Ryanair has been forced to issue a rare profits warning which has seen €100 million wiped from its expected full-year guidance. The airline says it now expects to turn a profit of between €1 billion to €1.1 billion which is down from a previous estimate of €1.2 billion – the airline is clearly far from being on the brink but the news will likely disappoint investors who have become accustomed to Ryanair beating forecasts year-on-year.
Ryanair blamed lower than expected airfares as the main culprit for the profit warning – the airline has been forced to slash fares in a number of fare sales in part because of damaging strike action over the Summer that knocked consumer confidence in the Irish low-cost airline.
Interestingly, the airline also blamed stronger ancillary sales (anything a passenger buys other than the airfare) because they were choosing lower-cost options – Ryanair made headlines last year after flip-flopping on its cabin baggage policy and eventually settled with a new lower-cost checked-bag option that it says has been very popular with consumers.
“There is short haul overcapacity in Europe this winter,” the airline’s chief executive, Michael O’Leary explained. “Ryanair continues to pursue our price passive/load factor active strategy to the benefit of our customers who are enjoying record lower airfares.”
O’Leary suggested he was willing to suffer a fall in profits in order to “shake out” loss-making competitors and claims Ryanair’s aggressive pricing strategy was directly responsible for Norwegian closing bases in Rome, Gran Canaria, Tenerife and Palma.
On the back of those low fares, and despite last years strike action, Ryanair saw a 9% increase in passenger numbers to 142 million. Further details about the airline’s performance should be released in early February. At this point, we should also receive an update on the airline’s industrial relations strategy and how better working conditions for crew will affect costs going forward.