Sterling’s plunge since the UK’s June Brexit vote has finally forced Ryanair to cut its full-year profit guidance, after months of warning that such a move could be on the cards.
The recent accelerated decline in the value of sterling prompted Ryanair to concede that its profit in the 12-month period that ends next March will now rise by 7pc compared to the 12pc increase it had previously pencilled in.
It now expects to book a profit of between €1.3bn and €1.35bn. That compares to a previously estimated range of between €1.37bn to €1.42bn.
And chief executive Michael O’Leary cautioned that even the revised figure could come under pressure again if sterling continues its declining trajectory and the price of fares fall further.
The beleaguered currency – which has tumbled 18pc since the June referendum – will account for 26pc of Ryanair’s full-year revenues.
Ryanair said the average price of its first-half fares fell 10pc compared to a guided decline of 9pc and in the second-half, it expects average fares to fall by between 13pc and 15pc. That compares to a previously guided fall of between 10pc and 12pc.
Mr O’Leary said its second-half yields had been weakened by more than originally anticipated.
“While high load factors, stronger traffic growth and better cost control will help to ameliorate these weaker revenues, it is prudent now to adjust full-year guidance,” he said.
“We would caution that this revised guidance remains heavily dependent upon no further weakness in H2 fares, or sterling from its current levels,” he added.
Ryanair’s model is to be load factor active, and price passive, meaning it will price its tickets at whatever level is needed to fill its aircraft.
Shares in the carrier fell on the opening bell but quickly recovered, rising 2.5pc by mid-afternoon.
“While this earnings cut is disappointing, we see it as all driven by sterling,” said Davy Stockbrokers analyst Stephen Furlong. “Its business model and free cash flow generation still leaves Ryanair as the stand-out winner in the European airline industry.”
Mr O’Leary has already indicated that Ryanair will favour growth in other countries over the UK due to Brexit, which he and the airline had campaigned against. It isn’t allocating any of the 50 new aircraft it is taking delivery of this year to the UK.
The airline chief said recently that he expects the fallout from Brexit to impact Ryanair’s profits for as long as four years.
Ryanair expects its full-year ex-fuel unit costs to fall by 3pc compared to a previously guided 1pc fall. It expects to carry 119 million passengers this financial year.
Article Source: http://tinyurl.com/kbwqb42
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