Ryanair Profits Fall One-Third Amid Summer Demand Weakness
Budget airline cuts prices due to higher fuel costs and consumer hesitancy linked to Middle East conflict.
Ryanair reported a one-third slump in after-tax profits for its first quarter, falling to €538 million (£457 million) from €820 million (£697 million) a year prior. The result fell below analysts' expectations of €579 million (£492 million).
The airline attributed the profit decline to a 20% increase in jet fuel costs for unhedged fuel and a 6% reduction in air fares. This fare decrease, driven by weaker customer demand, offset a 6% growth in passenger numbers, which reached 61.3 million.
Chief Executive Michael O'Leary stated that fares in the first quarter "required stimulation" due to what he described as "consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings" influenced by the Middle East conflict. He noted that the second quarter is "trending modestly down year-on-year" and the final first-half fare outcome depends heavily on close-in bookings in August and September.
Ryanair's shares opened 6% lower following the announcement, and the airline suspended its annual guidance. O'Leary indicated that it was too early to provide a full-year outlook due to its sensitivity to geopolitical developments, including escalations in the Middle East and Ukraine, fluctuating jet fuel prices, macroeconomic shocks, and air traffic control strikes.
Analysts noted the challenging environment for airlines. "When even Ryanair is facing the need to 'stimulate' ticket prices, you know airlines are going through a rough patch," said Chris Beauchamp, chief market analyst at IG. He added that with rising oil prices and ongoing strikes, airlines may struggle to meet last year's booking levels for August and September.
Ryanair's Chief Financial Officer Neil Sorahan suggested that the current weakness in fares might be short-lived. He anticipates airline failures and consolidation in Europe, leading to significant capacity cuts this winter, which could positively impact pricing. He expects this capacity reduction to occur during the winter season.