Ryanair issues second profit warning after decline in winter fares

The low-cost airline has issued its second profit warning in the last four months, with lower winter fares offsetting a rise in demand, but its CEO is adamant the low-fare environment will pile pressure on loss-making rivals.

Ryanair planes Source: Bloomberg

Ryanair has lowered its full year profit guidance by €100 million to a new range of €1 billion - €1.1 billion, with the low-cost airline blaming lower winter fares that have offset strong traffic growth, according to its recent trading update.

The airline expects winter fares to fall by 7%, which will reduce revenues despite a 9% increase in overall traffic growth.

Pricing out the competition

Ryanair admitted that it is disappointed by its lower full year guidance, but in adamant that its strategy, combined with the low fare environment in the sector will continue to reduce competition as rivals like WOW, Flybe and Germania have all been forced to put themselves up for sale.

‘There is short haul over capacity in Europe this winter, but Ryanair continues to pursue our price passive/load factor active strategy to the benefit of our customers who are enjoying record lower air fares,’ Ryanair CEO Michael O’Leary said.

‘We believe this lower fare environment will continue to shake out more loss-making competitors,’ he added.

Ryanair prepared to reduce fares further

Even with the downgrading of the company’s profit guidance the airline is still ready to reduce prices lower, as it expects to see traffic growth continue to surge and help it capture more market share.

‘The fact that we are passing on these benefits, in the form of lower air fares, to customers is good for Ryanair’s traffic growth, good for our business over the medium and long term, and good for market share as evidenced by Norwegian’s recent announcement of its plans to close bases in Rome, Gran Canaria, Tenerife and Palma, where they competed head to head with Ryanair,’ O’Leary said.

‘While we have reasonable visibility over forward Q4 bookings, we cannot rule out further cuts to air fares and/or slightly lower full year guidance if there are unexpected Brexit or security developments which adversely impact yields between now and the end of March,’ he added.

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