Ryanair: Even Ryanair is finding it hard to make a buck charging £1 – baggage excluded – to fly from London to Krakow. The budget airline has warned that ticket prices could fall 20 per cent or more in the current financial year, and cautioned that net profits will be at the lower end of guidance. That sent the shares down 10 per cent on Monday.
Investors shouldn’t have been so surprised. Ryanair is expanding aggressively, targeting a 15 per cent growth in passengers this year. That land-grab was always going to be costly. Filling planes in the midst of a recession means slashing fares. Average ticket prices were down 13 per cent in the first quarter and Ryanair had already said that fares would drop 15-20 per cent over the year.
Analysts were pencilling in net profits of €388 million for the current financial year – well above the top end of the existing €200-300 million guidance. True, it is in Ryanair’s interest to sound bearish if that scares rivals and squeezes suppliers. The airline’s PR machine – led by its outspoken chief executive, Michael O’ Leary – is well known for spewing hot air.
LAST week, the airline said winter capacity at London’s Stansted would be 40 per cent down from the summer due to high airport taxes. But Ryanair always cuts down on planes in the winter. That’s like saying the sales of bathing suits are expected to tank when it gets cold.
The downward pressure on ticket prices should eventually ease, given that Ryanair’s rivals are shrinking. The airline ought to be able to squeeze out more costs to help offset the impact of lower fares, and will benefit from a lower fuel bill. Continued sterling weakness might also help attract more tourists to the UK. Lufthansa, Air France-KLM and British Airways are either burning cash or soon will be. At least Ryanair has a cash balance of €2.5 billion and net debt of just €105 million. If anyone can afford a price war, it is Ryanair. No wonder it dra.