Ryanair (RYA) share price rises as profits soar but airline gives pessimistic forecast on higher costs as Brexit shareholder shake-up takes off
Low-cost carrier Ryanair has reported soaring annual profits this morning, but has warned its earnings will fall back in the next year due to higher costs and flat fares.
It has also given more insight into its Brexit preparations, with the airline saying it remains concerned at the “likely impact” of a hard Brexit. It is planning for this, saying that in such circumstances its UK shareholders will be treated as non-EU, which could affect its licensing and flight rights.
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Ryanair boss Michael O’Leary said:
We intend to restrict the voting rights of all non-EU shareholders in the event of a hard Brexit, so that we can ensure that Ryanair is majority owned and controlled by EU shareholders at all times to comply with our licences.
This would result in non-EU shareholders not being able to vote on shareholder resolutions. In the meantime, we have applied for a UK AOC [air operating certificate] which we hope to receive before the end of 2018.
Shares edged up 1.5 per cent in morning trading.
The figures
The airline said profit after tax had risen 10 per cent to €1.5bn (£1.3bn) for the year, with revenue rising eight per cent to €7.2bn.
Passenger numbers were up nine per cent to 130m, with a sky-high load factor – which assesses how efficiently an airline fills its planes – at 95 per cent.
The carrier reported a rosy set of results overall, notable after pilot rostering mistakes led to a considerable amount of turbulence for Ryanair last year – and a number of cancelled flights.
But its outlook for the 2019 financial year was “on the pessimistic side of cautious”. It expects traffic to grow by seven per cent to 139m, with load factors flat at 95 per cent. Ryanair said unit costs look set to rise due to higher staff and oil prices – which it is forecasting will add more than €400m to its fuel bill.
Factoring in its forecast for “broadly flat” average fares for the year ahead, the airline is expecting profits to fall to somewhere in the range of €1.25bn to €1.35bn.
Why it’s interesting
The airline has been one of many in the aviation industry getting vocal on the need for clarity on life after Brexit, and getting plans in order to prepare for the uncertainty.
Easyjet for example, has set out plans which could force UK shareholders to sell their stakes after Brexit, as it gears up to comply with foreign ownership rules.
Ryanair’s rival unveiled plans in November to amend its articles of association, which give directors the power to limit the ownership of the firm’s shares by non-UK nationals. Easyjet has changed this so they apply to non-EU shareholders, “which will exclude UK holders once the UK has left the EU” – giving it the power to force UK shareholders to divest their shares if need be.
Easyjet boss Johan Lundgren has said he doesn’t think UK nationals will end up needing to sell their stake in the carrier, but the step was a “precautionary measure”.
What the company said
Chief executive Michael O’Leary said: “We are pleased to report a 10 per cent increase in profits, with an unchanged net margin of 20 per cent, despite a three per cent cut in air fares, during a year of overcapacity in Europe, leading to a weaker fare environment, rising fuel prices, and the recovery from our Sept. 2017 rostering management failure.”
He added:
Forward bookings are strong but pricing remains soft. Since only half of Easter fell in April, we expect a fiver per cent fare decline in Q1 but a four per cent rise in Q2 fares. While still too early to accurately forecast close-in summer bookings or H2 fares, we are cautiously guiding broadly flat average fares for FY19.
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