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London - Ryanair Holdings surprised investors by reiterating its fiscal 2017 profit forecast, while warning that targets may come under pressure as Britain’s decision to quit the European Union and a string of terrorist attacks in major European markets weigh on demand.
While Ryanair is still forecasting that net income for the 12 months through March 2017 will rise to between €1.38bn and €1.43bn, the Brexit vote poses "significant risks to the downside during the remainder of the year," the Irish company said on Monday.
Ryanair shares rose as much as 7.2%, the most since September 9, before trading 5.8% higher at €11.54 in morning trade in Dublin.
Europe’s largest discount airline, which had campaigned for the UK to stay in the EU with newspaper ads and in-flight announcements, will cut back on frequencies at London Stansted, its biggest base, this winter.
While it said Britain doesn’t yet face route cuts, 50 jets due for delivery this year are set to be deployed in other markets to offset the anticipated travel slump there.
Fare declines
The weakening of the pound after the UK poll, combined with the impact of air traffic control strikes and the recent attacks in France and Germany, is set to compound fare declines in the second quarter as Ryanair chases volumes at the expense of margins.
The company now predicts an 8% fare drop in the first half through September, versus the 5% to 7% decline forecast earlier.
"I only see risks to the downside," chief financial officer Neil Sorahan said in an interview. "We’ll stimulate the demand if we have to get the passengers on the planes." A one-penny slump in the value of sterling against the euro translates into a drop of €8m in after-tax profit, he said.
Brexit’s impact will be difficult to measure until the end of 2017 at the earliest, Ryanair said in a statement. Contingency plans include shifting growth to eastern markets such as Poland, Romania, Lithuania and the Czech Republic, as well as larger ones such as Italy, Spain and Germany.
Route risk
Out of its 1 800 routes only three are entirely within the UK and therefore directly at risk should Britain not be able to negotiate continued membership of the European open skies area, the CFO said. While Ryanair could seek a local air operating certificate to get around that problem, UK competitors would face a bigger challenge in flying to the EU, so that the situation could also present "some opportunities," he said.
Net income in the first quarter ended June 30 increased 4.5% to €256m an 11% jump in passenger numbers helped offset a 10% decline in ticket prices, according to the statement.
Fares were already falling before the Brexit decision as low fuel prices encouraged airlines to add flights in pursuit of market share, while tour operators shifted planes to West European routes from terror-hit destinations including Egypt, Tunisia and Turkey.
This month’s attacks in Nice on the French Riviera and more recently in Germany, including an explosion in the Bavarian town of Ansbach Sunday, are set to cool ticket pricing further through the remainder of the year.
Lower fares were offset by a 4% decline in costs excluding fuel in the first quarter as Ryanair managed to negotiate better deals at airports, lower spending on advertising, and cheaper financing, the company said.
"Every year has its challenges," Sorahan said. "But if you’ve got the lowest cost base out there, we’re in a very strong position."
