Ryanair ratchets up pressure on rivals

Michael O'Leary
Michael O'Leary
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Ryanair nudged up its annual profit forecast, saying fuller planes would take profits to the upper end of its previously estimated range even as winter competition pressures average ticket prices.

The Irish airline, Europe’s largest by passenger numbers, raised its full-year profit forecast by 25 per cent in early September as lower fuel costs and poor weather in northern Europe boosted ticket sales.

On Monday it said fewer empty seats meant it would fly 105 million passengers in the year to March 31, up from an earlier forecast of 104 million. That will likely lift profits to the upper end of that 1.175bn to 1.225bn-euro range.

“We have enjoyed a bumper summer due to a very rare confluence of favourable events including stronger sterling, adverse weather in northern Europe, reasonably flat industry capacity and further savings on our unhedged fuel,” chief executive Michael O’Leary said.

He said, however, that fares sold had softened in recent weeks and that he would not be surprised if there was a fare war in the new year, forecasting average fares would fall 4 per cent in the first three months of 2016.

“We are already reducing our prices... and in recent weeks we have seen most airlines reduce their prices,” Mr O’Leary said.

British Airways owner IAG Lufthansa and Air France-KLM have all reported strong quarterly results on strong demand for summer travel and cheaper fuel.

But Ryanair’s drive to improve customer service without increasing its industry-low cost base has given it huge momentum in the past year.

Mr O’Leary said he expects Ryanair to be flying 180 million passengers a year by 2024, up from an earlier forecast of 160 million, which Ryanair estimates would give it a market share of around 24 per cent in Europe, up from around 14 per cent today.

That increase was due to a lower ratio of empty seats, which was 9 per cent in the six months to the end of September, down from 11 per cent in the same period last year.

Ryanair operates from Leeds Bradford Airport.

Keith Bowman, analyst at Hargreaves Lansdown, said: “Ryanair continues to ratchet up pressure on rivals, again raising guidance.

“Key half year metrics have risen across the board, with its rejuvenated customer offering staying core.

“Factors outside of its control such as poor weather in northern Europe and the strength in the pound have also contributed, while the downturn in the price of oil benefited its unhedged fuel costs.

“Planned fare reductions in the fourth quarter help underlie targeted traffic growth, with the non-grounding of aircraft in the winter period this year aiding group capacity.

“Less favourably, outlook comments highlight almost zero fourth quarter visibility, lower fuel costs are also aiding rivals while the weaker euro is generally bad news for the broader European airline industry, given costs in US dollars.

“In all, Ryanair’s ascent in comparison to former flag carrying competitors shows little sign of slowing.

“New bases and routes continue to be undertaken, the group’s stranglehold on costs is now the template rivals aspire to, while the group remains in a key position to lead future industry consolidation.

“For now, and following an 80 per cent plus gain in the share price over the last year, some early profit taking comes as no surprise, although analyst opinion remains firmly anchored to a buy.”