July 23, 2018 / 5:16 AM / 22 days ago

Weak summer fares, strikes clip Ryanair's wings

DUBLIN (Reuters) - Ryanair (RYA.I) warned investors of more strikes and weaker ticket prices this summer, pushing its shares down sharply, as it heads into the worst week of stoppages it has faced in more than three decades of flying.

Shares in the Irish airline, the largest in Europe by passenger numbers, plunged 4.7 percent to 14.82 euros by 0855 GMT, after briefly matching a 12-month intraday low hit in December when the airline shocked markets by recognizing unions.

Ryanair said it was on course to hit its annual profit target despite the disruption but fraught relations with staff and pressure on fares took their toll.

Over 300 of Ryanair’s 2,400 daily flights are to be canceled on Wednesday and Thursday due to strike action by cabin crew in Spain, Portugal, Italy and Belgium.

Chief Executive Michael O’Leary said he expected more strikes during the summer “as we are not prepared to concede to unreasonable demands that will compromise either our low fares or our highly efficient model.

He also warned staff of possible job losses if strikes went on.

“If these unnecessary strikes continue to damage customer confidence and forward prices/yields in certain country markets then we will have to review our winter schedule, which may lead to fleet reductions at disrupted bases and job losses,” he said.

PROFIT FALLS

Ryanair shares are almost 25 percent below an all-time high of 19.38 euros hit last August, before a rostering problem forced the airline to cancel 20,000 flights.

In the aftermath of those cancellations, Ryanair narrowly averted widespread strikes before Christmas by deciding to recognize trade unions for the first time in its 32-year history. But it has since struggled to reach agreement on terms with several of them.

Pilots are demanding more transparent systems for promotions and transfers to reduce what they say is excessive management discretion over their careers, while cabin crew want local contracts and better conditions.

FILE PHOTO: A Ryanair Boeing 737-800 plane takes off at Lisbon's airport, Portugal July 5, 2018. REUTERS/Rafael Marchante/File Photo

Ryanair, which flies in 37 countries and carried 130 million passengers last year, says its staff have some of the best conditions in the low-cost sector.

In financial results for the three months to June 30, Ryanair saw profit fall 20 percent from the same period last year on higher staff and fuel costs, and weaker fares.

But its profit of 319 million euros ($374.4 million) was ahead of the average estimate in a company poll of analysts of 305 million euros.

The results come after EasyJet (EZJ.L), Europe’s second-biggest low-cost airline, raised its profit guidance, forecasting earnings could soar by as much as 45 percent this year. Fast-growing budget airline Norwegian Air Shuttle (NWC.OL) earlier in July also beat expectations with a second-quarter net profit.

“MODEL NOT BROKEN”

Revenues for optional extras like pre-assigned seating and priority boarding grew 25 percent in the quarter, helping to offset a fall of 4 percent in average fares.

It cited strikes as one of the reasons why average fares would be lower than expected this summer, with high competition and a heatwave in Northern Europe also weighing.

Average fares are expected to grow by 1 percent in the three months to September 30, down from an earlier forecast of 5 percent growth, O’Leary said.

In a pre-recorded presentation to investors, O’Leary said market expectations for average fares in winter were “overdone” and expected fares in the period to be flat compared to last year.

But he reaffirmed its forecast for profit for the year to be between 1.25 billion euros and 1.35 billion euros, down from a record 1.45 billion in the year to March 31.

“While Ryanair continues to face some tough issues, fundamentally the model is not broken, and we see this period of weakness as a buying opportunity for investors with a medium-term investment horizon,” Goodbody analyst Mark Simpson said in a note.

Ryanair also warned that Austrian holiday airline Laudamotion, which it agreed to buy this year, would post annual losses of 150 million euros ($176 million), up from an earlier estimate of 100 million.

Reporting by Conor Humphries; Editing by Gopakumar Warrier/Keith Weir

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