Ryanair Holdings PLC (LON:RYA) shares took a dive on Monday after the airline said it expects fare prices to fall and “localised disruptions” as it recognises unions for its pilots.
The budget carrier last month agreed to recognise a union for its 600 UK pilots following a dispute over rotas. It is also expected to extend union recognition to cabin crew.
Ryanair, which has resisted worker representation for years, saw thousands of flights cancelled in September due to a pilot rostering failure.
READ: Ryanair flies former operations boss back in to try and avoid a repeat of recent pilot rostering cock-up
Despite the cancelled flights, the company reported a 12% increase in profit after tax to €106mln in the third quarter. Revenue rose 4% to €1.41bn as passenger numbers edged up 6% to 28.8mln. Analysts had expected revenue of €1.38bn and profit after tax of €101mln.
Cautious outlook
“Our outlook for the remainder of FY18 is cautious,” Ryanair said in a statement.
“As we finalise union discussions along similar lines to that agreed in the UK, we expect some localised disruptions and adverse PR so investors should be prepared for same.”
The company also warned that it sees fares falling by at least 3% in fiscal year 2018.
Looking ahead to 2019, Ryanair said it has “practically zero visibility” on fares and does “not share the optimism of competitors and market commentators” for summer 2018 on price increases.
Ryanair left its 2018 full year guidance for profit between €1.4bn and €1.45bn but said the outcome will depend on the absence of union disruptions, unforeseen security events and the level of Easter bookings.
"The European airline industry is fiercely competitive right now, but weaker operators are falling by the wayside, which presents opportunities for stronger players like Ryanair, said Laith Khalaf, senior analyst at Hargreaves Lansdown, referring to the collapse of low-cost rivals Air Berlin and Monarch.
"For the foreseeable future though, it looks like it’s going to be a bumpy ride."
Ryanair announces share buyback
The airline said its balance sheet remains "strong", having generated €1bn net cash from operating activities in the year to date.
It has approved a €750mln share buyback of ordinary shares, which is starting in February and expected to be completed by the end of October, subject to market conditions.
The latest buyback will increase the funds returned to shareholders since 2008 to over €6bn, Ryanair said.
In the first nine months of 2018, Ryanair spent €639mln on buybacks, €1bn on capital expenditure and rapid more than €300mln of debt.
Cost pressures and Brexit uncertainty
The group expects cost pressures will grow with an increase in fuel prices and a further €100mln in staff costs after agreeing to a 20% pay rise for its pilots.
Ryanair also remains “concerned” about the uncertainty surrounding Brexit negotiations.
“There remains a worrying risk of serious disruption to UK-EU flights from April 2019 unless a UK-EU bilateral (or transitional arrangement) is agreed in advance of September 2018,” it said.
Shares fell 2.7% to 15.6p in morning trading.
Liberum left its rating at 'buy', saying despite higher cost inflation Ryanair "retains a highly competitive cost base, strong balance sheet and market leading position".
"We had feared earnings would be lower, but profit growth continued despite the well-publicised pilot rostering problems that led to numerous cancellations in the early part of the quarter. "