Ryanair swings to loss on higher oil prices, lower fares

Ryanair said on Monday that it swung to a loss in the last three months of 2018 on the back of weaker-than-expected fares and higher oil prices.

In an update for the three months to 31 December, the budget airline said it made a net loss of €20m, excluding Lauda, versus a profit of €105.6m in the same period the year before as 8% traffic growth was offset by a 6% drop in average fares due to excess winter capacity in Europe.

Chief executive Michael O'Leary said: "While a €20m loss in Q3 was disappointing, we take comfort that this was entirely due to weaker than expected air fares so our customers are enjoying record low prices, which is good for current and future traffic growth.

"While ancillary revenues performed strongly, up 26% in Q3, this was offset by higher fuel, staff and EU261 costs."

Revenue during the period rose 9% to €1.53bn, while passenger numbers increased to 32.7 million from 30.4m and average fares declined to under €30.

The airline said the risk of a 'no deal' Brexit remains "worryingly high".

"While we hope that common sense will prevail, and lead to either a delay in Brexit, or agreement on the 21-month transition deal currently on the table, we have taken all necessary steps to protect Ryanair's business in a no-deal environment.

"We have now obtained a UK Air Operator Certificate to protect our three domestic UK routes, and we will place restrictions on the voting rights and share sales of non-EU shareholders for a period of time (in the event of a hard Brexit) to ensure that Ryanair remains at all times an EU owned and EU controlled airline, even if the UK exits the EU without a deal."

The group reiterated its FY19 profit guidance of between €1bn and €1.1bn but said it cannot rule out further cuts to air fares and/or slightly lower full-year guidance if there are any unexpected Brexit and/or security developments.

The company made a point of saying that it does not share the recent optimistic outlook of some competitors that summer 2019 airfares will rise. In the absence of further EU airline failures, and because of the recent drop in oil prices, it expects excess short haul capacity to continue through this year, leading to a weaker - not stronger - fare environment.

Ryanair also said on Monday that CEO O'Leary has agreed a new five-year contract which secures his services for the group until at least July 2024. Meanwhile the chairman David Bonderman and senior independent director Kyran McLaughlin will step down from the board in summer 2020.

At 1255 GMT, the shares were down 3.4% at €11.05.

George Salmon, equity analyst at Hargreaves Lansdown, said: "Ryanair is licking its wounds after a difficult 2018 that saw extra competition drive down prices and higher staff and compensation costs push expenses up.

"Brexit uncertainty continues to weigh on the company, but the most interesting news in these numbers is the fact the group doesn’t share the more upbeat outlook of competitors. Ryanair has said pricing pressure will continue into summer 2019.

"Lower profitability has seen net debt tick up past €1bn, but the balance sheet remains strong - especially since Ryanair owns over half its planes outright. This sure footing and a dominant market share means Ryanair should come out of the current turbulence on top, but its weaker outlook on pricing suggests things could get worse before they get better."

Liberum said Ryanair remains the long-term winner in the European airline industry, based on its leading market position, extensive network, low unit costs and strong balance sheet.

"We see tougher market conditions in the short term as positive for the stronger airlines in the long term, since this clears out weaker competitors and aids consolidation in the market. We would view short-term share price weakness as a buying opportunity."