Ryanair finally bows to Brexit with cut to profit guidance

Bloomberg

Ryanair Holdings Plc cut its profit guidance as the slump in the pound following Britain’s vote to quit the European Union weighs on fares, after previously holding out against a revision.
Net income in the year ending March 31 will increase by about 7 percent rather than the 12 percent previously estimated as sterling’s slide has a bigger than anticipated impact on yields, Chief Executive Officer Michael O’Leary, who spoke out against the risks of Brexit in the run up to the poll, said on Tuesday.
The pound has fallen 15 percent versus the euro since the June 23 referendum, reducing the value of sales in a UK market that is Dublin-based Ryanair’s biggest, with a quarter of revenue, when translated into the single currency.
“While higher load factors, stronger traffic growth and better cost control will help to ameliorate these weaker revenues, it is prudent now to adjust full-year guidance,” O’Leary said in a statement, adding that the outlook might have to be revised again if the pound or fares fall further.
Ryanair is finally quantifying the impact of sterling’s slide months after rivals including EasyJet Plc and British Airways owner IAG SA reined in expectations following the Brexit vote. Net income is likely to be in a 1.3 billion-euro to 1.35 billion-euro range ($1.43 billion-$1.49 billion), rather between 1.375 billion euros and 1.425 billion euros as previously stated, it said.

‘Mild’
Shares of Ryanair traded 1.6 percent higher at 12 euros as of 9:32 a.m. in Dublin after earlier dropping 3.2 percent. That pares their decline this year to 20 percent, compared with a 33 percent slump in the BI Europe Airlines Top Peer Group index.
The earnings revision is “mild” in comparison with those of some of Ryanair’s competitors, Rob Byde, an analyst at Cantor Fitzgerald in London, said in a note. He reiterated his “hold” rating, saying the stock has previously outperformed the sector.
Ryanair is being squeezed both by a real fall in fares and the lower value of sales made in pounds, Byde said.
Sterling’s decline means average fares will drop by between 12 and 15 percent in the second half, rather than the forecast 10-12 percent, Ryanair said.
Ticket prices tumbled 10 percent in the first half after the carrier had forecast a 9 percent slump, though the slide was partly offset by deeper cuts in expenses, with full-year unit costs now forecast to fall by 3 percent rather than 1 percent, according to the statement.
Ryanair’s 12-month load-factor — a measure of seat occupancy — should also be 1 percentage point better than the forecast 94 percent, it said, pushing the passenger count to 119 million, 12 percent more than last year’s tally.