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Ryanair nosedives as it predicts flat profits for 2020

The budget airline reported that its profit after tax for the year ended 31 March had fallen 29% to €1.02bn, with lower average fares and higher fuel bills cutting into its earnings
Ryanair aircraft
Ryanair has also delayed the delivery of five Boeing 737-MAX aircraft to the winter of 2019 following the aircraft's grounding earlier this year

Ryanair Holdings PLC (LON:RYA) shares nosedived on Monday after predicting flat profits for its 2020 financial year as pressure from lower fares contributed to a profit slide in its latest full year.

The budget airline reported that its profit after tax for the year ended 31 March had fallen 29% to €1.02bn, while revenues had risen 6% to €7.6bn. The profit figure was in line with the group’s guidance of between €1bn-€1.1bn, which was lowered from €1.1bn-€1.2bn in January after lower-than-expected winter fares in 2018.

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

The slump was blamed on lower average fares, which fell 6% to €37 over the year, as well as higher oil prices adding €440mln to the company’s fuel bill.

The group also unveiled a €700mln share buyback which was due to begin later this week and run over the next 9-12 months.

Looking ahead, Ryanair said it was “cautious” on pricing going into the new fiscal year and predicted “broadly flat” profits for 2020.

While bookings in its first half were slightly ahead of last year, the group said fares were lower with the trend expected to continue through 2019 with “zero” visibility for the second half.

The guidance was also heavily dependent on the total of peak summer fares, second half pricing, an absence of security events and “no negative Brexit developments”.

Ryanair added that it had delayed the delivery of five Boeing 737-MAX aircraft to the winter of 2019, saying that while they continued to have “utmost confidence” in the aircraft despite its grounding following two crashes, the delay meant any meaningful cost benefits would not occur until 2021.

READ: Ryanair fleet renewal programme in doubt as Garuda Indonesia becomes first airline to cancel orders for Boeing 737 Max 8

The airline currently has around 110 orders for the MAX 200, a high-capacity version of the aircraft, with options on 100 more to help grow its fleet to 585 by 2024 from the current fleet of 400.

In a note to clients, analysts at Liberum said the guidance for flat profits was "disappointing" although added that the short-term headwinds would be positive for stronger airlines in the long-term as it wouldclear out weaker competitiors and help consolidate the market.

"Ryanair remains the long-term winner in the European airline industry, based on its leading market position, extensive network, low unit costs and strong balance sheet", the broker said.

Falling ticket price unlikely to change "anytime soon", says analyst

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that while Ryanair was continuing to increase its passengers numbers, which were up 7% in the year at 139.1mln, each seat was costing more and passengers were being charged less, with optional extras like hold baggage and food and drink sales failing to offset the decline.

Khalaf added that with big budget players like Ryanair and rival easyJet PLC (LON:EZJ) continuing to “pump capacity in to the market”, the situation was unlikely to change anytime soon.

Shares were down 5.7% at €10.2.

--Adds analyst comment and share price--

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