Monday 20 November 2017

Weak sterling – euro exchange rate prime reason for problems

WHEN Ryanair issues a profit warning, it sets alarm bells ringing.

While Michael O'Leary noted that 25pc of Ryanair's business is done though sterling and that the weak sterling-euro exchange rate is the prime reason for weaker yields and fares, he acknowledged that there's an underlying weakness that's persisting across Europe despite signs of economic recovery.

He said the weaker demand and softer yields surprised Ryanair given that there hasn't been any significant capacity growth implemented by European airlines.

But he also pointed out that regions such as Poland, where Ryanair has a big presence, have been weaker. Because western Europe economies, by and large, have been struggling, that has stunted traffic.

He also argued that Ryanair is putting itself on the "front foot" by initiating seat sales to fill planes even if other airlines aren't yet doing the same.

He said there are two ways of responding to weakness Ryanair is experiencing.

"We either hunker down and allow load factors (the percentage of seats filled) to decline and say that we'll take it on the yield, or we respond aggressively," he said. That means promotions and seat sales, he said.

It would be too easy to think that perhaps this is part of some kind of public resistance to Ryanair. That's highly unlikely. Many people might hate it but others love it. And both the haters and the lovers still fly with it.

Mr O'Leary said that more winter plane groundings will mean it will carry 600,000 fewer passengers. But even at that, its tally for the period will be around 81 million.

Ryanair also sent a clear signal that it strongly believes in its own growth trajectory. Mr O'Leary said the airline remains on track to return at least €400m to shareholders this financial year and another €600m in the following financial year.

But for now at least, some investors have been frightened away. They'll have to see a stronger performance to be lured back.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business