Ryanair: This Year's Profit to Be Dented by 737 MAX Grounding -- Update
May 20 2019 - 2:21AM
Dow Jones News
--Updates with CFO comments
By Robert Wall
Ryanair Holdings PLC (RYA.LN), Europe's largest budget airline
and the region's largest customer for Boeing Co.'s (BA) 737 MAX
jets, warned that profit for this year would be dented by the
plane's global grounding.
Ryanair said profit for the financial year that ended March 31
slumped to 885 million euros ($987 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.
Profit for the current year should be around last year's
figure--at EUR750 million to EUR950 million--the Irish carrier
said, depending on whether per-passenger sales rise 2% or 4%.
Ryanair hasn't previously given a forecast for this year, but it
said the newly-issued guidance was muted by the crisis surrounding
the Boeing plane and the continued weakness in ticket pricing.
Analysts expected about EUR1 billion, according to a FactSet
survey.
Ryanair faces higher-than-expected costs this year from the
suspension of Boeing 737 MAX deliveries in March after the jet
suffered two fatal crashes in Indonesia and Ethiopia in less than
five months. The European discount carrier, which operates mostly
older-model 737s, was due to receive its first MAX planes this
spring, which would have provided more seats and greater fuel
efficiency. Ryanair, which has labeled the plane the "gamechanger,"
said it has pushed off deliveries until at least this winter,
assuming regulators clear the plane to fly before that.
Ryanair Chief Financial Officer Neil Sorahan said the carrier
now expects to receive its first MAX planes in October and start
flying them in November if the plane, at that time, is cleared to
fly again by regulators. Ryanair still plans to take around 47 of
the planes this financial year.
The carrier currently expects the U.S. Federal Aviation
Administration to clear the MAX to resume flying around the end of
June or in July, with Europe's regulator to follow in late July or
possibly August, Mr. Sorahan said in an interview.
Ryanair said it will carry around 1 million fewer passengers
this year because of the delayed MAX aircraft, which likely equates
to about EUR37 million in lost sales. "We will be looking for
compensation from Boeing, " Mr. Sorahan said, without giving a
figure.
TUI AG and Norwegian Air Shuttle ASA, currently Europe's largest
737 MAX operators, have also said their profit was hit by the
Boeing issue. Both carriers have signaled they expect Boeing to
compensate them for the financial impact of the grounding.
Ryanair boosted Boeing, however, saying it had "utmost
confidence in these aircraft," though it added the planes won't
generate "meaningful" cost savings until the financial year ending
in March 2021. The airline has ordered 135 of the planes with
options for 75 more.
Mr. Sorahan said the airline was sure Boeing would fix the MAX
and that 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 its costs.
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
(IAG.LN) and British budget carrier easyJet PLC (EZJ.LN), this
month said they would slow growth. Ryanair said it expected more
airlines to go bust in Europe in winter.
The budget airline's board also approved a EUR700 million share
repurchase.
In the current year, costs are set to increase for the budget
carrier. Fuel costs will be EUR460 million higher than in the prior
year and nonfuel unit costs are rising 2%, which Ryanair blamed on
the MAX delay and a stronger British currency.
Ryanair also said it was in advanced talks to sell 10 older 737s
before March 2020, which would generate EUR170 million in
income.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
May 20, 2019 02:06 ET (06:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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