Ryanair first-quarter profit drops 20% amid higher costs and strikes

Budget airline Ryanair posted a 20% drop in first-quarter pre-tax profit on Monday as higher costs and strikes took their toll.

Pre-tax profit fell to €345.4m, while profit after tax was also down 20%, as expected, to €397m. Revenue rose 9% to €1.9bn as ancillary revenue pushed up 25%, and passenger numbers grew 7% to 37.6m.

Chief executive officer Michael O'Leary attributed the drop in profit to lower fares, the absence of Easter in the quarter, higher oil prices and pilot costs.

The airline's average fare price declined 4% to under €39 due to the World Cup, the Northern European heatwave and customer uncertainty about pilot strikes.

The company said it continues to expect full-year profit after tax of between €1.25bn and €1.35bn, but this is "heavily dependent" on close-in second-quarter fares, crew strikes, continuing air traffic controller staff shortages/strikes and Brexit developments.

Staff costs during the quarter increased 34% to €244.9m, due in part to the pilot 20% pay increases annualising. Meanwhile, fuel and oil costs rose 23% to €630.9m.

Ryanair said that if strikes continue to damage customer confidence and forward prices/yields in certain country markets, the company will have to review its winter schedule, "which may lead to fleet reductions at disrupted bases and job losses in markets where competitor employees are interfering in our negotiations with our people and their unions".

The airline also said on Monday that it expects LaudaMotion, the Austrian airline it agreed to buy earlier this year, to report annual losses of €150m, up from a previous estimate of €100m. It said the airline has been affected by lower-than-expected summer 2018 fares and faces substantial cost headwinds, particularly in fuel, where it is unhedged and exposed to recent higher oil prices of close to $80 per barrel.

Liberum said the sharply lower Q1 results were not quite as bad as consensus but short of its assumptions. "Strong ancillary revenue was not enough to fully offset cost headwinds from fuel (despite strong hedging), staff costs and EU-261 compensation.

"We see consensus estimates changing little, but with the balance of risks to the downside. Strike action is bad for sentiment and creates short-term risks to earnings, but should not impact Ryanair's long-term competitive position, cost leadership, financial strength or cash generation."

Canaccord Genuity said the first-quarter results were "solid". "Despite Ryanair’s near-term cautiousness we believe its longer term outlook remains attractive given its low and sustainable cost base and a wide range of growth opportunities at primary and other airports," it said.

At 0930 BST, the shares were down 5.5% to €14.65.