Ryanair (RYA) expects a series of headwinds and higher costs to be a drag on earnings. It now expects to achieve profit in the range of €1.25bn to €1.35bn in the year to 31 March 2019, lower than the previous analyst consensus of €1.37bn.
The airline expects unit costs to rise by 9% due to the impact of higher staff and oil prices, the latter of which is expected to be a major headwind over the next two years.
When adjusted for volume growth, rising oil prices are anticipated to add over €400m to the airline’s fuel bill.
In a bid to grow its aircraft to nearly 600 and hit 200m passengers per year by 2024, Ryanair is planning a ‘substantial’ investment. This includes a €200m increase in staff costs to boost pay and attract new talent.
Ancillary revenue growth from baggage fees, on-board food and services, is not expected to offset the impact of higher costs and lower air fares.
In the three months to June, fares are forecast to fall by 5% and increase by 4% in the following quarter.
WHY ARE SHARES IN RYANAIR RISING?
Despite the cloudy outlook, shares in Ryanair have gained 2.1% to €15.84 following robust annual results which coincide with the new forward guidance.
Pre-tax profit for the 12 months to 31 March 2018 soared by 10% to €1.61bn and sales increased by 8% to €7.15bn.
Davy Research analyst Stephen Furlong is confident the airline still holds its ‘competitive advantage’ despite the significant investment flagged for the coming years.
Furlong is also encouraged by guidance for broadly flat average fares in 2019 as it appears the sector-wide price war is not getting any worse.
Cantor Fitzgerald analyst Robin Byde is cautious as Ryanair’s pessimistic outlook could impact sentiment across the sector.
