Ryanair talk of late summer fare cuts chills sector

Ryanair warned rivals on Monday that it may cut its fares in late summer by as much as 9 percent from last year, triggering a share sell-off by investors concerned about the impact on profitability. Ryanair also confirmed it was among the bidders for Alitalia but said it would only pursue a deal if the struggling airline was restructured and Italian government influence removed.
Europe's largest airline by passenger numbers, Ryanair has helped drive down short-haul ticket prices in Europe by increasing its capacity by a third, or about 30 million seats, in the past two years. Some investors thought higher fares in the three months to the end of June were a sign that a period of heavy discounting may be ending. But management made clear the annual increase was just a blip due to the timing of Easter and that prices would fall sharply in the coming months.
"It's a competitive market out there. You're looking at fares down anywhere between 7, 8, maybe as much as 9 percent," , Chief Financial Officer Neil Sorahan told Reuters, referring to then three months to the end of September. Annual falls are likely to average 8 percent in the six months to March 31, the end of Ryanair's financial year, he added. While the average fare forecasts were unchanged from those given in May, some analysts had been expecting the declines to slow and Ryanair's share price was down 2.4 percent at 1245 GMT after earlier falling 4.5 percent. "I think the market had probably priced in that the fare guidance for the winter was very conservative and now they are realising that it is actually realistic," said Davy transport analyst Stephen Furlong.
The comments sent shares in other European airlines down on Monday, continuing falls seen last week, with Lufthansa, Wizz, IAG and easyJet losing between 1 and 3 percent. Ryanair beat analyst expectations with profit of 397 million euros for the three months to the end of June, compared to a company poll average of 366 million euros, after the timing of Easter helped lift fares by 1 percent on an annual basis.
But its forecast that it would make a profit after tax of between 1.4 and 1.45 billion euros in its financial year was below the average forecast by analysts polled by Ryanair ahead of the release for a profit of 1.488 billion. Sorohan said part of the fall in average fares was due to lower fuel prices, but much was due to over-capacity in Spain, Portugal and Italy as charter carriers shift capacity away from Turkey and North Africa.