Ryanair warns on profits as strikes hit costs and customer confidence

Ryanair blamed cabin crew and pilot strikes, lower traffic and weaker fares as its warned on profits on Monday, saying it cannot rule out further downgrades due to the potential for more disruptions later in the year.

The Irish budget airline cut full year profit guidance 12% to €1.1-1.2bn from €1.25-1.35bn previously. This excludes its acquired Laudamotion business, for which there will be start up losses of roughly €150m.

Fares fell around 3% in the second quarter of its financial year compared to an expected 1% decline and an anticipated recovery in the third quarter has not materialised as chief executive Michael O'Leary said "fares, and customer confidence, have been affected by worries about possible strikes".

Ryanair said second- and third-quarter traffic and fares will be "somewhat lower than expected" mostly because of recent strikes, which is last week said were being "incited by competitor employees".

Following five strikes by a quarter of its Irish pilots this summer, two coordinated strikes by cabin crew and pilots across five EU countries in September added to compensation costs while unhedged fuel costs have jumped due to the spike in oil prices. Unhedged fuel costs affects 10% of Ryanair volumes, and all of recently acquired Laudamotion's fuel bill.

Management have decided to trim winter 2018 capacity by 1% in response to the lower fares, higher oil price and higher compensation costs, which it said was in line with a number of other EU airlines.

Directors had until last week expected stronger third quarter fares to recover softer yields in the preceding quarter but the past week was hit by lower fares and customer confidence and so guidance is for fares to fall 2% in the second half when previously they had been anticipated to be flat.

Fuel costs will be roughly €460m higher than last year, up from the previous €430m guidance, while other costs will be negatively impacted by higher compensation and re-accommodation costs under the EU261 rule.

Slower traffic growth in the second half will cut full year traffic to 138m, down from the previous 139m guidance, which excludes Laudamotion.

O'Leary said the company had "successfully managed" five pilot strikes over the summer, but the two recent coordinated strikes by cabin crew and pilots has affected passenger numbers through flight cancellations, close in bookings and yields, and forward air fares into the third quarter.

"While we regret these disruptions, we have on both strike days operated over 90% of our schedule. However, customer confidence, forward bookings and Q3 fares has been affected, most notably over the Oct school mid-terms and Christmas, in those five countries where unnecessary strikes have been repeated."

He said since Ryanair agreed to recognise unions last December "substantial progress" has been made with union negotiations in Ireland, the UK and Italy.

"Regrettably such progress has been impeded in Spain, Portugal, Germany, Holland, and Belgium where we've experienced interference in negotiations with our people and their unions, even when we offer them what they ask for (i.e. local contracts), in writing. When we have successfully negotiated agreements with unions in Ireland, the UK and Italy, and when we have offered local contracts and improved T&C's to our people in Belgium, Holland, Germany, Portugal and Spain, it is clear that these disruptions are unnecessary, and ill-judged at a time when other airlines are also cutting winter capacity."

O'Leary said he "cannot rule out further disruptions in the third quarter, which may require full year guidance to be lowered further and may necessitate further trimming of loss making winter capacity". Shareholders should note that the above guidance excludes start up (exceptional) losses in Laudamotion of approx. €150m (which will be consolidated into the Ryanair Group FY19, H1 and FY financial results)".