Ryanair has reported a 4% rise in Q1 profit to €256m, as traffic grew 11% to 31m while average fare fell 10% to €39.92, offset by a 9% reduction in unit costs.
“This modest 4% increase in Q1 profit to €256m is in line with previous guidance,” said Ryanair’s Michael O’Leary. “The absence of Easter in Q1 and on-going market volatility arising from terrorist events, and repeated ATC strikes (particularly in France) weakened fares on close-in bookings and caused almost 1,000 flight cancellations. We remain committed to our load factor active/yield passive strategy which is why Q1 fares fell 10% to under €40.”
During the quarter, passenger traffic rose 11% and load factor improved 2 points to 94% as the airline Always Getting Better (AGB) customer experience programme “continues to win new customers and new markets”, said O’Leary. Ancillary sales rose to 26% of revenues (24% in PY Q1) with unit costs down by 9% (ex-fuel down 4%).
During the period, Ryanair took delivery of 16 new 737-800s and completed an €886m share buyback programme in June. The airline announced eight new bases (Bucharest, Bournemouth, Hamburg, Nuremburg, Prague, Sofia, Timișoara and Vilnius) as part of our W16 schedule which will also see its Berlin base grow from four to nine aircraft. The airline says that it plans to open 133 new routes during 2016 but confirmed that the introduction of an NOK80 (€8.50) air travel tax in Norway has led to 16 route cancellations and the closure of our Oslo Rygge base in October.
Ryanair has hedged 95% of its fiscal year 2017 fuel requirements at $622 per tonne (c. $62bbl) which will (allowing for additional volumes) deliver fuel savings of c. €200m, the airline estimates. Almost 55% of its FY18 fuel is now hedged at just under $500 per tonne (c. $50bbl). “We expect to pass on most if not all of these fuel savings to customers in lower air fares as we continue to grow traffic and routes strongly,” said Ryanair.
Commenting on the recent UK vote to leave the European Union (EU), Ryanair again stated that the considerable period of political and economic uncertainty in both the UK and the EU will be “damaging to economic growth and consumer confidence and we will respond as always with our load factor active/yield passive strategy. Until some clarity emerges over the next two years about the UK’s long term political and economic relationships with the EU, we will be unable to predict what effect it will have on our business and regulatory environment, but we have contingency plans in place for all eventualities.”
“In the near term we expect that Brexit uncertainty will lead to weaker sterling, slower growth in the UK and EU economies and downward pressure on fares until the end of 2017 at least. Over the longer term, if the UK is unable to negotiate access to the single market/open skies it may have implications for our 3 UK domestic routes and UK nationals on our share register but these risks are not material and will be manageable. There may also be some opportunities if our UK registered competitors are no longer permitted to operate intra EU routes, or must divest their majority ownership of EU registered airlines.”
“In the meantime, we will pivot our growth away from UK airports and focus more on growing at our EU airports over the next two years. This winter we will cut capacity and frequency on many London Stansted routes (although no routes will close) where we are already significantly ahead of our multiyear traffic growth targets.”
Ryanair states that it is on average, 1% better booked for Q2 than at this time last year albeit at significantly lower fares. The airline expects load factor to be similar to last year at 93% and that its full year traffic will grow by 10% to 117m customers (up 1m on previous guidance).
Average fares on close-in bookings have been adversely impacted by ATC strikes, terrorist events and weaker sterling post Brexit. As a result, Ryanair expects Q2 fares to fall by at least 6% (H1: -8%). “This outcome remains heavily dependent on close-in bookings for August and September. We have little visibility over W16 fares but see no reason-yet-to alter our guidance of -10% to -12% in H2. If there is any movement in these numbers it is more likely to be towards the downside.”
At this time, Ryanair has maintained its guidance that full year profits will rise by approx. 12% to a range of €1,375m to €1,425m but “we caution that post Brexit there are significant risks to the downside during the remainder of the year.”