Ryanair has issued a profit warning following a dip in winter air fares driven, it says, by short-haul overcapacity in Europe.
The low-cost carrier on Friday (January 18) adjusted its full-year profit guidance down from €1.1 to €1.2 billion to €1 to €1.1 billion.
Its revised guidance excludes exceptional start-up losses pertaining to its acquisition of LaudaMotion, completed in August.
Ryanair said these losses had been cut from €150 million to €140 million following “better than expected” performance over the winter.
The warning comes despite 9% traffic growth to 142 million passengers, stronger ancillary sales and better than expected H2 cost performance.
Michael O’Leary, Ryanair chief executive, said he expected the lower-fare environment in Europe to “shake out” loss making competitors, with fares expected to fall 7% against previous guidance of just a 2% decline.
"While we are disappointed at this slightly lower full year guidance, the fact that it is the direct result of lower than expected H2 air fares, offset by stronger than expected traffic growth, a better than expected performance on unit cost and ancillary sales, is positive for the medium term.
“There is short-haul overcapacity in Europe this winter, but Ryanair continues to pursue our price passive/load factor active strategy to the benefit of our customers who are enjoying record lower air fares. We believe this lower-fare environment will continue to shake out more loss making competitors.”
O’Leary said both Ryanair and LaudaMotion traffic and ancillary sales growth, coupled with “strong unit cost discipline” over the winter, would deflect from the impact of the lower winter fares, allowing Ryanair to pass on the benefits to passengers in lower fares.
“[It’s] good for Ryanair’s traffic growth, good for our business over the medium and long term, and good for market share as evidenced by Norwegian’s recent announcement of its plans to close bases in Rome, Gran Canaria, Tenerife and Palma, where they competed head-to-head with Ryanair.”
However, O’Leary said the airline couldn’t rule out further reductions in air fares and/or slightly lower full-year guidance on account of Brexit or “security developments”.