Ryanair: This Year's Profit to Be Dented by 737 MAX Grounding -- Update

Date : 05/20/2019 @ 6:21AM
Source : Dow Jones News
Stock : Ryanair Holdings PLC (RYAAY)
Quote : 90.65  0.14 (0.15%) @ 9:45PM
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Ryanair: This Year's Profit to Be Dented by 737 MAX Grounding -- Update

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--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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