Ryanair has blamed strikes, rising staff costs, higher fuel prices and lower fares for a 20 per cent fall in first quarter profits.
Despite attracting more passengers and growing sales, the budget airline said profits before tax fell to €319million (£285million) in the three months to the end of June, from €397million (£354million) the same quarter last year.
Ryanair, which last year recognised trade unions for the first time and agreed to pay its pilots and other staff more, said staff costs rose 34 per cent to €245million in the quarter.
Disruption: Ryanair cancelled 2,500 flights because of air traffic controllers’ shortages and strikes in the quarter
However, the airline has struggled to agree terms with some of the unions and has been hit by a recent wave of strikes by pilots and cabin crew fighting for better pay and working conditions.
It faces further strikes this week in Spain, Portugal and Belgium, where the airline preventively cancelled ‘a small proportion’ of its scheduled flights.
Chief executive Michael O’Leary said they expected further strikes over the peak of the summer period and warned that they may need to reduce its winter flights and cut jobs if strikes were to continue in the next season.
‘If these unnecessary strikes continue to damage customer confidence and forward prices/yields in certain country markets then we will have to review our 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,’ he said.
Ryanair said it cancelled 2,500 flights because of air traffic controllers’ shortages and strikes in the quarter, which saw it pay 40 per cent more in compensation to passengers than it did a year ago.
But despite the cancellations, traffic rose 7 per cent to 37.6million. And Ryanair said it expected full year profits to still come in between €1.25billion to €1.35billion as previously forecast (£1.12bn-1.21bn), although it said this was ‘heavily dependent’ on fares in the current quarter and ‘no negative Brexit developments’.
Ryanair’s margins were also dented by higher fuel costs – that went from $50 (£38) per barrel at this time last year to almost $80 (£61) in the first quarter – and a decline in flight fares.
The average fare fell 4 per cent to under €39 in the quarter, Ryanair said as it blamed the decline on the ‘World Cup, the heat wave and customer uncertainty about pilot strikes’.
Shares in Ryanair fell 5.6 per cent to €14.63 in morning trading.
The company also said it was concerned about the danger of a hard Brexit – and the risk of one was being ‘underestimated’.
Ryanair boss Michael O’Leary warned that they may need to reduce the number of winter flights and cut jobs if strikes were to continue in the next season
The Irish carrier said: ‘While there is a view that a 21-month transition agreement from March 2019 to December 2020 will be implemented (and extended), recent events in the UK political sphere have added to this uncertainty, and we believe that the risk of a hard Brexit is being underestimated.
‘It is likely that in the event of a hard Brexit our UK shareholders will be treated as non-EU.
‘We may be forced to restrict the voting rights of all non-EU shareholders in the event of a hard Brexit, to ensure that Ryanair remains majority owned and controlled by EU shareholders.’
Ryanair’s first quarter results are in contrast with rival easyJet’s, which last week upped its full-year profit guidance, despite the budget airline also cancelling 2,606 flights in its third quarter amid bad weather and air traffic control strikes.
Shares in easyJet also took a hit today, falling 1.5 per cent to 1,591.50p.
Russ Mould, investment director at AJ Bell commented: ‘The airline has certainly done a very good job so far at sweating its assets and making money from passengers beyond the price of an airline ticket. Yet first quarter results would suggest it needs to do more to cope with higher oil prices, higher pilot costs and yet another bout of strikes.
Lower fares: The average fare fell 4 per cent to under €39 in the quarter, Ryanair said
‘Steps are already being taken by ordering new aircraft which have more seats and lower fuel costs, although they aren’t due for delivery for another few years.
‘EasyJet recently made plans to bulk up its package holidays business in order to capitalise on its strong brand and squeeze more money out of its customers. Ryanair also has a holiday business albeit not one it talks about much – perhaps this situation may change if EasyJet makes progress with its proposition.’
Neil Wilson, Chief Market Analyst for Markets.com, said: ‘Strikes, the weather, the World Cup, oil prices, Brexit – take your pick there is just everything in this one.
‘Some sense from reading these results that the expected dent to the low-cost model from unionisation etc is already feeding through to the bottom line, although it may be unwise to read too much into a single quarter’s numbers. We note that FY profit guidance remains unchanged at €1.25bn-€1.35bn, although this remains on the whims of French air traffic controllers, its own staff talks, Brexit and close-in Q2 fares.’