Ryanair Says MAX Grounding to Hurt Profit -- WSJ
May 21 2019 - 3:02AM
Dow Jones News
By Robert Wall
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 21, 2019).
LONDON -- Ryanair Holdings PLC, Europe's biggest budget airline
and the region's largest customer for Boeing Co.'s 737 MAX jets,
warned profit would be dented this year by the plane's global
grounding.
The Irish carrier said Monday it faces higher-than-expected
costs because of the suspension of MAX deliveries after the jet
suffered two fatal crashes in Indonesia and Ethiopia in less than
five months. Ryanair was due to receive its first MAX planes this
spring, which would have provided more seats and greater fuel
efficiency. The airline, which mostly operates older-model 737s,
has labeled the new plane a "game changer."
Ryanair said the delay in getting the new planes, together with
generally lower airfares and higher fuel costs, would limit profit
this year to between EUR750 million ($837 million) to EUR950
million, or roughly flat on last year. Analysts expected about EUR1
billion in profit, according to FactSet.
Shares closed down more than 4% Monday in London.
Ryanair now plans to receive its first MAX planes in October and
start flying them in November if the jet has been approved by
regulators. It still wants to take about 47 of the planes this
financial year.
The carrier expects the U.S. Federal Aviation Administration to
clear the MAX to resume flying around July or August, with Europe's
regulator to follow about a month or two later, Chief Executive
Michael O'Leary said. Ryanair has suspended all MAX-related
pre-delivery payments to Boeing.
"We are working on a daily and weekly basis with Boeing and with
EASA, the European safety agency, on a return to service," Mr.
O'Leary said.
Mr. O'Leary said that he still had "utmost confidence" in the
MAX, though added the planes wouldn't generate meaningful cost
savings until the financial year ending in March 2021. Ryanair has
ordered 135 of the planes with options for 75 more.
Ryanair said it would carry about a million fewer passengers
this year because of the MAX delay, which likely equates to about
EUR37 million in lost sales based on its average airfares.
"We will be looking for compensation from Boeing," Chief
Financial Officer Neil Sorahan said, without giving a figure.
Ryanair's downbeat outlook and plan to seek compensation follows
similar comments from other airlines that have warned on the
financial impact of the MAX grounding.
Ryanair also said it had taken delivery of its first 737 MAX
simulator and would get two more before year-end. The FAA has
indicated it won't require MAX pilots to undergo extra simulator
time, though some regulators are still considering mandating such
sessions. The FAA this week expects to meet with foreign regulators
to discuss how to manage the MAX's potential return to service.
Mr. Sorahan said the airline was sure Boeing would fix the MAX
and Ryanair would consider, at the right price, also buying larger
737 MAX 10 models. Purchasing rival Airbus A321s would also be an
option, he added, depending on costs.
The comments came as Ryanair reported a roughly 40% fall in net
profit for the financial year ended March 31 to EUR885 million,
despite a 7% increase in sales to EUR7.7 billion. Profitability was
hit by a 6% slump in average fares and EUR139.5 million in costs
associated with getting Austrian carrier Lauda running after
Ryanair bought the airline in 2018.
The airline's board has approved a EUR700 million share
repurchase.
Airlines in Europe have faced multiple headwinds, including
rising fuel costs and overcapacity in some markets. Several smaller
carriers have gone bust and others -- including Ryanair -- have
issued profit warnings in recent months. Carriers, including
British Airways parent International Consolidated Airlines Group SA
and British budget carrier EasyJet PLC, this month said they would
slow expansion.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
May 21, 2019 02:47 ET (06:47 GMT)
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