Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Ryanair said airfares in the key summer months would be “materially lower” than last year, deepening fears that the industry’s post-pandemic resurgence is waning and sending shares in airlines sharply lower.
Chief executive Michael O’Leary said on Monday that he expected the drop in fares seen during the spring to be sustained, the latest sign that the post-pandemic peak enjoyed by the airline industry has peaked.
The deteriorating picture from Ryanair, one of the sector’s most highly regarded operators, sparked a sell-off in airline shares.
Ryanair shares tumbled 12 per cent in early trading, while low-cost rivals easyJet and Wizz Air were each down about 6 per cent.
O’Leary said Ryanair was facing “weaker than expected” consumer spending and that “the pricing environment continues to deteriorate as we move into the summer peak”. The airline had previously forecast that fares would be “flat to modestly up”.
“We have tried in recent weeks to close off some cheap seats and price passengers up, but are meeting resistance,” O’Leary said.
Analysts warned that Ryanair would likely cut ticket prices further, putting pressure on competitors to do the same.
“More aggressive discounting by Ryanair is likely to have adverse implications for the peak quarter pricing outlook for the rest of the industry,” said Gerald Khoo, analyst at Liberum.
The tougher backdrop drove Ryanair’s profits down 46 per cent to €360mn in the three months to the end of June, a far steeper drop than analysts and investors had expected. During the quarter, average fares fell 15 per cent to €49 per passenger.
Ryanair also put some of the blame on the timing of the Easter holidays, but the worsening picture will deepen investor concern over the durability of a two-year travel surge that delivered record-breaking profits for many carriers.
Several airlines on both sides of the Atlantic have warned of pressure on ticket prices in recent weeks.
Lufthansa pointed to “negative market trends”, while Air France-KLM warned of a financial hit after fewer international tourists than expected booked to visit Paris during the Olympic Games.
The US airline industry has been forced to cut fares on domestic routes after overestimating the strength of demand.
“We had been concerned around Ryanair’s update today, albeit clearly not concerned enough,” said Neil Glynn, managing director of Air Control Tower, an aviation research company.
Ryanair said it expected full-year passenger numbers to grow 8 per cent to 200mn, in line with previous guidance, subject to no further significant delivery delays from Boeing.
The airline said it expected to be short of 20 Boeing 737 Max aircraft for the summer season, but welcomed “an improvement in the quality and frequency of deliveries” from the beleaguered US manufacturer in the first quarter.
Ryanair’s revenue in the first quarter fell 1 per cent to €3.65bn despite passenger numbers rising a tenth to 55mn from the same period a year ago. Operating costs rose 11 per cent.
Ryanair declined to offer financial guidance, and said performance over the rest of the summer was “totally dependent on close-in bookings and yields in August and September”.
Chief financial officer Neil Sorahan said he still expected the carrier to deliver another strong performance after last year’s record profits. “We’ll either have our best year or our second best year . . . people still want to fly,” he said.
Source link
