Ryanair set to cut fares to 'stimulate' demand as profits plunge
Michael Price On Executive 5% Said Would O'leary Above 'minimum Chief The Be Floor Ryanair Falls' Group
Ryanair Group’s chief executive Michael O’Leary said the airline would cut airfares by at least 5% in an attempt to spur demand following a weak start to its latest financial year which saw profits cut nearly in half.
On Monday, the budget airline released its results for the first three months of its financial year, which showed profit fell by 46% to €360m, with revenue falling 1% to €3.63bn. During the same period, its operating costs increased 11% to €3.26bn.
The company’s average fare in the three months to the end of June was €41.93 — down 15% year-on-year.
Shares in the company dropped more than 15% on Monday.
The airline's traffic grew by 10% during the three months to 55.5 million, despite multiple delivery delays from the airplane-maker Boeing.
Following the publication of the results, Mr O’Leary said the company was “repeatedly seeing price resistance” from customers and as a result fares would be “materially lower” over the coming months as it tries to spur demand.
He said the “minimum floor on price falls” between July and September would be above 5%.
"Could it get to a double digit? It could. It doesn't look that way at the moment but pricing on close-in bookings is getting weaker as we have moved through July,” Mr O’Leary said.
"We see no reason why that would change in August and certainly no reason why it will change in September.”
Close-in bookings is when a customer waits much longer than usual to book flights.
Mr O’Leary said the airline would continue to aggressively advertise low fare availability to “stimulate” close-in bookings.
He added if the price falls hit double-digits over the next few months, then “all bets are off” for further price drops later this year.
Ryanair will also have to contend with a number of issues over the coming months, particularly from Boeing as well as the capacity limit at Dublin Airport.
According to Mr O’Leary, the airline was supposed to take delivery of seven aircraft from Boeing this month but that dropped to five. Similar delivery revisions are expected in August.
The company said it had 156 Boeing 737 aircraft in its fleet, which it expects to increase to over 160 by the end of July. However, this 20 fewer than were supposed to be delivered.
Mr O’Leary said work continues with Boeing and they have “noted an improvement in the quality and frequency of deliveries” over the last few months.
However, he added there remained a risk the remaining Boeing deliveries could “slip further” and its focus was on ensuring a timely delivery of the remaining 50 aircraft by summer next year.
Mr O’Leary also described the capacity limit at Dublin Airport as a “pinch point” as it is unlikely to get the slots for the extra flights “we normally do at Christmas but we will redeploy those aircraft to doing Christmas extras elsewhere”.
Ryanair said traffic is expected to grow 8% to 200 million passengers this year, but Mr O’Leary said this is “subject to no worsening Boeing delivery delays”.