The bottom line from yesterday's announcement from Ryanair is that it expects to sell 500,000 fewer seats on its aircraft over the next few months for less money than it anticipated when it published its first quarter results in July.
As a result, it believes that profits for its financial year, which ends on March 31st, are likely to be either slightly below or at the lower end of the €570 million to €600 million range into which it expects them to fall.
It plans to ground more aircraft over the winter than it originally intended and now aims to carry just under 81 million passengers over the 12 months to March 31st, as opposed to its original target of just over 81.5 million.
Ryanair's chief executive, Michael O'Leary, said yesterday that there are a number of factors at play in its business. These included some increased capacity and tougher competition in Ireland, Britain, Spain and Scandinavia.
Dónal O'Neill, aviation analyst with stockbroking firm, Goodbody, suggested that this competition is primarily coming from rivals such as Aer Lingus, Norwegian and IAG's Spanish carriers, Iberia and Veuling, amongst others.
Ryanair plans to combat this with lower fares and “aggressive seat sales”, particularly in the countries that it highlighted as the source of increased competition.
As a result, the airline’s yields, the average revenue that it earns per mile per passenger, is likely to be lower than expected, with obvious consequences for its bottom line.
However, O’Neill argued that this will allow the carrier to reassert its dominance in those markets, and should ensure that it is in a position it to benefit when a recovery comes.
In terms of timing of that recovery, he said yesterday that while the overall market this year was likely to be flat, there should be some growth next year. In June, the company said that it was planning to return cash to shareholders through €400 million in share buybacks in its 2014 financial year and special dividends of up to €600 million in the following 12-month period.
Those promises are subject to current trends in yields, fuel prices and profitability continuing. O’Neill said that he does not believe that yesterday’s announcement had any ramifications for those plans as the company already had enough cash on its balance sheet to cover those promises to investors.
The airline also pointed the finger at the weaker sterling/euro exchange rate. The British pound is at around 85 pence to the euro, compared with 79 pence this time last year, a difference that it says could cost its €50 million.
Finally, it acknowledged the impact of austerity and weak economic conditions in Europe, which it has claimed in the past have made little or no difference to its business.
