Ryanair Holdings PLC (LON:RYA) made its name, and its profits, by being ahead of the curb. The company announced a profit warning this morning that left investors in European airlines wondering if they were missing something. Ryanair hasn’t missed estimates on annual profit in a decade, and routinely beats projections. Something may be rotten in the European airline industry.
This morning Ryanair PLC (LON:RYA) announced that it expected profits to be around 575-600 million Euros for the full year. Analysts were expecting round 645 million Euros from the budget airline by consensus. The revelation led to an 11 percent drop in the value of the company’s shares and had a knock-on effect in other European airlines.
European airline warning
Shares in easyJet plc (LON:EZJ) tumbled more than 5 percent on today’s market in London in response to the warning, while shares in Air France – KLM (EPA:AF) also fell by a fraction on today’s market. Ryanair is blaming a weak Sterling along with fuel costs and weak European demand for the fall in its profits.
The company announced that it would try to counteract the fall in profits by aggressively selling seats through the coming months and grounding up to 80 of its airplanes for the Winter period. The company had previously planned to ground just 50 planes from its fleet for the period.
No other European Airline has issued a profit warning, but Ryanair Chief Executive Michael O’Leary was confident in the company’s analysis of the situation, saying, “I have no doubt that the market will be weaker than the industry is expecting over the next couple of months and we are going to respond to that by being out there first and being aggressive with pricing.”
The fact that Ryanair Holdings plc (LON:RYA) is linking its lower results to weaker European demand may bode poorly for the state of the European economy in the coming months. Ryanair operates its low budget flights across the continent, and is one of the largest airlines in the world by number of passengers.
If the Ryanair Holdings plc (LON:RYA) profit warning and the predictions of its Chief Executive bear out, there might be lower than expected consumer activity in Europe in the months ahead. Europe’s anemic recovery has been a source of slight optimism in recent months, but problems in France and Italy have caused worries about the continent.