(Updates with measures in response to weaker yields in 11th paragraph, foreign exchange impact in 13th.)
Sept. 4 (Bloomberg) -- Ryanair Holdings Plc, Europe’s biggest discount airline, said it may miss its profit target this year after a heat wave prompted people to holiday at home and increased competition depressed ticket prices.
Net income through March is likely to be at the low end of a 570 million-euro ($750 million) to 600 million-euro range, Ryanair said today. If yields, a measure of fares, continue to weaken, profit may be “slightly below” that target, the carrier said, sending its stock down as much as 15 percent.
“This looks a genuinely negative update, with the group seeing some higher capacity and competitive pricing on key routes,” said James Hollins, an analyst at Investec Securities in London. The revision suggests analyst consensus figures for full-year profit may be 10 to 12 percent too high, he said.
The muted outlook marks a rare miss for Dublin-based Ryanair and comes a month after it issued full-year guidance which Hollins had said was “overly cautious.” Chief Executive Officer Michael O’Leary said he’ll respond “aggressively” by slashing prices and grounding as many as 80 aircraft during the winter season to take capacity out of the market.
Ryanair declined as much as 1.01 euros to 5.77 euros in Dublin, the most since Oct. 16, 2009, and was trading 13 percent lower at 5.91 euros as of 1 p.m. in Dublin. The stock has gained 25 percent this year, trailing EasyJet Plc, Europe’s second- biggest discount carrier, which has advanced 57 percent.
EasyJet traded 6.3 percent lower at 1,200 pence in London, while IAG, or International Consolidated Airlines Group SA, the owner of British Airways, Madrid-based Iberia and discount carrier Vueling SA of Barcelona, was down 3.1 percent at 285.60 pence. Deutsche Lufthansa AG fell as much as 5.8 percent in Frankfurt, while Air France KLM Group lost 3.7 percent.
Ryanair may be facing greater price competition from Norwegian Air Shuttle AS in Scandinavia, Irish rival Aer Lingus Group Plc and IAG SA’s Iberia, Goodbody Stockbrokers analyst Donal O’Neill said in a note. Adjusted fiscal year net income is estimated at 650 million euros, according to analysts surveyed by Bloomberg.
Both Ryanair and EasyJet are looking to expand their networks as the former flag carriers undertake the latest revamps of their short-haul units. Ryanair is among the biggest carriers in eastern Europe, a market that’s shown particular weakness in recent months as demand from migrant workers such as builders dwindles, O’Leary told analysts on a call today.
Lufthansa and Air France have bolstered their European offerings and IAG is beefing up Vueling with new planes. Iberia yesterday announced a discount fare to win back clients who have left for rivals like Ryanair. Rates for the “basic” ticket, which won’t allow checked bags, will be this week.
O’Leary said the revision isn’t a major calamity and reflects a “general weakness” in the European air travel market. Rather than sitting out the drop, Ryanair decided to “refocus” investors’ expectations to take into account the outlook for a weaker September and October, the CEO said.
“It’s marginal, it’s around the edges,” he said the call. “We’re not talking about some collapse or catastrophe.”
In October and November the airline will be offering an introductory airfare of 14.99 euros on close to 1,000 routes, up from about 600, O’Leary said. Grounding the aircraft in the winter period means taking about 750,000 seats out of the market from November through to March, the executive added.
O’Leary cited increased price competition and some capacity increases -- as well as weaker sterling to euro exchange rates - - as the cause of lower forward fares and yields in September, October and November.
The U.K. pound accounts for about 25 percent of the airline’s sales, Chief Financial Officer Howard Millar said on the call. Costs associated with a weaker sterling may trim profits by 30 million to 50 million euros, the executive said. The pound has dropped 3.8 percent against the euro this year.
The company still aims to meet its revised passenger target of “just under” 81 million, though at lower fares and yields. There is no change to a planned share buyback program, he said. Falling short of the lowest end of the earnings target is “unlikely” at this moment, O’Leary said, adding the chance of remaining withing the bandwidth stands at 6 to 4.
“Ryanair has historically delivered results well ahead of its own guidance so this is disappointing news,” RBC Capital Markets analyst Damian Brewer said in a note to investors.
--With assistance from Todd White in Madrid and Anchalee Worrachate in London. Editors: Benedikt Kammel, Christopher Jasper