Posted on: 24 July 2018 by Kimberley Young
Ryanair has reported a 20% fall in profits for the first quarter of its financial year ending April 2019 to €319 million (excluding exceptionals), citing lower fares and higher labour and fuel costs for the decrease.
The low-fare airline saw traffic increase by 7% year-on-year to 37.6 million but stated that overcapacity in Europe and the earlier timing of Easter has led to a 4% decline in average fares.
Ancillary revenues rose 25% year-on-year, but Ryanair said that the higher fuel and staffing costs offset this growth in the quarter.
With the current environment of rising fuel prices, Michael O’Leary, CEO of Ryanair said that some European airlines are suffering with the increasing costs, adding: “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.”
Discussing the airline’s figures for the quarter, O’Leary said: “As previously guided, Q1 Profit after Tax (PAT) fell by 20% to €319m due to lower fares, the absence of half of Easter in the quarter, higher oil prices and pilot costs. Traffic grew 7% to 37.6m, despite over 2,500 flight cancellations caused by ATC staff shortages and ATC strikes. Ryanair’s lower fares delivered an industry-leading 96% load factor.”
The airline took delivery of 14 Boeing 737s in the first quarter and launched 239 new routes for summer 2018. O’Leary said that bookings are slightly ahead of last year but with lower fares.
He added: “We continue to see overcapacity in the European market, with Germany in particular very price competitive this summer. Q1 fares fell 4% to under €39 and we expect this weaker pricing environment (due to the World Cup, the Northern European heat wave and customer uncertainty about pilot strikes) to continue.”
Fuel prices rose from $50pbl in the same period last year to almost $80pbl in Q1, O’Leary explained: “While we are 90% hedged at $58pbl our unhedged balance will see our full year fuel bill increase by at least €430m (incl. additional volumes).”
Staff costs during the quarter increased by 34% due to a 20% increase in pilot pay, 9% more flight hours and a 3% general pay increase for non-flight staff.
Ryanair also argued that ATC staff shortages and strikes across Europe are causing “widespread damage” to airline schedules, leading to cancelled flights with a loss of higher yielding weekend traffic and a rise in EU261 costs.
The carrier also expressed continued concern at the danger of a hard Brexit in March 2019, and has applied for a UK AOC to protect its domestic UK routes, which it hopes to receive before the end of 2018.
Ryanair continues, however, to forecast a profit after tax for financial year 2019 between €1.25bn and €1.35bn.
LaudaMotion was not included in the guidance, but Ryanair said it hopes to increase its investment from 24.9% to 75% over the coming weeks, having just received EU competition approval to do so.
O’Leary highlighted that LaudaMotion will face challenges in the future, including the higher fuel prices, adding: “We now expect LaudaMotion will lose approximately €150m in its first very difficult year, but these results will improve substantially to break even by year 3 of operations.”
Written by: Kimberley Young
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