Ryanair has cut its full-year profit guidance by 5 per cent to €1.3-1.35 billion on the back of the fall in sterling, which accounts for about 26 per of its revenue. However chief executive Michael O'Leary has pledged to add extra seats and hold fares at low levels for another two years at least.
The airline said on Tuesday that the 18 per cent decrease in the value of sterling, following the UK’s vote to leave the European Union in June, will reduce average fares by between 13 per cent and 15 per cent, as opposed to the previously guided 10 per cent to 12 per cent.
Mr O’Leary said that the recent sharp decline in sterling post Brexit will weaken yields in the second more than expected. “While higher 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, which will rise by approximately 7 per cent (over FY 2016) rather than our original guidance of 12 per cent.”
But company shares climbed on the news - ending up nearly 5 per cent at €12.39, as investors focused on O’Leary’s promise to ramp up capacity growth and grab market share. Ryanair was wining market share, he said, and low prices will last “two years if not more.”
Ryanair, which hopes to lift its European short-haul market share to around 20 percent by 2024 from 14 percent now, said it would add 6 million seats over the six months to the end of March, up from an earlier forecast of 4 million. The airline intends to add 50 planes in the year to July 2017, up from 36 in the previous year. O’Leary said the company may add more than 50 planes in 2018 and 2019.
Ryanair’s business model was uniquely suited to a period of lower fares, he said.“There’s never been a worse time to be a competitor of Ryanair.”
Weakness
Mr O’Leary added that the airline’s revised guidance remained “heavily dependent” upon no further weakness in second-half fares (-13 per cent to -15 per cent) or sterling from its current levels.
The airline said that its first-half fares were marginally weaker at -10 per cent compared with previously guided -9 per cent, but added that the lower fares would be partly offset by a better-than-expected cost performance.
