Profit warning wipes €2bn off Ryanair value

Profit warning wipes €2bn off Ryanair value

By Geoff Percival

Ryanair shares plummeted by close to 13% — knocking nearly €2bn off the company’s value — after it said full-year profits will likely be lower than expected.

Blaming higher fuel costs, as oil prices continue to rise, weaker fares and rising labour costs on the back of a series of high-profile strikes by pilots and cabin crew, Ryanair lowered its expected profit range, for the 12 months to the end of March, from €1.25bn-€1.35bn to €1.1bn-€1.2bn. It also said it cannot rule out further strike action in the coming months, which it said “may require full-year guidance to be lowered further”.

“While we successfully managed five strikes by 25% of our Irish pilots this summer, two recent co-ordinated strikes by cabin crew and pilots across five EU countries has affected passenger numbers, through flight cancellations, close-in bookings and yields and forward fares into the third quarter,” said Ryanair chief executive Michael O’Leary.

The latest strike action - across a swathe of continental Europe last Friday — saw Ryanair cancel another 190 flights affecting around 30,000 passengers. Mr O’Leary said that, while over 90% of the airline’s schedule has been unaffected on strike days; customer confidence, forward bookings and fares have been affected as the company enters its third quarter, which takes in both the October half-term school holidays and Christmas.

Fares had been expected to stay flat across the second half of Ryanair’s financial year but are now expected to be 2% lower. The strikes have also added to the airline’s costs — via rebooking and refund payments — under EU passenger rights rules.

Ryanair said rising oil prices will affect 10% of its fuel needs, which are unhedged and exposed to market price changes. None of the fuel costs related to the recently-acquired Austrian low fares carrier Laudamotion are hedged. Ryanair’s current year fuel bill is set to rise by €460m, with fuel costs expected to cause a further €300m, or so, headwind in its next financial year, if oil prices remain elevated.

Ryanair is cutting its winter capacity — hitting bases in Germany and the Netherlands — by 1% in response to its latest woes.

“Despite management stating two weeks ago that there was no change to guidance, investors are shook by the significant cut to guidance for lower fares in the second half and lower full-year profits. Analysts are, thus, likely to take management comments with a pinch of salt going forward, estimate more conservatively and become less bullish on the stock,” said Merrion analyst Darren McKinley.

The co-ordinated strikes are having a number of impacts with customer confidence being weighed on, resulting in weaker forward bookings and pressure on fares in an environment where fares should be hardening to offset higher operating costs.

“September traffic numbers have been hit significantly by strikes and compensation costs that complement passenger disruption and are weighing on profitability. Strikes in Germany are particularly frustrating and costly given their lack of notice,” he said.

Ryanair’s share price is down nearly 30% in the past 12 months. Finishing trading yesterday at just under €11.50, Mr McKinley said lack of visibility on outlook past the current year and as long as staff unrest lingers on, Ryanair’s best price is limited to around €13.50 per share.

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