Ryanair has cut its earnings forecast for 2013-14 for the second time in two months
The budget airline blamed the downgrade on "softness" in the pricing of average fares
Ryanair: "We now expect the full-year out-turn to be between €500m and €520m"
Ryanair plans to return to "strong and profitable traffic growth" from September 2014
Ryanair shares plunged on Monday after it cut its earnings forecast for the second time in two months, predicting it would record net profit of up to €520m in 2013-14.
Europe’s largest low-cost carrier now expects earnings to fall compared with 2012-13, when it reported net profit of €569m.
It reduced its net profit forecast to between €500m and €520m for the year to March 31 2014, having previously said it expected earnings to be at the lower end of a range of €570m to €600m.
The Irish budget airline blamed the second downgrade to its 2013-14 earnings forecast on “softness” in the pricing of average fares – known as yields.
This issue was cited in Ryanair’s profit warning on September 4 and the company responded then by unveiling plans for aggressive cuts in fares.
Ryanair said on Monday: “The continuing fare and yield softness means that full-year profits will be lower than previously guided (€570m to €600m). We now expect the full-year out-turn to be between €500m and €520m due entirely to this lower fare environment.”
On September 4, Ryanair said it had noticed a “perceptible dip” in yields because of increased competition, weak economic conditions in Europe and negative exchange rate movements.
The company said on Monday its decision to cut fares had been vindicated by the fact that passenger traffic had increased 6 per cent in October.
“Market pricing remains weak, so we will continue to promote low fare seat sales throughout the remainder of [2013-14],” it added.
Fares in the third and fourth quarters were therefore expected to fall by 9 and 10 per cent, respectively.
Ryanair reported revenue of €3.3bn for the six months to September 30, up 5 per cent compared with the same time last year. Net profit rose 1 per cent to €602m.
The company is planning a pause in passenger traffic growth over the next year as it seeks to improve its customer service, which is the subject of regular criticism.
Changes include an overhaul of the Ryanair website and plans to move to fully allocated seating on all flights.
Ryanair plans to return to “strong and profitable traffic growth” from September 2014, as it starts to take delivery of new aircraft.
“High-cost competitor airlines are continuing to cut capacity in major markets such as France, Germany, Poland, Spain and Italy and this continues to create growth opportunities for Ryanair,” it said.
James Hollins, analyst at Investec, said price competition from rivals such as Norwegian Air Shuttle and Wizz Air was unlikely to diminish.
“Investors need to decide whether Ryanair can drive sufficient traffic growth and yield increases in [2014-15] and onwards to deliver a return to attractive earnings growth,” he added.
Shares in Ryanair were down 10.8 per cent at €5.40 in early London trading.