Ryanair likely to experience further unrest in months ahead

Strikes, the heatwave and even the World Cup have all been putting pressure on air fares, leaving Ryanair downbeat about coming months.

Ryanair charged passengers an average fare of €38.68 in the three months ended June 30th, the first quarter of its financial year. This was 4 per cent less than during the same period in 2017, but was stronger than the airline expected.

However, a generally weaker environment and threats of industrial action in the Republic of Ireland, Belgium, Portugal and Spain, among other factors, mean that Ryanair believes fares in the three months to the end of September will rise 1 per cent, instead of 4 per cent, as it previously expected.

The airline still expects profits for the financial year, which ends on March 31st, 2019, of €1.25 billion-€1.35 billion. However, it says this depends on air fares in the second half of that period remaining unchanged and cautions that it has “almost zero visibility” on this.

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Neil Sorohan, its chief financial officer, said it was hard to measure the impact of any one factor on fares. Northern Europe's heatwave is making some less inclined to fly south to the sun, and the World Cup also encouraged consumers to stay at home.

Third Irish strike

Members of the Irish Airline Pilots’ Association will hold their third one-day strike at the airline on Tuesday. In response Ryanair will cancel 16 of 290 flights from the Republic, but said it had reaccommodated or refunded the 2,500 passengers affected.

Cabin crew in three European countries will strike tomorrow and Thursday, leading to 300 flight cancellations each day. Michael O’Leary, Ryanair chief executive, said the airline had minimised the impact of industrial action, but indicated that it expected further stoppages through the summer.

Ryanair cited a 20 per cent pay increase for pilots as one the factors that pushed up overall staff costs by 34 per cent during the quarter, along with a 3 per cent boost for nonflight workers and 9 per cent more flight hours.

Oil prices

Rising oil prices will cost the airline an extra €430 million this year, a bill that would not be offset by strong ancillary revenues, according to O’Leary. However, Ryanair sees a possible upside in this as it could force rivals out of business, creating opportunities for the Irish carrier. “At $80 a barrel, weaker airlines are going to go to the wall,” Sorohan said.

Despite weaker fares and cost pressures, Sorohan said Ryanair continued to generate plenty of cash. During the first quarter, it covered a €460 million investment, mainly in new aircraft, from its own resources. The airline also returned €265 million to shareholders and cut net debt by €24 million to €259 million.

Sorohan pledged that Ryanair would remain focused on cutting debt, but was cautious about the likelihood of returning more cash to investors once its current €750 million share buyback programme was complete.

“We have a large capital expenditure programme, but we’ll look at everything after the current redistribution,” he said.