Ryanair stock falls as price war threatens vital summer profits

A drop in fuel prices and a bleak economy outlook has affected the airline industry such as Ryanair. (AFP pic)

LONDON: Ryanair joined a chorus of European carriers in warning that a fare war and weakening economies may hold back earnings this year.

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

European carriers are bracing for a tough summer as a glut of seats combines with stuttering economic growth and high fuel prices to squeeze margins.

Market leader Lufthansa has frozen capacity at its discount arm, while Thomas Cook Group share price plummeted last week after analysts said the holiday firm’s debt now exceeds its value amid faltering demand.

Ryanair Chief Executive Officer Michael O’Leary said he’s “cautious” on prices this year, with zero visibility for the second half, which encompasses the winter season.

Shares of the Dublin-based company declined as much as 6.8%, the most since Nov 15, and were trading 5% lower at 10.27 euros in the Irish capital.

Ryanair said first-half 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.

The fuel bill is set to swell by 460 million euros (US$513 million), slightly ahead of last year’s increase.

Austrian loss

For the year ended March, strong growth in ancillary revenue – such as booked seats and early boarding – was also offset by a 200 million-euro jump in staff costs, including a 20% pilot pay increase, as Ryanair grappled with a unionisation drive across its bases.

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

The unit was hurt by low promotional fares and expensive aircraft leases that should ease under Ryanair ownership, O’Leary said.

Europe’s biggest discount airline aims to take delivery of Boeing’s grounded 737 Max jetliner from October once the plane maker returns the model to service after two recent crashes, Chief Financial Officer Neil Sorahan said in an interview.

Five aircrafts should be operational for the winter timetable, after being scheduled for delivery from April.

Ryanair forecast net income of 750 million euros to 950 million euros this year after a 39% decline to 885 million euros in fiscal 2019.