Ryanair will slash fares by up to 8pc as fuel costs fall
Published 28/07/2015 | 02:30
Ryanair is going to slash fares during the winter as it passes on savings from cheaper fuel to passengers.
The airline's average fare in the second half of its financial year is set to tumble by up to 8pc, chief executive Michael O'Leary said.
With 31 net new aircraft being added to its fleet over the winter, Ryanair will ground fewer jets during the season than it did last year. It has also raised the forecast for the total number of passengers it expects to carry this financial year, which ends next March, from 100 million to 103 million.
It made the prediction as it reported that its first-quarter profit after tax jumped 25pc to €245m - in line with analyst expectations.
But shares fell as management failed to upgrade its full-year profit forecast beyond a previously estimated range.
Mr O'Leary said it is too early to alter guidance because the airline is so reliant on its performance during the current second quarter, but has "almost zero visibility" over the final out-turn of average fares during the period that ends in September. However, he did say that he expects the full-year profit to come in around the upper end of a previous forecast of between €940m and €970m.
Ryanair is known for being typically cautious when it comes to making financial forecasts.
"We don't think it's right to increase the guidance significantly at this point in time given the uncertain fuel environment," said chief financial officer Neil Sorohan.
Ryanair chief marketing officer Kenny Jacobs shied away from saying a price war was going to break out across Europe in coming months, despite the pressure there will be on airlines to cut fares.
"We'll have more of a fuel saving to pass on during the second half of the year, so we'll be doing that, as will others," he told the Irish Independent. "I don't want to call it a price war, but it will certainly be a great time for consumers."
Mr O'Leary added: "We're going to use the benefit of some of the fuel saving in the second half to pass on some very aggressive pricing so that we fill 15pc capacity growth in the second half instead of 10pc."
Ryanair had expected fares in the six months to the end of September to fall by as much as 2pc, but it now expects them to be largely unchanged.
A decision to cut fares will heap pressure on rivals, including airlines such as Air France-KLM. It will also be a challenge to Aer Lingus, whose €1.36bn takeover by IAG could be completed within a matter of weeks.
Ryanair will use the fare price cuts to lure more passengers, including on routes to primary airports where it's targeting growth.
The Irish Independent reported last week that Ryanair could respond to IAG's takeover by basing as many as 30 aircraft at Dublin this winter compared to the 25 it had originally anticipated. Mr Jacobs declined to confirm whether the airline intends to do so.
Ryanair has already signalled that it intends to sell its 29.8pc share in Aer Lingus to IAG and has until 1pm on Thursday to formally accept IAG's offer. Mr Jacobs would not say if the airline has already done so.
Mr O'Leary said a decision on how Ryanair will use the proceeds from the sale - Ryanair will get just over €400m - will be made in September.
"Our policy would be to continue with a mix of special dividends and share buybacks," the chief executive said.
"We're 90pc of the way through this year's share buyback programme. We expect to complete it by about the end of August, when we'll have added another €400m in share buybacks.
"I think the board will then consider what we do, probably around September, if and when we receive the proceeds from the sale of Aer Lingus."
Ryanair's revenue in the three months to the end of June rose 10pc to €1.49bn. It carried 24.3 million passengers in the period - 16pc more than it did in the first quarter last year.
Ancillary revenue was 9pc higher at €404.6m in the period. Neil Sorohan said the ancillary revenue growth was still "well ahead" of Ryanair's long-term target.