Ryanair profits hit a patch of turbulence in 2016 as the devaluation of sterling following the EU referendum saw Europe’s largest airline’s wings clipped.
Profits fell by eight per cent to €95m (£81m) despite traffic growing by 16 per cent to reach 29m customers.
Revenue grew one per cent year-on-year to €1.35bn (£1.16bn)
In response to the devaluation of sterling following the EU referendum Ryanair spent heavily on reducing fares, which fell by an average of 17 per cent to €33 (£28).
The company now has net debt of €576m (£496m), which it expects to remain at year end.
Punctuality fell by two percentage points to 88 per cent, which the airline warns may prompt it to reduce the amount of carry-on baggage allowed.
Ryanair expects yields for the fourth quarter to fall by 15 per cent, but retains its full-year profit guidance at €1.35bn (£1.16bn) at the top end, as long as no security events hit bookings.
Ryanair shares fell by more than one per cent in morning trading.
Why it's interesting
Airlines are vulnerable to fuel cost changes and currency fluctuations. It’s fair to say 2016 was not short of either, as the Organization of the Petroleum Exporting Countries (Opec) boosted prices by cutting production. And, of course, the Brexit referendum vote devalued the currency in one of Ryanair’s core markets.
The ever outspoken chief executive Michael O’Leary has made it clear what he thinks about the latter: UK voters were “lied to”. However, he (and every other business with British operations) will have to deal with the fall-out.
Ryanair’s higher-cost rivals remain more exposed to price pressure, but the large overcapacity for flights across Europe means the airline still expects a hit.
With 10 new aircraft in the third quarter of this year and five new bases across Europe, Ryanair has been pushing the envelope to gain market share, especially in challenger destinations such as Naples (in the face of high prices in Rome).
What Ryanair said
Ryanair’s chief executive Michael O’Leary said: “As previously guided, our fares this winter have fallen sharply as Ryanair continues to grow traffic and load factors strongly in many European markets.
These falling yields were exacerbated by the sharp decline in Sterling following the Brexit vote.
We expect the uncertainty post Brexit, weaker sterling and the switch of charter capacity from Turkey, Egypt and North Africa into Spain and Portugal, will continue to put downward pressure on pricing for the remainder of this year and full year 2018.
He added: "We are still finalising our budget but it seems clear that pricing will continue to be challenging and we will respond to these adverse market conditions with strong traffic growth and lower unit costs."
Ryanair investors will be hoping they aren’t strapping in for a bumpy ride in trusting the airline’s full-year guidance, but investing in price could see market share take off.