October 1, 2018 / 7:44 AM / 22 days ago

Ryanair warns on profit as strikes and rising fuel prices take toll

DUBLIN (Reuters) - Ryanair cut its forecast for full-year profit by 12 percent on Monday and said worse may be to come if recent coordinated strikes across Europe continue to hit traffic and bookings.

Passengers queue at a Ryanair window in the departure hall during a strike by Ryanair workers of several European countries, at the airport in Valencia, Spain, September 28, 2018. REUTERS/Heino Kalis

Europe’s largest low-cost carrier has struggled with labour relations since it bowed to pressure to recognise trade unions for the first time last December. Industrial unrest has escalated in recent months as it makes slow progress in talks with some unions.

Shares in Ryanair, which is also counting the cost of stubbornly high fuel prices, fell by as much as 10 percent, and the warning reverberated around the sector, with rivals Lufthansa, Air France KLM and easyJet down by 0.5-3.3 percent.

The Irish airline now expects profit for the year, excluding start up losses in Laudamotion, to come in at 1.10-1.20 billion euros ($2.66 billion), compared with its prior forecast of 1.25-1.35 billion euros.

That would represent a 17 to 24 percent fall from the record 1.45 billion euros profit after tax booked in its most recent financial year to March 31.

It added that it could not rule out further disruption, which may require full-year forecasts to be lowered again and further cuts to its loss-making winter capacity.

While Ryanair said it was able to manage initial smaller strikes, two coordinated walkouts since August in Portugal, Germany, Spain, Belgium and the Netherlands hit passenger numbers, last minute bookings, yields and forward air fares.

Those strikes, which also spread to some staff in Sweden and Italy, disrupted the plans of more than 100,000 customers.

Quoting a call management held with analysts on Monday, Barclays said Ryanair was working to resolve all union deals in the next 3-5 months.

CUSTOMER CONFIDENCE DENTED

Ryanair said progress in reaching collective labour agreements with staff in other major markets of Ireland, Britain and Italy have not been repeated in the five other EU countries due to what it called “interference” in negotiations.

“Customer confidence, forward bookings and Q3 fares have been affected, most notably over the October school mid-terms and Christmas in those five countries,” Ryanair chief Michael O’Leary said in a statement.

Goodbody Stockbrokers analyst Mark Simpson said the warning came as a surprise given that O’Leary had said there was no change to guidance just two weeks ago.

Analysts at Bernstein said the cut was the latest indication that the “low cost wins, legacy loses” story may be coming to an end after budget rival easyJet gave a cautious outlook for next year on Friday, despite benefitting from Ryanair’s woes.

Ryanair said fares in its second quarter to end-September had fallen by around 3 percent from a 1 percent dip forecast previously, and said that it now expects fares in the second half to fall 2 percent.

Ryanair warned last week that the strikes were damaging business just as oil prices rose strongly and said on Monday that its unhedged fuel costs have jumped as oil prices rise to $82 a barrel, hitting 10 percent of volumes for its current financial year and the entire fuel bill of Austria’s Laudamotion, which it agreed to buy this year.

In an analysis last week, Goodbody said Ryanair was more exposed than its nearest rival given that in July, it had 19 percent cover in place at US$690/MT for the year to March 2020 while easyJet had 61 percent cover at US$560/MT for its financial year to September 2019.

Goodbody therefore estimated that every 1 percent of jet fuel price increase would take 3.5 percent off Ryanair’s full year 2020 forecast but only 2 percent off easyJet’s before any resulting adjustments to capacity growth or pricing.

To cope with the lower fares, higher oil prices and strike costs, Ryanair trimmed its winter capacity by 1 percent, removing aircraft from its Eindhoven, Bremen and Niederrhein bases which will result in some more flight cancellations.

It said it would seek to minimise job losses by offering pilots vacancies elsewhere and exploring unpaid leave and other options for cabin crew.

Shares in Ryanair were 8.9 percent lower at 11.94 euros by 1032 GMT, their lowest level in almost two years, having fallen 27 percent since the industrial action ramped up in mid-July.

Additional reporting by Shashwat Awasthi in Bengaluru, editing by Louise Heavens

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