Ryanair Cautious on Outlook as Fare Slump Clips Earnings

(Bloomberg) -- Ryanair Holdings Plc reported an 8 percent drop in three-month earnings and said it’s “cautious” about meeting full-year targets as a capacity glut and stuttering economies cause fares to tumble.

Net income fell to 95 million euros ($102 million) in the third quarter ended Dec. 31 from 103 million euros a year earlier, Ryanair said Monday. Analysts had estimated the figure would be barely changed at 102 million euros.

Europe’s biggest low-cost airline saw prices tumble 17 percent in the quarter as it sought to undercut rivals, and said that trend is set to continue. While 12-month profit should still be in the range of 1.3 billion euros to 1.35 billion euros, the Dublin-based company said it can’t be more specific and that any “security events” impacting near-term bookings could cause it to fall short.

“We are cautious into the balance of the year,” Chief Financial Officer Neil Sorahan said in a phone interview. “Any other shocks to the market, be it air traffic control strikes or terrorism, if we were to see any major events than clearly all bets would be off.”

Shares of Ryanair fell as much as 3 percent and were trading 1.4 percent lower at 14.56 euros as of 1:31 p.m. in the Irish capital. They’re virtually unchanged this year, valuing the company at 17.8 billion euros.

The winter decline in ticket prices was steeper than the 13 to 15 percent previously forecast, though the reductions helped lift Ryanair’s passenger tally 16 percent so that its load factor reached a record 95 percent. The company has also stepped up efforts to pare expenses and lifted its full-year target for unit cost cuts to 4 percent from 3 percent.

Capacity Switch

Fourth-quarter yields will decline as much as 15 percent and fares will remain “challenging” into fiscal 2018, Ryanair said, with rivals that have quit Egypt and Tunisia following terror attacks there saturating the market in Portugal, Spain and Italy, according to Sorohan.

Gerald Khoo, an analyst at Liberum in London, said in a note that while Ryanair’s third-quarter profit had fallen short, the carrier’s low cost base means its competitors face “greater pressure” from the fare decline.

Ryanair reiterated that it expects to grow more slowly in the U.K. than it once planned following the country’s June 23 vote to quit the European Union. The company shaved 75 million euros from its profit target in October as the pound fell against the euro in the wake of the referendum result, reducing the value of sterling receipts translated into the single currency.

There could still be deals at individual U.K. airports like one announced last month that will see the operation of nine new routes from London Stansted, Ryanair’s busiest hub. Sorahan said the company hasn’t decided whether it will seek a British operating license in order to carry on operating a handful of domestic flights in the event of the country leaving the European Common Aviation Area. An application would take about six months, he said.

Feeder Plan

Ryanair’s fuel costs fell 20 percent per passenger in the third quarter and a further saving of about 65 million euros is expected for fiscal 2018, with the carrier 85 percent hedged at $49 a barrel. EasyJet Plc, Wizz Air and Deutsche Lufthansa AG have also said that they see the rising oil price doing little to arrest the fall in fares, given hedging positions.

Sorahan told Bloomberg Television that Ryanair is continuing to work on plans to provide feeder traffic to Norwegian Air Shuttle ASA flights and that an agreement should be reached by the summer. A similar accord is under discussion with Italy’s Alitalia SpA. The company will also revive a package-holidays option suspended after a disagreement with one of its partners.

Ryanair’s fleet will be boosted by the arrival of re-engined and more fuel efficient Boeing Co. 737 Max aircraft, which could come earlier than the projected August-September 2019 target period, the executive said.

--With assistance from Richard Weiss To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net. To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper