Posted on: 04 February 2019 by Kimberley Young
Ryanair has reported a net loss of €20m for Q3 (excluding Lauda) citing weaker air fares due to overcapacity in Europe over the winter, and has suggested the weaker fare environment could continue.
The airline reported traffic growth of 8% to 33m passengers in Q3 and ancillary revenue growth of 26%. However the airline saw a 6% decline in average fares “due to excess winter capacity in Europe,” as well as higher fuel, staff and EU261 costs.
Commenting on the results, Michael O’Leary said: “While a €20m loss in Q3 was disappointing, we take comfort that this was entirely due to weaker than expected air fares so our customers are enjoying record low prices, which is good for current and future traffic growth.”
Revenue in the third quarter increased 9% to €1.53bn, up 1% per guest, due to a strong performance in ancillary revenue and increased traffic stimulated by the decline in average fares.
In Q3 ex-fuel unit costs increased by 6% including higher staff costs, investment in engineering headcount and pilot/cabin crew training, and elevated EU261 costs due to the high number of ATC staff shortages/disruptions in FY19. The airline added: “We have extended our fuel hedges and are 90% hedged for FY20 at c.$71bbl and 13% hedged for Q1 FY21 at c.$63bbl.”
The airline is expecting delivery of its first Boeing 737 MAX aircraft from April, featuring 4% more seats and fuel efficiency benefits, the airline expects these aircraft to drive unit costs efficiencies over the next five years.
The company is also moving to a group structure over the next 12 months, with four airline subsidiaries; Ryanair DAC, Laudamotion, Ryanair Sun and Ryanair UK, each with its own CEO and management teams. Michael O’Leary will become Group CEO and has agreed a new five year contract. A replacement CEO of Ryanair DAC will be appointed later in the year.
Looking ahead to Q4, Ryanair said that it “cannot rule out further cuts to air fares and/or slightly lower full year guidance especially if there are unexpected Brexit and/or security developments which adversely impact fares for close-in bookings between now and the end of March.” Ryanair’s FY19 profit guidance is expected to be in a range of €1.0bn to €1.1bn.
The group added: “We do not share the recent optimistic outlook of some competitors that Summer 2019 airfares will rise. In the absence of further EU airline failures, and because of the recent fall in oil prices (which allows loss making unhedged competitors to survive longer), we expect excess short haul capacity to continue through 2019, which will we believe lead to a weaker – not stronger – fare environment.”
The Industry Outlook
“Higher oil prices and lower fares have over the past 4 months seen a wave of EU airline failures,” the airline said, commenting on the market. The airline pointed to Primera, Small Planet and Cobalt as some amongst a number of airlines to have failed in the past few months. The airline added that while some are seeking buyers and refinancing, others are closing bases in response to the lower fare and higher fuel costs.
The airline continued: “We expect more closures and airline failures in 2019 due to overcapacity in the European market, which is causing continued fare weakness.”
On Brexit, Ryanair said: “The risk of a “no deal” Brexit remains worryingly high,” adding that the airline has taken “all necessary steps” to protect the business in a no-deal environment. The airline has obtained a UK AOC to protect its three domestic UK routes, and will place restrictions on the voting rights and share sales of non-EU shareholders for a period of time, in the event of hard Brexit.