Ryanair falls as price war threatens profits

By BLOOMBERG

LONDON • Ryanair Holdings plc joined a chorus of European carriers in warning that a fare war and weaker economies may hold back profit this year.

Shares of the region’s biggest discount airline fell the most in seven months yesterday as it posted a 39% drop in net income for the 12 months through March and said earnings could tumble further.

European carriers are bracing for a tough summer as a glut of capacity combines with stuttering economic growth and high fuel prices to squeeze margins. Market leader Deutsche Lufthansa AG has frozen expansion at its discount arm, while Thomas Cook Group plc’s bonds are at a record low as it suffers from an oversupply of hotel rooms, as well as plane seats.

Ryanair CEO Michael O’Leary said he’s “cautious” on prices this year, with zero visibility for the second half (2H), which encompasses the winter season.

Shares of Europe’s biggest discount airline declined as much as 7%, the most since Oct 1, and were trading 3.8% lower at €10.40 (RM48.57) in Dublin, where it is based. That takes the stock into negative territory for the year, valuing the company at €11.7 billion.

Ryanair said 1H bookings for the peak summer period are higher, but that the earnings outcome will depend on last-minute fares and whether there’s any disruption from the UK leaving the European Union.

Thomas Cook took another blow when Sky News said a payment intermediary that works with the tour operator is seeking to extend the period for which it retains cash from bookings amid concern about the UK company’s financial health.

Along with the bond decline, the shares fell as much as 17% following a 40% drop last Friday, when analysts said the firm’s debt now exceeds its value.

At Ryanair, the fuel bill is set to increase by €460 million after swelling by €440 million in fiscal 2019.

Growth last year in ancillary revenue — such as allocated seats and early boarding — was also offset by a €200 million jump in staff costs, including a 20% pilot pay increase, as the group grappled with a unionisation drive across its bases.

The company suffered a loss of €139.2 million at Austrian division Lauda Air Luftfahrt GmbH, acquired in December after the main airline posted net income of €1.02 billion, still much lower than a year earlier.

Lauda Air was hurt by low promotional fares and expensive aircraft leases that should ease under Ryanair ownership, according to the company, and CFO Neil Sorahan said in an interview that the carrier hasn’t been put off future purchases.

Eight airlines have already gone bust in Europe since last summer and the carrier reckons it will ultimately emerge stronger from the fare crunch. Hargreaves Lansdown analyst Laith Khalaf said in a note that “if Ryanair is feeling the pain, that applies in spades to weaker players in the market”.

Ryanair aims to take delivery of Boeing Co’s grounded 737 Max jetliner from October once the planemaker returns the model to service after two recent crashes, Sorahan said. Five aircraft should be operational for the winter timetable, after being scheduled for delivery from April, though the carrier will be only one plane down this summer. — Bloomberg