RYAAY Ryanair Holdings PLC

By Robert Wall 

Ryanair Holdings PLC, Europe's largest budget airline and the region's largest customer for Boeing Co.'s 737 MAX jets, warned its annual profit would be dented by the plane's global grounding.

Ryanair said profit for the financial year ended March 31 fell to EUR885 million ($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 -- 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, particularly in the U.K. and Germany. Analysts expected about EUR1 billion in profit, according to a FactSet survey.

Shares opened 5% lower on the muted outlook.

Ryanair faces higher-than-expected costs this year from the suspension of Boeing 737 MAX deliveries after the jet suffered two fatal crashes in Indonesia and Ethiopia in less than five months. The 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 plans to start flying them in November if the plane has been approved by regulators. Ryanair still plans to take about 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 July or August, with Europe's regulator to follow about a month or two later, Chief Executive Michael O'Leary said. The airline said it has suspended all MAX-related pre-delivery payments to Boeing since the grounding.

"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.

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.

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 would carry about a 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, Europe's largest 737 MAX operators, also have said their profits were hit by the global grounding. Both carriers have signaled they expect Boeing to compensate them for the grounding's financial impact.

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.

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 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.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

May 20, 2019 03:53 ET (07:53 GMT)

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