Saturday 17 March 2018

Ryanair fares to slump as seat glut and Brexit kick in

Ryanair's Michael O'Leary
Ryanair's Michael O'Leary
Michael O'Leary said Ryanair fares will continue to fall until next year
John Mulligan

John Mulligan

Ryanair's €33 average fare during the third quarter is set to fall even further as the airline grapples with increased competition, seat availability, and the fallout from Brexit.

Ceo Michael O'Leary said the weak pricing environment has also been heightened by weaker sterling and the shift by charter airlines of capacity away from Turkey, Egypt and north Africa into Spain and Portugal.

He confirmed that Ryanair fares will continue to fall until next year, and will plunge up to 15pc in the current quarter.

"It's clear that pricing will continue to be challenging as capacity is being added across Europe," he told investors yesterday. "We intend to respond to those adverse market conditions with lower fares, strong traffic growth and - unlike all other airlines - lower unit costs."

Releasing third-quarter results yesterday, Ryanair said that its profit in the period fell 8pc to €95m as its average fare price fell 17pc. Profits of €99m had been anticipated by analysts. Howver, its unit costs tumbled - by 6pc when lower fuel costs are excluded, and by 12pc if included.

Mr O'Leary said he remains "very cautious" about the remainder of the financial year that ends next month.

However, he reiterated Ryanair's guidance, that it expects to make a profit of between €1.3bn and €1.35bn in the current financial year - about 7pc higher than in the previous financial year. Shares in the carrier fell over 2pc by early afternoon.

Mr O'Leary said uncertainty regarding Brexit continues. Chief commercial officer David O'Brien said demand out of the UK has held up, but business there is suffering from "challenges on the fare front".

"It seems clear we're heading for a hard Brexit," added Mr O'Leary. "But there's still significant uncertainty in relation to what this will mean. It certainly means, we think in the short-term, a continuing slowdown in the economic growth in both the UK and Europe. We won't have a better picture until the British file their Article 50 notification in March."

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Mr O'Leary also said that while Ryanair is happy with its current aircraft order book, it would consider any opportunity to acquire additional planes if they became available at attractive prices.

Its fleet is already expected to expand to 585 jets by 2024. Last November, Mr O'Leary said Ryanair might also convert some of the 100 options it has on Boeing 737 Max aircraft into firm orders in the next couple of years.

"Would we speed it up? Yes, we would, but there would have to be financial inducement to do so," said Mr O'Leary yesterday.

"We're not out there actively looking for new aircraft or new orders in the next two, three or four years. But if there was a crisis or an opportunity to help somebody in crisis, or if Boeing had a large volume of unplaced aircraft and were willing to price them down at our kind of deal levels, we'd certainly look at it.

"But we're comfortable with the rate of growth we have at the moment."

Ryanair is growing by about 50 new aircraft every year over the next five years, giving it about 10 million extra passengers a year. It expects to carry 200 million a year by 2024.

The airline carried 29 million passengers in the third quarter, 16pc more than in the third quarter in the 2016 financial year, as capacity increased and it continued its load-factor active, yield-passive strategy of pricing tickets to make sure its jets are as full as possible.

Its load factor - or percentage of available seats filled - was 95pc during the third quarter.

Mr O'Leary conceded that Ryanair's aircraft are now about as full as they're going to get, and that in the current financial year the load factor will "top out" at between 93pc and 94pc.

"I don't foresee us raising load factors beyond that," he said. "We're essentially full most of the year round now. To get the load factor up any higher would require a ridiculous amount of yield dilution and we're not in that business either, so we're very happy where the load factors are."

Membership of the airline's MyRyanair platform is now mandatory for booking tickets. Chief marketing officer Kenny Jacobs said the number registered under MyRyanair should hit 25 million by the end of this calendar year - about the same that Tesco has under its Clubcard system in the UK, Ireland and mainland Europe.

Irish Independent

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