* Fares down 17 pct in 3 months to Dec 31
* Q3 profit down 8 pct, reaffirms FY forecast
* Low-cost giant says will use weak market to expand
* Market will continue to be challenging-CEO O'Leary
(Adds comments on fare outlook for coming year)
By Conor Humphries
DUBLIN, Feb 6 Ryanair's average fares
fell more than expected in the last three months of 2016 amid a
capacity glut in Europe's short-haul aviation market, but the
low-cost giant said it remains on track to post a modest
increase in annual profits.
While competition may ease in the coming year, the market
will continue to be challenging, with average fares likely to
post single-digit percentage falls, Chief Executive Michael
Europe's short-haul carriers have struggled in recent months
with over-capacity and Britain's vote to leave the European
Union, with low-cost rivals Wizz and easyJet
both trimming their annual profit forecasts in recent weeks.
Ryanair, Europe's largest airline by passenger numbers, said
average fares fell 17 percent in the three months to Dec. 31 and
could fall up to 15 percent in three months to March 31. That is
worse than its earlier forecast of a fall of between 13 and 15
percent over the six-month period.
Weak fares knocked its profit in the final three months of
2016, the third quarter of its financial year, by 8 percent
year-on-year to 95 million euros ($102.2 million), compared to a
forecast of 99 million euros in a company poll of analysts.
But it said it remained confident of meeting its profit
guidance for its financial year to March 31 of 1.3-1.35 billion
euros, which would imply an increase of around 7 percent on last
Shares in Ryanair, which have outperformed the wider
European airline market in recent months, were 2 percent lower
at 14.48 euros by 1416 GMT. The stock is 37 percent ahead of its
post-Brexit low of 10.46 compared to a 23 percent increase in
the ThomsonReuters European Airlines Index.
"MAY BE WORSE"
Ryanair hopes falls in fares will ease next year as a more
than doubling of oil prices since January last year should
encourage competitors to shed fuel-inefficient capacity.
"Europe's airlines have either been taking on too much new
capacity or have not been retiring loss-making capacity over the
past two years because oil prices were falling. That should
reverse itself this year," O'Leary told a conference call.
"We think a number of our competitors will be under much
more material pressure to get fares, yields up, whereas we are
content to add capacity and drive down fares in the next 12
months if that's what we have to do" to fill our planes, he
O'Leary, who last month said he hoped fares would fall only
by low-single digits, said the airline "doesn't have a clue"
exactly what the outturn would be.
"We hope it will be less than [5 percent] but frankly, the
way we are expanding capacity, the way others are expanding
capacity, it may be worse," O'Leary said.
The Irish airline, which is focusing on market share rather
than profit per passenger, increased its passenger numbers in
the last three months of 2016 by 16 percent and further cut the
number of empty seats on its planes.
It plans to grow capacity by 13 percent this winter compared
to an industry average increase of around 9 percent - the
highest level of capacity growth in the industry in a decade.
Ryanair said its costs per passenger were down 12 percent in
its third quarter, half of that due to fuel. Unit costs for the
full year to March 31 will fall by around 4 percent, it said.
"The Q3 results came in marginally light of our forecasts
and consensus... However, we expect Ryanair's peers to face
greater pressure given their narrower margins," said Liberium
analyst Gerald Khoo, adding that he expected no change in
analysts' consensus forecasts for Ryanair's full-year profit.
($1 = 0.9295 euros)
(Reporting by Conor Humphries; Editing by Adrian Croft)