Strikes lead to cut in Ryanair profit forecasts

Ryanair

Budget airline Ryanair today cut profit forecasts for the year by 12%, due to higher fuel costs and passenger compensation packages, and pilot strikes, which have affected customer confidence and bookings.

The airline, which flies more than 60 routes from Manchester Airport and 35 from Liverpool John Lennon Airport, lowered its full year profit guidance from £1.11bn-£1.20bn to £980m-£1.07bn.

It said this was due to lower traffic and weaker close-in fares in September, caused by two days of co-ordinated pilot/cabin crew strikes in Germany, Holland, Belgium, Spain and Portugal; lower Q3 fares as forward bookings – particularly for the Octber school mid-terms and Christmas – and customer confidence are affected by fear of further strikes; higher EU261 (compensation packages for passengers affected by strikes or delays) care and re-accommodation costs arising from these recent strikes; and higher prices ($82 per barrel) for unhedged oil (10%).

Shares in the airline fell by 8.77% in morning trading.

Ryanair said that Q2 and Q3 traffic and fares will be somewhat lower than expected largely as a result of the two recent five-country strikes, which, it said, are being incited by competitor employees, despite the fact that Ryanair has agreed to meet union demands for local contracts, local law, and a five week arbitration with pilots in Germany when the Union sought a prolonged five month arbitration.

Ryanair chief executive Michael O’Leary said: “While we successfully managed five strikes by 25% of our Irish pilots this summer, two recent co-ordinated strikes by cabin crew and pilots across five EU countries has affected passenger numbers (through flight cancellations), close-in bookings and yields (as we re-accommodate disrupted passengers), and forward air fares into Q3.

“While we regret these disruptions, we have on both strike days operated over 90% of our schedule.

“However, customer confidence, forward bookings and Q3 fares has been affected, most notably over the October school mid-terms and Christmas, in those five countries where unnecessary strikes have been repeated.”

He added: “These strikes have also added to our EU261 costs while, at the same time, our unhedged fuel costs have jumped as oil prices rise to $82pbl which affects 10% of volumes, and all of Laudamotion’s fuel bill.”

Ryanair acquired 75% of Austria-based Laudamotion in August.

Mr O’Leary also revealed plans to reduce Winter capacity, which could lead to cabin crew job losses.

He said: “Like a number of other EU airlines, we have decided to trim our winter 2018 capacity (by 1%) in response to this lower fare, higher oil and higher EU261 cost environment. We are today implementing the following modest winter cuts, all from Monday, November 5.”

Ryanair’s four-aircraft Eindhoven base will close, but most routes to/from Eindhoven will continue on overseas-based aircraft.

The two-aircraft Bremen base will close with most routes continuing on non-German aircraft.

And the five-aircraft Niederrhein base in Germany will be cut to three aircraft with most routes continuing on the remaining three aircraft.

Mr O’Leary said: “All affected customers have been contacted by email/SMS this morning and will be re-accommodated on other flights or refunded as they so wish.

“We will also now consult with our pilots and cabin crew at these three bases to minimise job losses.

“We expect to offer our pilots vacancies at other Ryanair bases but, as we have a large surplus of Winter cabin crew, we will explore unpaid leave and other options to minimise cabin crew job losses.”

Russ Mould, investment director at Manchester-based investment platform AJ Bell, said today: “A cocktail of problems has left Ryanair looking very weak and its shares trading at a two-year low.

“A 12% downgrade to earnings guidance is a severe blow to the airline, although chief executive Michael O’Leary is far from apologetic.

“There isn’t the usual commentary you would normally expect from someone in his situation, such as ‘we’ll try harder’, ‘we are optimistic this is a one-off event’ or ‘we’re confident we can make up some of the shortfall in the second half’.

“Instead, you’ve got the straight-talking boss telling the facts as they are, plus a warning that he can’t rule out a further downgrade to earnings guidance.

“You could argue the way O’Leary has delivered his stark warning is reflective of a CEO who doesn’t want to create false hopes for shareholders. He is honest and open, which is perhaps the best approach when trying to manage expectations.”

He added: “In a nutshell, strikes are disrupting its business and making individuals less confident over using Ryanair in the future in case their flights are also delayed or cancelled.

“Costs are going up, prices are coming down as a result of weaker forward bookings and now it has a surplus of Winter cabin crew after cutting some flights.

“The stock market clearly thinks Ryanair’s problems are negative for other parts of the airline sector, given how easyJet’s share price fell by nearly 6% on Monday morning and British Airways’ owner International Consolidated Airlines down by 2%.”

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