Profit after tax at Ryanair dropped eight percent in its third quarter after the pound weakened sharply following Britain's decision to exit the EU, the Irish no-frills carrier said Monday. Net profits fell to 95 million euros ($102 million) in the three months to the end of 2016 compared with the equivalent period a year earlier, the Dublin-based group said in an earnings statement.
Earnings were hit also by sector-wide competition as lower fuel costs trigger cheaper fares. "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 said.
"While there may be opportunities to expand at certain UK airports... we expect to grow at a slower pace than previously planned in the UK and will continue to switch capacity into other key markets around Europe," it added. Britain accounts for around one-quarter of Ryanair's revenues and converting sterling ticket sales back into euros has hit the airline's bottom line.
Since Britain's June 23 referendum vote in favour of Brexit, the pound's value has slumped by as much as 14 percent versus the euro. That means that Brexit has had a "seismic" effect on Ryanair's bottom line, according to analysts. Like its main rival EasyJet, Ryanair's business has taken a knock also 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, the company said. Ryanair meanwhile noted that its fuel costs fell by 20 percent 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 percent in the reporting period, offset by a 16-percent rise in passenger traffic. It said that its business is "growing strongly" in Germany amid restructuring at Air Berlin.
"For Ryanair, it's been a case of more passengers but significantly lower fares," said ETX Capital analyst Neil Wilson. However he added: "It's the seismic impact of Brexit on Ryanair that really matters. "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. "But going forward the growth in traffic will help put it on a surer footing, particularly as it's also reducing costs," Wilson said.