Ryanair has issued a couple of profits warnings in the last year but we have little sense that things are really improving as there still a lot pressure on margins. Today’s full-year numbers and outlook cement the view that it’s a tough space to be in right now – although we would hope that summer 2019 will be the worst of it. The risk is that the downturn in the macroeconomic outlook in Europe worsens as this would further dent airlines’ bottom lines.
Full-year after-tax profits were at the low end of the January guidance at €1.02bn. This was already lowered from the € 1.1bn- € 1.2bn previously forecast. Pre-tax profits including Laudamotion were down 30% at €948m.
The absence of Easter in the fourth quarter in 2019 was partially blamed for the 6% decline in fares, but we must also note that the overcapacity in the market and the sector’s ability to compete away margins. Traffic growth was meanwhile up 7%, or up 9% including Lauda. Ancillary income flattered profits and made up for some of the drop in fares.
Ex-fuel unit costs surged 5% but this was less than the 6% previously guided, so we must give credit for cost control. As previously argued, unionisation and rising labour costs are a long-term drag on Ryanair’s low-cost model. Ryanair booked €200m in higher staff costs, which included the 20% pay increase for pilots, and €50m in extra compensation costs due to ongoing ATC strikes and staff shortages. Staffing costs were up 28% for the year.
Higher oil prices are the biggest headwind to profits – FY2019 fuel costs were €440m higher, or 23%, than the year before. Bigger fuel bills are really weighing but as one of the stronger companies Ryanair should be well placed to benefit from further consolidation in European short-haul that this pressure on profits will exert across the sector.
The guidance appears weak – profits for 2019 are seen between €750m and €950m. Management also says it has zero H2 visibility on fares – a lot depends on no negative Brexit developments and peak summer pricing delivering at the last minute.
Costs are a growing headache- Ryanair’s full-year fuel bill will rise by another c20%, or €460m, this year. Ex-fuel unit costs will rise by another 2%.”
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