Ryanair Profit Plunges 29% & Expects Further Turbulence

May 20, 2019

 

Ryanair has today published its full year 2019 financial results, which makes for some interesting reading. It has been revealed that the airline carried 139.1m passengers in 2019, a 7% increase compared to a year ago. Despite that, the profits hit a four year low of €1.02bn (£892m), mainly due to a 6% decline in fare prices and the rising cost of jet fuel. The decrease in profits comes after two profit warnings issued earlier this year by the airline.


Despite a challenging environment, Ryanair carried nine million passengers more than a year before, and their revenue (excl. Lauda) was €7.56bn, 6% higher than in 2018. Crucially, Ryanair noted an impressive load factor of 96%.

The low cost airline has the greatest coverage in Europe, flying to 234 destinations on more than 2,100 routes. It is also a leader by market share in Spain (20%), Italy (27%), Poland (29%) and Ireland. Furthermore, Ryanair is focusing on the development of Lauda and Buzz, planning to expand their fleets from 23 A320’s to 35 and from 25 B737’s to 48 in 2020 respectively.

A difficult market

In its financial results presentation, Ryanair included an average fare comparison with other major airlines. Europe’s biggest low cost carrier had an average fare of just €37, 6% less than a year ago.

This is an incredible achievement, especially in comparison with their competitors. Wizzair’s average fare was €46, easyJet’s €61 and Norwegian’s €91. And that’s before you get to the full service carriers such as Lufthansa, with €176.

Chief Executive Officer Michael O’Leary stated that “artificially low prices” and “attractional fare wars” contribute to the falling profits, pointing out that lower fares together with higher fuel costs drive airline failures, in some cases. Brexit was also mentioned among the reasons for a fall in profits.

Effects of MAX grounding

Ryanair has 210 Boeing’s 737 MAX on order and claims that its profits will be hurt by the grounding of the newest iteration of the 737. It also expects Boeing to cover the profit loss caused by the grounding. Even so, the airline highlighted the positive aspects of the MAX, including a 4% increase in capacity and 16% reduction in fuel usage when they come into service.

The statement on the Boeing 737 MAX:

“We have delayed the delivery of our first 5 B737-MAX aircraft to Winter 2019 (subject to regulatory approval by EASA). We continue to have utmost confidence in these aircraft.(…)”
Cautious 2020 guidance and fuel hedges

In its 2020 guidance, Ryanair expects traffic growth of 8%, however given an expected revenue per passenger of around 3%, profits are expected to continue to fall. That is mainly due to a €460m increase in fuel prices of which as much as 90% is hedged. The airline has already hedged 35% of the fuel for the first quarter of 2021 at a price of c.$65bn. Fuel hedging is set to protect the airline from rising jet fuel prices, which could hurt Ryanair’s profits even more.

A share buyback of €700m was also announced. Following the announcement, Ryanair’s shares opened 6% lower on Monday. 

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