Michael O’Leary, Ryanair’s chief executive, said the Irish airline was partly the “author” of the reduced profit guidance because its fares are being cut aggressively in response to increased competition and weak economic conditions
He suggested some rivals might fail because of the price war, with analysts adding that Ryanair was intent on preserving or growing market share ahead of expanding its fleet next year.
Ryanair now expects its earnings to fall in 2013-14 compared with 2012-13 – the first decline in five years.
It reduced its net profit forecast to between €500m and €520m for the year to March 31 2014, having said on September 4 that earnings would be at the lower end of a range of €570m to €600m.
Ryanair’s average fares have been rising for five years, but are expected to fall by 4 per cent in 2013-14, partly because of negative exchange rate movements.
Mr O’Leary highlighted “weaker pricing” that was partly due to “weaker demand”, adding: “What we tend to do in these periods when pricing is weak – as we did after 9/11, as we did after the London bombings, as we did after any other events, is lorry out loads of cheap fares.
“If a couple of competitors get blown up as part of that process – well and good.”
Ryanair and easyJet, Europe’s second largest low-cost carrier, are facing a growing challenge from a group of budget airlines led by Norwegian Air Shuttle, International Airlines Group’s Vueling and Budapest-based Wizz Air.
Shares in Ryanair closed down 12.6 per cent at €5.33. Shares in easyJet, Norwegian and IAG were down 5.1 per cent, 3.9 per cent and 0.6 per cent respectively.
Donal O’Neill, analyst at Goodbody, said: “Ryanair sees a competitive threat, both short term and long term in some of its key markets.”
Ryanair starts taking delivery of 175 new Boeing passenger jets next September, and the company is using the intervening period to improve its customer service.
It sees this as important to increasing its passengers from 79.3m in 2012-13 to 110m in 2018-19.
Mr O’Leary said Ryanair’s website was “crap” but is undergoing an overhaul, while a move to allocated seating on all the carrier’s flights by February is being done in response to customer demand. Customers must pay €5 if they want to select their seats at least one day before flying.
Ryanair reported revenue of €3.3bn for the six months to September 30, up 5 per cent compared with the same time last year. Net profit rose 1 per cent to €602m – highlighting how Ryanair expects to record losses in the second half of 2013-14.
Financial Time Release (link)