Ryanair touts lower fares to fill planes as costs bite

Ryanair Holdings Plc lowered its full-year traffic prediction and said it may need to cut ticket prices to fill seats this winter as passengers become more cost sensitive.

The Irish low-cost airline could introduce “fare stimulation” toward the end of the year to meet seat capacity that’s set to be 25% higher than pre-Covid levels, Ryanair said on Monday as it reported earnings that beat estimates. With limited to no visibility into the next quarters, Chief Financial Officer Neil Sorahan said the airline will push its advantage with low fares.

“We want to fill the planes and we’ll price whatever needs to be priced to do so,” he said in an interview. “It’s too early at this stage to call where fares will go.”

Robust demand for summer vacations has boosted airlines’ balance sheets this year following a period of restricted travel during the Covid-19 pandemic. But concern is mounting about demand after the busy summer travel season as consumers face soaring inflation and mortgage costs and as the rush to return to flying after lockdown risks running out of steam.

Ryanair fell as much as 5.4% to €15.55 in early trading. Before today, the shares had climbed about 35% this year, compared with 47% advance at EasyJet Plc and 40% at Wizz Air Holdings Plc. 

The low-cost specialist was the second major European airline to report earnings for the quarter, following EasyJet, which reported on Friday and left some analysts wondering if it can meet expectations in its final fiscal quarter.

“If you look back over Ryanair’s history they have often pushed fares as low as they have to in order to fill seats,” said Neil Glynn, managing director of analysis platform Air Control Tower. “It’s the right strategy to use market weakness for long-term share gains.”

Ticket Prices

Chief Executive Officer Michael O’Leary previously said that ticket prices would remain elevated for the next five years because of higher oil prices and environmental charges. Ryanair, which has built its business model around ultra-cheap flights, said in May the typical €9.99 ($11) fare could double in price as summer demand skyrockets and because of a supply backlog caused by a shortage of planes.

The proposed fare stimulus comes as Ryanair expands its fleet with plans to take on an additional 173 aircraft by the end of March. Ryanair, which had 558 aircraft on June 30, announced a deal this year for as many as 300 Boeing 737 Max jets worth $40 billion. It comes as the Irish firm targets 30% of the European air-travel market by 2034. 

Europe’s top discount airline reported profit after tax of €663 million in the fiscal first-quarter, compared with analyst estimates of €648 million. Load factor, the percentage of seats filled on an aircraft, rose 95% this year, while total sales jumped 40% to €3.65 billion, Ryanair said.

The carrier lowered its full-year traffic estimate to grow to about 183.5 million passengers, down from a previous prediction of 185 million, citing delivery delays at Boeing Co., the sole supplier of its aircraft. The aviation industry has suffered from an aircraft shortage as airlines rush to order new models. Ryanair said supply chain disruption at Boeing has led to repeated delivery snags, and that more more delays may occur early next year.

Cautiously Optimistic

The airline said it remains “cautiously optimistic” that full-year profit will be “modestly ahead” of last year. Operating costs were up by almost quarter in the first fiscal quarter, climbing to €2.94 billion. Ryanair attributed the increase to higher fuel, staffing and air traffic control costs, including airport and handling charges.

Sorahan said the airline expects to see some savings next year as fuel hedging drops to a lower rate and fares remain higher than the same period last year.

“If there is any kind of slowdown in the economy, people continue to travel, they’re just more price sensitive and that’s exactly where Ryanair operates at its best,” Sorahan said.