March 31st 2019. Despite the heavy fall in after-tax profits, both revenues and passenger numbers were up over the year – 6% and 7% respectively.
Net profits after tax fell to €885 million from €1.45 billion the previous year, including losses of €140 million incurred by Laudamotion. Airlines, especially budget airlines, traditionally make a loss over the winter, compensated for by the strong summer period. However, this year Ryanair’s were particularly hefty at €274 million, a development that mirrored events at rival EasyJet, who recorded a record winter loss of €310 million.
Ryanair and its competitors in the budget short haul flights sector operate on very fine margins. That is evidenced by the forward guidance for the current year provided by CEO David O’Leary. He said that if the airline is able to improve revenue per passenger by an average of 3% profits for the coming year will come in at roughly the same level as those just reported for the 2018/19 fiscal year. However, a 2% rise would see profits drop to €750 million and or a 4% rise boost them to €950 million
A swing of a percentage or two could very easily be affected by either a security ‘event’ like a major terrorist attack or negative Brexit developments that would impact peak summer demand.Risk Warning:
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