Ryanair’s profits fall by almost half as summer fares drop

Ryanair’s profits dropped by nearly half between April-June and the airline warned that summer fares would be “substantially lower” than they were last year.

The largest airline in Europe reported a profit of €360m, or £303m, for the first quarter. This is 46% less than the same period the previous year. However, the number of passengers increased by 10%, to 55.5 millions.

The share price of the budget airline fell 17% Monday due to disappointing results that missed analyst estimates.

It also seemed that the news had a ripple effect on other publicly-traded airline stocks. EasyJet dropped 7%, Wizz Air fell 10%, and IAG (the owner of British Airways, Iberia and Iberia) fell 3.4%.

Shares were also under pressure following a Microsoft IT failure that affected airports and airlines across the globe on Friday, which resulted in the cancellation of over 5,000 flights.

Ryanair’s average fares dropped from €49.07 per passenger to €41.93 in the same period, but an increase in passengers helped limit the overall revenue decline to just 1% (€363bn).

While the company expected a strong summer with passenger numbers expected to increase by 8% in total this financial year, it said that “pricing is still lower than expected”.

The company stated that it expects second-quarter [July through September] fares to be significantly lower than they were last summer. The final outcome of the first half is dependent, however, on bookings and yields for August and September.

Close-in bookings refers to customers who have waited much longer than normal to book flights for summer.

Dan Coatsworth is an investment analyst with AJ Bell. He said that cheaper air fares were good for travelers but bad for airlines who are trying to rebuild their finances following the pandemic. It puts pressure on airlines, forcing them to fill up planes and put people on seats to maximize revenue. Travel demand has recovered since the pandemic but travellers are still reluctant to book far in advance. This could be because travellers are under pressure from high interest rates, or they’re waiting for a good deal.

Michael O’Leary said that the drop of 15% in the average fares in the last quarter could be due to a “rebalancing”. This is after years of double-digit percentage increases in ticket prices.

He said that Ryanair has faced resistance from its customers every time it tried to raise prices. To keep the demand high, he intends to aggressively promote low-cost tickets.

Jet2, a Leeds-based company that operates flights from 12 UK airports into more than 65 European destinations, announced this month that customers would face “modest” price increases in the summer due to its adjustment to the shift towards later bookings.

Ryanair said that on Monday it was also affected by the lack of air traffic control capacity. This was due to various factors, including strikes abroad and increased gaps between planes in order to ensure safe landings when extreme weather conditions.

“In the last ten days of June we experienced a significant decline in European air-traffic control capacity which resulted in multiple flight cancellations and delays, especially for first-wave morning flights,” O’Leary said. He added that it was the worst summer he has ever had with regards to air traffic delays.

He said: “[This] makes it more urgent than ever for the new European Commission to deliver long-delayed Reform of Europe’s hopelessly inadequate air traffic control services.”

Coatsworth stated that the more people read and see about the problems associated with international travel, they are more likely to opt for a UK holiday instead.

He said that the more people who read about cancellations and delays, the less likely they are to book at last minute. They might feel it is too much trouble and decide to stay home. The airline industry could take the remainder of the week to recover after the global IT meltdown.