Ryanair profits slump as weaker demand pushes airline to slash prices over summer

Ryanair profits slumped by a third in the first quarter as higher fuel costs and weaker customer demand forced the airline to cut ticket prices over its peak summer period.

The budget airline reported after-tax profits of €538million (£457m), down from €820million (£697m) a year earlier, and below analysts' expectations of €579million (£492m).

It pointed to a spike in jet fuel prices for the 20 per cent of its fuel that is not hedged, and a 6 per cent drop in its air fares primarily due to the impact of the Middle East conflict. 

Ryanair said this offset 6 per cent growth in passenger numbers to 61.3million.

Chief executive Michael O'Leary said fares in the first quarter 'required stimulation' as the war led to 'consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings.'

He added that the second quarter is 'trending modestly down year-on-year and the final first-half fare outcome is heavily dependent on the strength of close-in bookings in August and September.'

At its last quarterly update in May, Ryanair said fares could be broadly flat between July and September.

Ryanair shares opened 6 per cent lower as the airline also suspended its annual guidance.

O'Leary said it was too early to give an outlook for the full year, because it is 'highly sensitive' to developments, including escalation in the Middle East and Ukraine, jet fuel prices, macroeconomic shocks and air traffic control strikes.

Chris Beauchamp, chief market analyst at IG said: 'When even Ryanair is facing the need to 'stimulate' ticket prices, you know airlines are going through a rough patch.

'There's nothing surprising in these numbers today, and the move to suspend guidance is entirely understandable, but with oil prices heading higher and another weekend of heavy strikes behind us, it looks like airlines will be lucky if August and September bookings are only somewhat weaker than last year.'

Chief financial officer Neil Sorahan said the weakness in fares is likely to be short-lived as Europe faces airline failures and consolidation. 

He told Reuters that he expected 'significant capacity' to be cut this winter, 'which could be positive for pricing'.