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Reuters/Tony Gentile
Headwinds.
HARD LANDING

Ryanair blames the most popular part of its business model for unexpectedly low profits

Rosie Spinks
By Rosie Spinks

Quartzy Reporter

With few exceptions, most people book a Ryanair flight for the cheap fare. The airline endlessly promotes its low prices. Its CEO brags incessantly about them. The airline’s oft-changing baggage policy is a manifestation of its ever-more-complicated attempts to make tickets even cheaper.

But the thing that Ryanair is most known for also appears to be hurting its profits. In its second profit warning in four months, the low-cost European airline warned that it was lowering expectations. From November on, fares fell by 7% on average, steeper than the 2% guidance the carrier gave to analysts. At its financial year end on March 31, profit will fall between €1 billion and €1.1 billion ($1.14 billion to $1.25 billion), which is €100m lower than a prior forecast.

Outspoken CEO Michael O’Leary said, “While we are disappointed at this slightly lower full year guidance, the fact that it is the direct result of lower than expected second half air fares, offset by stronger than expected traffic growth, a better than expected performance on unit cost and ancillary sales is positive for the medium term.”

In other words: While passenger traffic growth is on the up and income from checked bags, priority boarding, and lukewarm beer is strong, fares are too cheap to generate the profit that airline execs expected. Part of this is because there is too much competition in the low-cost, short-haul sector, driving prices even lower. (Ryanair itself is often the aggressor in the industry’s price wars.) O’Leary has been very vocal in his prediction that competitors like Wow Air and FlyBe may not survive the winter period, emphasizing to shareholders that others have it much worse.

In addition, uncertainty over the outcome of Brexit—which O’Leary has been outspoken about, too—could hit traffic on key routes in the coming months.

Ryanair shares fell 5% immediately after the announcement before regaining a bit of altitude as the day went on. Ryanair’s share price has fallen by 40% over the past year, underperforming short-haul rival EasyJet.

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