Ryanair warns rivals of sharp summer fare cuts

Key Points
  • Says fares may fall up to 9% in July-Sept
  • Annual fare falls of 8% in winter
  • CFO says life getting difficult for competitors
  • Profit up 55% in 3 months to end-June
Passengers board a Ryanair flight at the Frankfurt-Hahn Airport
Ulrich Baumgarten | Getty Images

Ryanair on Monday warned rivals that it may cut its late summer fares by as much as 9 percent compared to last year and said some short-haul carriers may struggle to survive with prices at those levels.

Europe's largest airline by passenger numbers, Ryanair has helped drive down short-haul ticket prices in Europe by increasing its capacity by 33 percent, or about 30 million seats, in the past two years.

Its profits soared 55 percent in the three months to the end of June as the timing of Easter resulted in a rare annual increase in average fares of 1 percent.

But management made clear that the increase was just a blip and that prices would fall sharply in the coming months.

"It's a competitive market out there. You're looking at fares down anywhere between 7, 8, maybe as much as 9 percent," in the three months to Sept. 30, Chief Financial Officer Neil Sorahan told Reuters.

Annual falls are likely to average 8 percent in the six months to March 31, the end of Ryanair's financial year, he said. While Ryanair has not changed its fare forecasts, some analysts had predicted it would scale back planned fare cuts.

"There are a few guys out there who look like they are starting to find life difficult," Sorahan said.

Low-cost rivals easyJet and Wizz Air have both in recent weeks warned that average fare levels would continue to be under pressure over the key summer period.

Sorohan said part of the fall in average fares was due to lower fuel prices, but much was due to over-capacity in Spain, Portugal and Italy as charter carriers shift capacity away from Turkey and North Africa.

Ryanair's cost base is widely acknowledged as the lowest of Europe's major carriers as low plane purchase, maintenance and staff costs have allowed it to undercut rivals while still making a profit.

Costs per passenger were down 6 percent in the three months to the end of March, with a fall of 3 percent before falls in fuel prices were accounted for.

It said some of the falls were due to declines in the value of sterling and may not be repeated.

Ryanair nudged up its traffic forecast for the year to the end of March, saying it expects to fly 131 million passengers, up from an earlier forecast of 130 million. It said the extension of leases on 10 planes would give it additional capacity during the next two summers.

Ryanair's profit after tax for the three months to the end of June was 397 million euros, compared to an average forecast of 366 million euros in a company poll of analysts.

It reiterated its forecast that it would make a profit after tax of between 1.4 and 1.45 billion euros in its financial year, which ends on March 31, 2018.

The average forecast by analysts polled by Ryanair ahead of the release was for a profit of 1.488 billion.