Ryanair Q1 Profits Fall 20% To €319m

Ryanair today reported a 20% fall in Q1 profits to €319m. Strong traffic growth (up 7%), overcapacity in Europe, and the earlier timing of Easter led to a 4% decline in average fares.

Higher fuel and staff costs offset strong ancillary revenue growth in the quarter.

Ryanair’s Michael O’Leary said:

“As previously guided, Q1 PAT fell by 20% to €319m due to lower fares, the absence of half of Easter in the quarter, higher oil prices and pilot costs. Traffic grew 7% to 37.6m, despite over 2,500 flight cancellations caused by ATC staff shortages and ATC strikes. Ryanair’s lower fares delivered an industry leading 96% load factor.

Ryanair took delivery of 14 Boeing 737 airraft in Q1, bringing its fleet to over 440 units, and launched 239 new routes for the summer of 2018.

According to the airline, bookings are slightly ahead of last year, but at lower fares, and they continue to see overcapacity in the European market, with Germany in particular very price competitive this summer.

This weaker pricing environment is expected to continue.

Ryanair has significantly lower costs per passenger than its competitors. Fuel prices have risen substantially from $50pbl at this time last year to almost $80pbl in Q1. While the airline is 90% hedged at $58pbl, its unhedged balance will see its full year fuel bill increase by at least €430m (incl. additional volumes). Ryanair recently hedged 35% of H1 FY20 at $69pbl. Q1 staff costs increased by 34% primarily due to pilot 20% pay increases, 9% more flight hours and a 3% general pay increase for its non-flight staff. EU-261 “right-to-care” costs jumped 40% in Q1 due to over 2,500 ATC flight cancellations in Q1.

Repeated ATC staff shortages (mainly in UK, Germany & Greece) and strikes (France) are causing widespread damage to airline schedules this summer. French ATC, the worst offenders, went on strike for 9 of the 13 weekends during April, May and June leading to thousands of cancelled flights. Ryanair cancelled over 2,500 flights in Q1, with a loss of higher yielding weekend traffic, and a steep rise in EU261 “right-to-care” costs.

Ryanair and other airlines have initiated legal action against the French Government to keep Europe’s skies open during these unacceptably frequent French ATC disruptions. Ryanair and A4E (Airlines for Europe) are campaigning for the European Commission to take control of the upper air space so that overflights, at least, are not disrupted during national ATC strikes.

With fuel at $80pbl (up from $50pbl last year), some weaker, unhedged, European airlines are suffering a significant cash flow squeeze and/or are close to breaching debt covenants. Ryanair says they expect this will lead to further airline failures and consolidation this winter, which will provide growth opportunities, hopefully at stronger yields for Ryanair’s low fares/low cost model.

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