Ryanair warns of ‘shakeout’ as fuel costs claim weakest

Bloomberg

Ryanair Holdings Plc warned that profit will slump for the first time in five years as rising labor costs compound a fuel-price surge that may force weaker competitors out of business.
Net income could fall as much as 14 percent in the year through next March, Ryanair said. An increase in kerosene costs will pressure earnings in the short term but could also spur a new round of airline failures that will benefit the Irish company by eliminating competitors, it predicted.
“Spot prices close to $80 a barrel are going to lead to a significant shakeout in the industry as early as this winter,” Chief Executive Officer Michael O’Leary told Bloomberg Television. “Some of those loss-making airlines who couldn’t make money when oil was at $40 a barrel certainly can’t survive.”
Europe’s biggest discount airline is also grappling with higher expenses after a rostering foul-up left it short of pilots, forcing Ryanair to sweeten contracts and recognise trade unions. O’Leary said the outlook this year depends largely on whether the squeeze from fuel leads to the early exit of weaker carriers such as Norwegian Air Shuttle ASA, eliminating capacity and bolstering fares, or whether they’re acquired before they can go bust.

IAG Approach
In the case of Norwegian Air, a “rescue” by British Airways owner IAG SA would bring far less benefit than a grounding, since it would only slow capacity growth, the CEO said. IAG has had two offers for the Scandinavian discounter rejected and its chief, Willie Walsh, said that he’s prepared to walk away if acceptable terms can’t be reached.
Norwegian dismissed O’Leary’s comments as having “no root in reality,” adding in an email that it’s actively focused on cost-saving initiatives and has methods to mitigate “any sudden risks.” The stock has gained 6.5 percent this year, valuing the company at $21.2 billion.
Net income rose 10 percent to 1.45 billion euros in the year ended March 31, Ryanair said. The figure will fall back to a range of 1.25 billion euros to 1.35 billion euros in the current 12 months, the carrier said.
Ryanair was forced to scrap more than 20,000 flights in September after botched staff rotas left it without sufficient pilots to crew all of its planes. The crisis meant the carrier had to refund passengers and engage in talks over unions after suffering the first strike in its history.
Crew Talks
The market for experienced pilots will “remain tight” for all European airlines over the next year, according to O’Leary. Ryanair said it has reached agreements with its UK and Italian pilots and made progress with cabin crew in Britain and Spain, while cautioning that there could be localised strikes as negotiations continue.
Unit costs will climb 6 percent over the next year — or 9 percent including a 400 million-euro fuel headwind — according to Ryanair, which sees growth in passenger numbers slowing and occupancy levels staying flat. The carrier set out plans to scrap voting rights for UK shareholders in the case of a hard Brexit which will avoid breaching EU ownership rules for airlines.