European airline Ryanair reported a loss of €35 million this morning, as the airline's strategy of discounting fares to boost passenger traffic hit the company. This compares with a profit of €18.1 million for the same period in 2012.
Michael O’Leary, Ryanair chief executive, explained that the loss “is entirely due to a 9 per cent fall in average fares and weaker sterling”, adding that the loss was in line “with previous guidance”.
“ We responded to this weaker pricing environment last September with seat promotions and lower fares which stimulated traffic across all markets resulting in 6 per cent growth in Q3, and a 1 per cent rise in monthly load factors.”
Traffic at the airline grew by 6 per cent to 18 million passengers, but revenue per passenger fell by the same amount. Strong ancillary growth of 13 per cent, due to strong customer uptake of reserved seating, priority boarding, and higher credit card fees, offset a 9 per cent fall in fares. There was no change in revenues on the same period in 2012, with revenues steady at €969 million.
However, the airline expects the competitive environment to ease, saying that “market pricing remains soft but is no longer declining”.
Last weekend Ryanair returned to allocated seats on all flights, and the airline said that the uptake of reserved and allocated seats has grown significantly in the last weeks of January. “It now appears that sales of reserved/allocated seats will exceed the revenue loss from cutting airport and bag fees.”
With respect to the full year, Ryanair said that its forward bookings in Q4 and into 2015 are running significantly ahead of last year “albeit at weaker yields”.
“We expect our strategy of lowering fares and increasing forward bookings will enable us to better manage close in bookings and yields as we move into summer 2014,” the airline said, forecasting that traffic for 2014 will rise to 81.5 million, slightly higher than previously guided.
“ Based on current visibility, we expect Q4 yields to decline by approximately 8 per cent, slightly better than the 10 per cent decline previously guided. As full year traffic will be slightly stronger, and our focus on cost control delivers a 4 per cent fall in Q4 (ex-fuel) unit costs, we are now confident that the full year net profit outturn will finish in the range of €500m to €520m as previously guided.”
Davy Stockbrokers continues to rate the stock “Outperform” with a € 7.50 price target. It closed at €6.31 in Dublin on Friday.
