SHARES in UK airlines fell in early trading yesterday after Ryanair’s first quarter results signalled that the company expects the rest of the financial year to be tough.
Although the airline, which is run by controversial chief executive Michael O’Leary, said that profits after tax were up by 55 per cent to €397 million, it put much of the rise down to holiday spend over a later easter that did not form part of last year’s results.
It pointed to uncertainty over the implications of Brexit, a steep reduction in revenues generated from passengers checking in bags and a prolonged period of lower fares as having an impact over the rest of the year.
Noting that its first-half results will be dependant on summer bookings, Mr O’Leary said the company expects average fares in the first half to be “down approximately five per cent as we grow [first half] traffic by almost 11 per cent and checked bag revenue continues to steeply decline”.
“After a difficult winter last year, we expect the pricing environment to remain very competitive into [the second half] where we will grow traffic by approximately seven per cent,” he added.
While competition affects all airlines operating in the sector, Mr O’Leary’s comments on Brexit highlighted a bigger issue that all Ryanair’s competitors are also currently grappling with.
“We remain concerned at the uncertainty which surrounds the terms of the UK’s departure from the EU in March 2019,” he said.
“While we continue to campaign for the UK to remain in the EU Open Skies agreement, we caution that should the UK leave, there may not be sufficient time, or goodwill on both sides, to negotiate a timely replacement bilateral, which could result in a disruption of flights between the UK and Europe for a period of time from April 2019 onwards.
“We, like all airlines, seek clarity on this issue before we publish our summer 2019 schedule in the second quarter of 2018.
“If we do not have certainty about the legal basis for the operation of flights between the UK and the EU by autumn 2018, we may be forced to cancel flights and move some, or all, of our UK based aircraft to Continental Europe from April 2019 onwards.”
As a result of the update Ryanair’s own shares opened two per cent down at €17.77 yesterday before falling sharply to €17.02 in early morning trading.
While some ground was made up throughout the day other airlines, such as EasyJet and International Consolidated Airlines, which operates brands including British Airways, Iberia and Aer Lingus, were also impacted. Both companies experienced falls in their stock of around three per cent in early morning trading.
Despite this, Marcus Morris-Eyton, a specialist in European equities at asset manager Allianz Global Investors, noted that the investment case for Ryanair remains convincing given that the company’s management “has a track record of being cautious with its guidance”.
Indeed, despite the commentary the number in results were strong, with customer numbers rising 12 per cent to 35 million compared with the same quarter last year and revenue increasing by 13 per cent to €1.9 billion.
The firm, which is headquartered in Dublin but has a UK operational base at Stansted Airport, is forecasting a four per cent increase in full-year profits, from €1.4bn to €1.45bn.
“This guidance remains heavily dependent on close-in summer bookings, [second half] average fares, and the absence of any further security events, air traffic control strikes or negative Brexit developments,” Mr O’Leary said.
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