When Delta Air Lines (DAL) announced second-quarter revenue that set records but still fell short of analysts' expectations, with weak sales growth and projected earnings of no more than $1.70 and $2.00 a share, analysts were quick to warn that this could trigger a spate of airlines reporting even less rosy results.
While the second-largest airline with the biggest presence in the U.S. luxury market is well positioned to withstand industry stresses such as slowing aircraft production and finding staff to meet demand for flights, smaller airlines may not be able to pull themselves out of their current predicament. On July 16, Spirit Airlines (SAVE) said it expects an 11th consecutive loss of between $160 million and $173 million in the third quarter.
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On July 22, Dublin-based low-cost airline Ryanair (RYAOF) It also announced that its quarterly after-tax profit fell by more than 46% to 360 million euros (US$392 million), even as passenger traffic rose 10% to just over 55.5 million reserved seats.
What Ryanair called “good news for consumers” was terrible for the bottom line
Ryanair's chief financial officer Neil Sorahan said people were still looking to “get away” but were “minding their money” in what they spent amid multiple financial pressures. The lower fares, which fell by 15% on average compared to the same period last year, inevitably filtered into the airline's profits.
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“Consumers, coming off two years of double-digit rate and traffic growth, were a little bit more frugal,” Sorahan said on local business podcast Breakfast Business. “So even though traffic was strong, we had to do a little bit more price stimulation than we had originally anticipated, which is very good news for the consumer.”
Ryanair shares suffered a severe blow in pre-market trading as a result of the news, and were down more than 15% to €14.03 ($15.27) on Monday afternoon Dublin time. The airline is also listed on the Nasdaq and also fell to $114.32.
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“We now expect second quarter rates to be substantially lower”
“While second quarter demand is strong, prices remain lower than we had expected, and we now expect second quarter fares to be substantially lower than last summer (previously expected to be unchanged or up modestly),” Ryanair CEO Michael O'Leary said in an earnings statement, adding that it was “too early” to give any guidance for the third and fourth quarters.
To get back on track, Ryanair has said it plans to operate its “most extensive flight programme in its history” to more than 200 destinations, including new ones such as Tangier in Morocco. But those flying to or from Dublin are unlikely to benefit, O’Leary and Sorahan warned, from the same lower fares Ryanair has been forced to offer to other destinations.
While Dublin Airport has limited annual passenger numbers to 32 million since 2007, increased traveller interest has created even greater pressure on airlines in the past year.
When the flight schedule for the winter period was announced at the beginning of July, airlines such as JetBlue (JBLU) and United Airlines (UAL) found they did not get any of the extra gate slots they had requested; passengers will, in turn, have a smaller number of flights to Dublin from US cities such as New York and Boston to choose from.
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