Ryanair’s annual profit is set to fall for the first time in five years as intense competition in Europe pushes average fares down by around 10 per cent over the winter months, Europe’s largest airline by passenger numbers said.
Two months after making its first profit warning in a decade, the Irish budget carrier cut its profit forecast further for the year to March to around €510 million from €570 million.
Ryanair’s profit warnings follow a series of radical customer service improvements announced in September to win customers from rivals, but also seen as an admission that the airline’s “abrupt culture” might have become a problem.
Chief financial officer Howard Millar said passenger numbers were stable and onboard spending was growing but that people were only booking discount fares – a sign Europe may not be recovering as quickly as many people hoped.
“At the macro level in Europe, signals have gone green, but on the micro level things don’t seem to be as strong as people think,” he told Reuters.
Ryanair shares fell up to 11 per cent in early trading.
Shares in rival easyJet dropped 3 per cent, while the ThomsonReuters EU Airlines Index was down 4 per cent.
The weak numbers coincide with Ryanair’s efforts to attract premium passengers from low-cost rivals like easyJet and Norwegian, in its big strategy shift announced after the September profit warning.
In the latest of a series of changes to the airline’s no-frills model, Ryanair said it would allocate all seats on its planes, ending the often frenzied rush by passengers to secure the best seats.
But management said the changes, which included a halving of some baggage charges, would not have a significant impact on the current financial year.
“These things aren’t instant” said Millar, who forecast it could take 12-18 months for the changes to make an impact.
The airline met analysts’ forecasts with a profit of €602 million for six months to September, up 1 per cent on the year, as a fall of 2 per cent in average fares was compensated by a 22 per cent rise in extra charges.
Analysts said there could be some upside in the 2014-2015 financial year, which includes two Easter periods, and should see the impact of recent cuts to charges in key airports and lower fuel prices.
Ryanair in September had warned that its profit would be at the bottom of a previously announced €570 million-€600 million range.
On Monday, it said that would fall to between €500 million and €520 million, below the €569 million profit last year and the first fall in annual profits since 2009.