Ryanair profit rises and share buyback announced but outlook gloomy

Ryanair posted a 6% rise in third-quarter pre-tax profit on Monday as revenue and passenger numbers jumped and a share buyback was announced, but the budget airline struck a cautious note on the outlook as it warned over disruption from talks with unions.

Pre-tax profit rose to €112.9m on revenue of €1.35bn, up 4% on the previous year. Meanwhile, traffic grew 6% to 30.4m, the load factor ticked up 1% to 96% and average fares fell 4% to €32 per customer.

Profit after tax was up 12% to €95m and ancillary revenue increased 12% to €440.7m.

The company said its outlook for the remainder of FY18 is "cautious" and that it expects some localised disruptions and adverse PR as it finalises union discussions along similar lines to what has been agreed in the UK.

Chief executive officer Michael O'Leary said: "We have successfully concluded our first recognition agreement with BALPA in the UK, a market which accounts for over 25% of our pilots. When this process has completed, we expect to have similar engagement with cabin crew unions.

"While union recognition may add some complexity to our business and may cause short-term disruptions and negative PR it will not alter our cost leadership in European aviation, or change our plan to grow to 200m traffic per annum by March 2024. Our aircraft allocations may alter by base as we capitalise on new growth opportunities in France and Scandinavia."

Ryanair expects full-year traffic to rise 8% to 130m, up slightly from previous guidance of 129m and said the final FY18 fare outcome depends on close-in Easter booking.

While oil prices have risen in the second half, it still expects FY18 unit costs to be down 2% and maintained its full year guidance in a range of €1.40bn to €1.45bn, although this depends "heavily" on the absence of union disruptions, unforeseen security events and close-in Easter bookings.

Also on Monday, the company said its board has approved a €750m share buyback of ordinary shares that will start this month and should be completed by the end of October. It will increase the funds returned to shareholders since 2008 to more than €6bn.

As far as FY19 is concerned, the group said it has "practically zero visibility" on fares, adding that it does not share its competitors' optimism for summer 2018 fares. It said costs will rise next year as its fuel bill increases by more than €300m and a further €100m is added to staff costs on the back of pilot pay rises.

The lack of clarity on Brexit continues to overhang fares and pricing on routes to/from the UK. We would, even at this early date, urge extreme caution on investor and analyst assumptions for fares in FY19. We will provide a more detailed FY19 guidance during our full-year results and investor roadshow in May 2018."

Neil Wilson senior market analyst at ETX Capital said: “Two of out three for Ryanair today - earnings beat estimates, a surprise buyback for investors, but a very gloomy outlook for the coming year."

He said there is a decent chance that the unions won't play nicely, "as management itself suggests", so investors may be justified to be sceptical that management can achieve its full-year profit guidance of between €1.40bn and €1.45bn.

Rebecca O’Keeffe, head of investment at Interactive Investor, said: "The autumn saw huge problems for the airline, so the idea that there could be more issues to come is deeply unwelcome. Although Ryanair’s results and share buy-back are positive, potential union problems, combined with Ryanair’s caution over full year guidance and lower expectations of summer fares have seen their share price fall sharply."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The dials are moving in the right direction at Ryanair, but Michael O’Leary has switched the fasten seat belt sign on. The low-cost airline is bracing for a significant increase in staff pay, continued low air fares, and the potential for industrial action as it negotiates with pilot unions across Europe.

"Last year’s dispute with pilots will have a lasting impact on the airline, with staff costs now expected to ratchet up by a cool €100m next year, as a result of the pay agreement reached with pilots. Ryanair has also been obliged to engage with unions in several European countries, which it warns may cause further localised disruption to flight schedules.

"However the 2017 flight cancellations don’t appear to have dented passenger demand, and while air fares may be falling, Ryanair is finding ways to squeeze extra revenues out of its customers. Like its rival easyJet, the airline continues to see growth in sales of added extras such as reserved seating and priority boarding. To that end a new baggage policy looks set to increase the attraction of priority boarding for those customers who want to take their luggage into the cabin, and avoid waiting to pick it up."