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Ryanair profits hit by tough competition and Brexit uncertainty

Ryanair reaffirmed its full-year profit forecast but expects fares to meet the lower end of its guidance range

Ryanair
Delivery delays to the grounded Boeing 737 Max aircraft will hit Ryanair's traffic

Ryanair Holdings PLC (LON:RYA) posted a 21% drop in quarterly profits as it cut fares to attract passengers amid tough competition and Brexit uncertainty.

Profit after tax fell to €243mln in the first quarter ended June from €309mln a year ago.

Revenue gained 11% to €2.08bn as a 6% cut to the average fare to €36 boosted passenger numbers by 11% to 42mln.  Revenue per passenger was flat at €55.

The budget airline said its two weakest markets were Germany, where it faced competition from Lufthansa-owned Air Berlin, and the UK, where Brexit concerns “weigh negatively” on consumer confidence and spending.

The decline in air fares was offset by strong ancillary revenues, which included sales from extras such as seat selection, priority boarding, baggage and food.

But the fuel bill increased 24% due to higher oil prices and volume growth.

Higher fuel prices drive up costs 

Excluding fuel, unit costs rose 4% due to charges related to taking full control of Austrian subsidiary Laudamotion, handing back leases to Lufthansa, and a 21% increase in staff costs.

Laudamotion, which was formed by former Formula One ace Niki Lauda out of the Austrian Niki unit of former Air Berlin last year, agreed to return nine aircraft it had leased from Lufthansa during the first half of 2019 to settle a dispute over leasing contracts.

Lufthansa wanted to end an agreement to lease planes to Laudamotion, claiming the Austrian leisure airline had failed to meet payments.

Laudamotion has replaced the leases with 20 lower cost A320 operating leases, which Ryanair expects to lower losses in the second year of operation despite lower fares and fierce rivalry in Germany and Austria.

Boeing 737 delays to hit traffic

Ryanair said the delivery of its first Boeing 737-MAX aircraft has been delayed from the first quarter to “probably January at the earliest”.

The 737 aircraft is currently grounded after two crashes which killed 346 people.

Ryanair expects to receive 30 Max jets in time for next summer, compared to the 58 it had previously anticipated.

“We expect traffic to grow by 7% to over 152mln, slightly less than the 153mln previously guided due to the Boeing Max delivery delays,” the company said.

Full-year profit guidance unchanged 

The group left its profit after tax forecast for the 2020 financial year unchanged at €750mln to €950mln.  The carrier said it expects fares to fall towards the lower end of its guidance range for a decline of 2% to an increase of 1%.  

“Costs will increase as our fuel bill grows by €450mln and, as previously guided, we expect ex-fuel unit costs will rise by just 2%,” Ryanair said.  

“This guidance remains heavily dependent on close-in Q2 fares, H2 prices, the absence of security events, and no negative Brexit developments in H2."”

Quick facts: Ryanair Holdings plc

Price: 10.08 EUR

LSE:RYA
Market: LSE
Market Cap: €10.98 billion
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