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Ryanair descends after profit warning as lower winter fares offset rise in traffic

The budget airline lowered its guidance for the 2019 fiscal year to between €1bn-€1.1bn from a previous range of €1.1bn-€1.2bn

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The profit warning is the second from Ryanair in four months

Ryanair Holdings PLC (LON:RYA) shares turned down in early trading Friday after it cut its full-year profit guidance as lower fares in the winter period offset a rise in traffic.

The budget airline lowered its guidance for the 2019 fiscal year to between €1bn-€1.1bn from a previous range of €1.1bn-€1.2bn, blaming the reduction on lower-than-expected winter fares which are now expected to fall 7% as opposed to previous guidance of a 2% drop.

READ: Ryanair’s wings clipped by Berenberg downgrade to ‘sell’, sees ‘value trap’ for low-cost airlines

This had offset a stronger-than-expected growth in traffic, which was up 9% at 142mln compared to previous guidance of 141mln.

There had also been stronger sales in ancillary services as more customers had chosen lower cost optional services, as well as a slightly better-than-expected unit cost performance in the second half of the year.

The new guidance did not include exceptional start-up losses from the group’s Lauda airline, which had been cut to €140mln from €150mln on the back of a better-than-expected unit performance over winter.

Michael O'Leary, Ryanair’s often outspoken chief executive, said while the firm was “disappointed” at the new guidance, the stronger than expected traffic and ancillary revenue figures would help to “defray” the impact of the lower winter fares.

He added that the lower fare environment would continue to "shake out” loss-making competitors such as WOW, FlyBe, and Germania, all of which are currently for sale.

However, looking forward O-Leary said the airline could not rule out further cuts to airfares and “slightly lower” full-year guidance if there were unexpected Brexit or security developments which would impact yields from now until the end of March.

READ: Ryanair slashes profit guidance on strike impact and higher oil prices

The profit warning is the second from the airline in four months, having previously cut its full-year guidance to €1.25bn from €1.35bn in October on the back of staff strikes, passenger compensation costs, and high oil prices.

Ryanair will release its third-quarter results on 4 February.

Warning “problematic” given sector uncertainty, says analyst

Neil Wilson, chief market analyst at Markets.com, said the profit warning was “problematic” for the airline sector given the current state of uncertainty, adding that the lower guidance was indicative of higher pressures on Ryanair's cost base as labour costs rose, affecting its low-cost, high margin model.

He added that the Brexit uncertainty made for “a very uncertain period for airlines”, although larger carriers like Ryanair, easyJet PLC (LON:EZJ), and International Consolidated Airlines Group (LON:IAG) which own British Airways, were set to win out from consolidation in the sector.

The sector jitters were on full display in early deals, with Ryanair shares falling 1.6% to 9.9p. This was accompanied by easyJet shares slumping 2.5% to 1,139.5p while IAG fell 1.1% to 609p.

Quick facts: Ryanair

Price: 14.53 EUR

LSE:RYA
Market: LSE
Market Cap: €16.07 billion
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