Low-cost airline Ryanair has issued another profit warning, lowering its full year profit guidance from €570 million to €510 million, as fares continue to fall. The airline has also announced a range of initiatives aimed at enhancing its customer service, including allocated seating.
Fares at the airline fell by 2 per cent in the six months to September 2013, due to factors such as the “summer heatwave in northern Europe, French ATC strikes in June, and weaker sterling”.
“The continuing fare and yield softness means that full year profits will be lower than previously guided (€570m to €600m). We now expect the full year outturn to be between €500m to €520m due entirely to this lower fare environment,” the company said in a statement.
The airline also announced that it will move to fully allocated seating on all Ryanair flights from February 2014 for a fee of €5. Passengers will still be able to choose our popular reserved seating service (select front row or over-wing seats), or alternatively select seats elsewhere on the aircraft, as long as they check-in more than 24 hours prior to the date of departure. Those who opt not to pay will have their seats allocated to them.
Other initiatives include scrapping the Recaptcha security feature on its website; allowing a small second carry-on bag; “quiet flights” before 8am and after 9pm; a 24 hour “grace period” to allow passengers correct minor booking errors; and significantly reduced boarding card reissue and standard bag fees.
While Davy Stockbrokers said that the reduced guidance was “disappointing”, it noted that “cost discipline continues”, pointing to passenger costs which are expected to fall by 7 per cent in the second half of the year, as well as the airline’s significantly lower fuel hedged position for 2015.
The airline reported record profits of €602 million in H1, while revenues grew by 5 per cent to €3.3 billion in the first half of the year, with revenue per passenger up 2 per cent, due to a 22 per cent rise in ancillary revenue to €713 million, driven by the roll out of reserved seating, priority boarding and higher credit/debit card fees.
Traffic grew by 2 per cent in the first half of the year, up to 49 million, thanks to a load factor increase of 1 per cent, while unit costs advanced by 3 per cent, due to a 7 per cent increase in fuel prices.
Ryanair is 90 per cent hedged for 2014 at $980 per tonne ($98 p.bl), while the airline has taken advantage of recent weakness in oil prices and the US dollar to extend its 2015 hedges to 60 per cent at approximately $94 p.bl. At current market rates, this should deliver a unit cost fuel reduction of approximately 4 per cent in 2015.
The airline has cash of over €3.5 billion, and it expects to execute at least € 150 million of further share buybacks before the end of next year, in addition to its plan to return up to €600 million to shareholders via share buybacks and special dividend before the end of 2015, which “remains unchanged”.
Looking ahead, market pricing remains weak, so Ryanair will continue to promote low fare seat sales throughout the remainder of both Q3 and Q4. As such it expects fares to fall by 9 per cent in Q3 and by 10 per cent in Q4. It is aiming for growth from September 2014.
“ With our 175 new aircraft order, our new 10 year growth deals at London (STN) and Warsaw (MOD) airports, and the Irish Government’s recent decision to scrap the €3 travel tax from April 2014, Ryanair is well positioned to return to strong and profitable traffic growth from September 2014 onwards.”
