Ryanair profit slumps as strikes and fuel price hit

Ryanair (LON:RYA) reported a 7% fall in first-half profit after being hit by higher fuel costs and the impact of cabin crew strikes across Europe, which dented bookings.

The Irish carrier, which makes most of its profit in the summer months, posted a profit of €1.2bn in the six months to the end of September after it had to pay flight compensation from strikes, offer lower airfares and cope with high fuel prices. Revenue grew 8% to €4.4bn, however, helped by an uplift in ancillary revenues such as extra luggage fees.

READ: Ryanair says it is working to reach deals with unions by Christmas

Europe’s largest low-cost carrier reiterated its full-year profit forecast of between €1.1bn – €1.2bn and said European short-haul airfares would likely remain soft this winter. Ryanair last month cut its annual profit forecast by 12% due to the impact of the strikes and said the situation could get worse if industrial action continued. 

Since Ryanair agreed to recognise unions in December 2017, it has made progress with union negotiations in major markets including agreements with pilot and cabin crew unions in Ireland, Italy, the UK, Germany and last week an agreement with its Portuguese pilots.

“This full-year guidance remains heavily dependent on airfares not declining further – they remain soft this winter due to excess capacity in Europe – the impact of significantly higher oil prices on our unhedged exposures, the absence of unforeseen security events, air traffic control and other strikes and the impact of negative Brexit developments,” CEO Michael O’Leary said in a statement.

“We cannot rule out further base closures or capacity cuts this winter if oil prices rise or airfares fall further. Winter trading may be positively impacted by the rate and timing of other airline failures which is already creating a ready supply of well-trained pilots and cabin crew for 2019 growth.”

The airline said its average fare fell 3% to under €46 during the period and that it expects its annual fuel bill to be around €460m higher than last year.

“It’s been a tough 12-18 months for Ryanair; the key question is whether management can sort out strikes before customers completely lose faith,” analysts at Markets.com said in a note to clients.

“The longer strikes go on the more customers shy away from the brand and look elsewhere – hence we are seeing Ryanair slashing prices. Combined with excess capacity in the market, this will depress margins further.”

Shares in Ryanair, which have fallen a fifth in the last months, rose as much as 5% in early trade with analysts at UBS putting the rise down to its unchanged profit guidance and an absence of more damaging news in the results statement.

– updates to add analyst comments, share price – 

Story by ProactiveInvestors