Escalating Fuel Prices and Strikes Plunge Ryanair Profits
Last updated on December 3rd, 2018
The proposed exit of the UK from the European Union and the uncertainty surrounding the plan has led Europe’s biggest discount carrier, Ryanair Holdings Plc, to halt its plans for future share buybacks.
Over the last financial half, Ryanair profits suffered a tumble in pre-tax profits, induced by the rising fuel costs and compensation payouts for delayed and cancelled flights. For the second quarter, the airline reported a net profit of 841.5 million euros, which was slightly below the expectations of the analysts.
In a timespan of six months up to September 30, the firm witnessed a fall of 9 per cent to €1.3 billion.
At the beginning of October, the beleaguered airline was forced to issue a profit warning, under which it announced that its annual year profits were expected to fall 12 per cent. However, the latest report reveals that the overall revenue of Ryanair profits rose by 8 per cent, that is, to nearly €4.75 billion.
Statistics revealed that the average fares dropped 3 per cent and were triggered by excess capacity in Europe (an earlier Easter in the first quarter), staff shortages, and cancellations of weekend flights, which are generally higher in cost.
Chief Executive Officer Michael O’Leary informed, “As recently guided, first half average fares fell by 3%. While ancillary revenues performed strongly, up 27%, these were offset by higher fuel, staff and EU261 (compensation) costs.
Our traffic, which was repeatedly impacted by the worst summer of ATC (air traffic control) disruptions on record, grew 6% at an unchanged 96% load factor.”
He also said, “We have trimmed winter capacity by 1% (including base closures in Eindhoven and Bremen) in response to weaker fares and higher oil prices.”
Ryanair now expects the annual traffic growth of 6 per cent to 138 million passengers, which is marginally down on the previous direction of 139 million, following a 1 per cent reduction in winter capacity.
Besides, the fuel bill of the airline is expected to come up in about €460 million higher, year-over-year.
Ryanair profits has witnessed an year of chaos, where passengers have frequently been left stranded following delayed and cancelled flights throughout Europe, while the pilots and cabin crew embarked on strikes.
However, apart from the disruptions, something else which sticks to the mind of the airline is the so-called Brexit plan.
This month, the company has completed a 750 million-euro program. However, the doubts over how the Brexit plan will unfold, have forced the airline to hold back on further announcements.
In an interview on Monday,O’Leary said, “It makes very little sense to us at the moment until we get some certainty.”
Ryanair also expressed hopes that a transition period after Brexit will be extended.
O’Leary added: “The risk of a hard (“no-deal”) Brexit in March 2019 is rising. While we hope that a 21-month transition agreement from March 2019 to December 2020 will be implemented (and extended), we remain concerned that the time to complete such an agreement is shortening.”
As the CEO of Ryanair doesn’t sound very hopeful, the investors are highly worried.
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