Ryanair cautious on fuel costs as full-year profit rises by 10%

22 May, 2018, 20:59 | Author: Earnest Bishop
  • Michael O'Leary has 'sincerely apologised' to customers affected by cancellations

The speed of that shakeout, he told Bloomberg Television, will determine future profitability. Among the "key issues" for the next 12 months, he said, was the fate of low-priced, long-haul carrier Norwegian Air Shuttle. That would be the carrier's first drop in annual profits in five years. Norwegian is now offering one-way flights, scheduled in December, from Oakland, Calif., to London for as little as $144.90.

O'Leary said Norwegian was "hugely loss-making a year ago with oil at $40 a barrel". The airline has promised to raise salaries and the City will be keen to hear how much they will add to the company's costs.

In the case of Norwegian Air, a "rescue" by British Airways owner IAG SA would bring far less benefit than a grounding, since it would only slow capacity growth, the CEO said.

It warned they included a potential €400m rise in fuel bills as oil prices continue to climb despite it being 90% hedged.

At 1215 GMT (10.15 a.m. ET), Ryanair shares, down 18 percent from an all-time high before the first cancellations were announced but up about 14 percent from mid-December, were 5.3 percent higher at 16.295 euros, reversing earlier losses. Sales have rebounded internationally for the big three recently.

"Airfares tend to follow oil prices (as they have downwards over the last three years) but with a lag of up to 12 months before higher oil prices feed through to higher airfares".

Ryanair Holdings PLC (LON:RYA) shares slipped on Monday as it reported a 10% increase in 2018 profits but cut its estimates for the year ahead, saying it is on the "pessimistic side of cautious".

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The group forecast profit after tax of between 1.25 billion and 1.35 billion euros over the next 12 months, lower than analyst forecasts.

"Fuel will be a major cost headwind for the next 24 months", it said.

Ryanair added that it expects a shortage of experienced pilots in Europe to persist.

While the company expects to grow traffic by 7 percent to 139 million this financial year, up on the 138 million last forecast, and saw revenue from ancillary products outperforming that, it said that would not be enough to offset higher costs and its expectation for broadly flat fares over the full year.

"This may be partly ameliorated by the switch of some charter capacity back to previously security challenged markets such as Turkey and Egypt, " he said "We expect later in the year, some upward pressure on pricing as significantly higher oil prices impact margins, especially those European Union airlines who continue to expand despite having no prospect of achieving profitability".

Ryanair said it remained concerned at the likely impact of a hard Brexit.

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