Lower fares coupled wither higher fuel and staff costs contributed to a 21% fall in Ryanair’s first quarter (Q1) profits, boss Michael O’Leary has said.
Ryanair on Monday (29 July) posted profits for the three months to June 2019 of €243 million, down from €309 million during the same period last year.
The budget carrier said the UK had proved one of its two weakest markets during Q1 owing to Brexit concerns “weighing negatively on consumer confidence and spending”.
Average fares fell 6% to €36, which Ryanair said helped fuel an 11% growth in traffic to 42 million and revenues up 11% from €2.08 billion to €2.31 million.
Ryanair said the decline in average fares was further offset by 14% growth in ancillary revenue through strong sales of priority boarding and preferred seats, although revenue per passenger remained “broadly flat” at €55.
The airline said it would roll out a new digital platform with “improved, personalised guest offers” to improve and continue developing services to boost customer experience.
“The two weakest markets were Germany, where Lufthansa was allowed to buy Air Berlin and is selling this excess capacity at below cost prices, and the UK where Brexit concerns weigh negatively on consumer confidence and spending,” said O’Leary.
In a further blow, Ryanair has confirmed it now doesn’t expect to take delivery of its first five Boeing 737 Max aircraft until January “at the earliest” and will likely only receive a maximum of 30 of the 58 new aircraft it had factored into its summer 2020 schedule. As a result, Ryanair has cut its passenger growth forecast from 7% (162 million) to 3% (157 million).
However, despite ongoing uncertainty over when the Max will return to service following two fatal crashes in just five months, Ryanair said it had “great confidence” in the Max which it said would “transform its costs and business” by offering 4% more seats while burning 16% less fuel.
“Due to these delivery delays, we will now not see these cost savings delivered FY21 [full-year 2021],” said O’Leary.
Ryanair’s Q1 fuel costs, meanwhile, increased 24%, up €150 million, which the airline said was due to higher prices and volume growth.
The carrier now expects “broadly flat” full-year profits in the range of €750 million to €950 million. “The current weak fare environment has continued into Q2, and we expect H1 [first half] fares to be down approximately 6%,” said O’Leary.
“FY20 fare guidance is towards the lower end of our guided -2% to +1% range. However, the strong performance of ancillaries continues to support our RPP [revenue per passenger] growth of +2% to +3% (previously +2% to +4%).”
Ryanair added it expected high fuel prices and overcapacity in the European short-haul sector to lead to “further airline failures this winter” which would generate “growth opportunities” for Ryanair’s four airlines.