Ryanair is on course for its first fall in profits in five years, saying that increased competition and a weak economic backdrop will force it to cut fares by up to 10% for the winter months.
The budget airline issued its second profit warning in recent months after average fares fell 2% during the first half of the financial year. It said fares were likely to fall by up to 10% by the end of the financial year to 31 March 2014, despite slightly higher forward bookings.
The Irish budget airline cut its full-year profit guidance to around €510m (£432m) from €570m, “due entirely to this lower fare environment”. It would be Ryanair’s first fall in profit since 2009.
“People have less money to spend,” the airline’s chief financial officer, Howard Millar, told Bloomberg. “We had a strong August, since then we’ve started to see a weakening environment.”
The bad news sent its shares down 10% and hit the wider airline sector, with easyJet and British Airways group IAG shares both sharply lower.
Ryanair had already hit investors with a surprise profits warning in September, cautioning at that time that profits might fall at the lower end or below its previous range.
Ryanir’s chief executive, Michael O’Leary, told shareholders at the company’s annual meeting in the same month that he recognised the need to address the “abrupt culture” at the airline, known for its no-frills service and additional charges.
“We should try to eliminate things that unnecessarily [annoy customers]. I am very happy to take the blame or responsibility if we have a macho or abrupt culture. Some of that may well be my own personal character deformities,” he said at the time.
O’Leary said on Monday that the airline had responded to the dip in forward fares and yields by lowering it full year traffic target to just under 81 million from over 81.5 million.
“We also released a range of lower fares and aggressive seat sales to stimulate traffic, load factors and bookings across all markets,” he added.
“Market pricing remains weak, so we will continue to promote low fare seat sales throughout the remainder of both Q3 and Q4.
“Forward bookings are running slightly ahead of last year, but the softness in fares and yields continues.”
Profit after tax rose 1% to €602m in the first six months of the year to 30 September, with passenger numbers up 2% at 49m.
Revenue increased 5% to €3.25m.
Ryanair completed €177m of share buy-backs in the first half, and said it would press ahead with its plan to return up to €600m to shareholders through buy-backs and special dividends before the end of the 2015 financial year.