LONDON: Ryanair logged sliding quarterly net profits on Monday (Feb 6) as the Irish no-frills carrier flew into challenging headwinds facing the sector, such as Brexit, competition and overcapacity.
Profit after tax fell eight per cent to €95 million (US$102 million) in the third quarter or three months to December from a year earlier, the Dublin-based group said in a statement. That undershot expectations of €102 million.
Earnings sagged as the pound weakened sharply after Britain's decision to exit the European Union in a shock referendum last June.
The performance was also marred by competition as lower fuel costs triggered cheaper fares in the European short-haul market - which already faced overcapacity in the low-demand winter months.
Looking ahead, the group added it was cautious about meeting its full-year targets. Ryanair predicted in October that annual profit would stand between €1.3-€1.35 billion, trimming guidance on the Brexit-fuelled slump in sterling.
"Our headline case is that we don't expect to grow as quickly in the UK as we would otherwise have done on the fault of Brexit - because there (are) too many uncertainties there," said Chief Financial Officer Neil Sorahan at a press conference in central London.
"That said, when we do see opportunities, we will clearly take them but I would expect more growth in Europe than in the UK."
Britain accounts for around one-quarter of Ryanair's revenues and converting sterling ticket sales back into euros has hit the airline.
'SEISMIC IMPACT' OF BREXIT
Since Britain's Jun 23 referendum vote, the pound's value has slumped by as much as 14 per cent versus the euro.
That means that Brexit has had a "seismic impact" on Ryanair, according to analysts.
"We expect sterling to remain volatile for some time and we may see a slowdown in economic growth in both the UK and Europe as we move closer to Brexit," Ryanair added Monday.
Like its main rival EasyJet, Ryanair's business has also taken a knock from unrest in Turkey and Egypt.
"We expect the uncertainty post Brexit, weaker sterling and the switch of charter capacity from Turkey, Egypt and North Africa into Spain and Portugal, will continue to put downward pressure on pricing for the remainder" of its current financial year as well as 2017-18, Ryanair added.
The company meanwhile noted that its fuel costs fell by 20 per cent per passenger in the third quarter.
Although lower oil prices reduce jet fuel costs, it leads to increased competition among airlines as the savings trigger cheaper ticket fares.
Ryanair's average fares dropped 17 per cent in the reporting period, offset by a 16-per cent rise in passenger traffic.
"It's the seismic impact of Brexit on Ryanair that really matters," said ETX Capital analyst Neil Wilson.
"Ryanair's trouble is that it has huge exposure to the UK market and sterling, but earnings are booked in euros.
"The company's response to the drop in the pound - to aggressively lower fares to grab market share while expanding routes - does not help profits in the near term."
The British government has stated that it will begin the two-year EU divorce process by the end of March.