Ryanair: Boeing 737 MAX Grounding Will Hurt Profit -- Update
May 20 2019 - 3:08AM
Dow Jones News
By Robert Wall
Ryanair Holdings PLC, Europe's largest budget airline and the
region's largest customer for Boeing Co.'s 737 MAX jets, warned its
annual profit would be dented by the plane's global grounding.
Ryanair said profit for the financial year ended March 31 fell
to EUR885 million ($987 million), despite a 7% increase in sales to
EUR7.7 billion. Profitability was hit by a 6% slump in average
fares and EUR139.5 million in costs associated with getting
Austrian carrier Lauda running after Ryanair bought the airline in
2018.
Profit for the current year should be around last year's figure
-- EUR750 million to EUR950 million -- the Irish carrier said,
depending on whether per-passenger sales rise 2% or 4%. Ryanair
hasn't previously given a forecast for this year, but it said the
newly issued guidance was muted by the crisis surrounding the
Boeing plane and the continued weakness in ticket pricing,
particularly in the U.K. and Germany. Analysts expected about EUR1
billion in profit, according to a FactSet survey.
Shares opened 5% lower on the muted outlook.
Ryanair faces higher-than-expected costs this year from the
suspension of Boeing 737 MAX deliveries after the jet suffered two
fatal crashes in Indonesia and Ethiopia in less than five months.
The discount carrier, which operates mostly older-model 737s, was
due to receive its first MAX planes this spring, which would have
provided more seats and greater fuel efficiency. Ryanair, which has
labeled the plane the "gamechanger," said it has pushed off
deliveries until at least this winter, assuming regulators clear
the plane to fly before that.
Ryanair Chief Financial Officer Neil Sorahan said the carrier
now expects to receive its first MAX planes in October and plans to
start flying them in November if the plane has been approved by
regulators. Ryanair still plans to take about 47 of the planes this
financial year.
The carrier currently expects the U.S. Federal Aviation
Administration to clear the MAX to resume flying around July or
August, with Europe's regulator to follow about a month or two
later, Chief Executive Michael O'Leary said. The airline said it
has suspended all MAX-related pre-delivery payments to Boeing since
the grounding.
"We are working on a daily and weekly basis with Boeing and with
EASA, the European safety agency, on a return to service," Mr.
O'Leary said.
Ryanair boosted Boeing, however, saying it had "utmost
confidence in these aircraft," though it added the planes won't
generate "meaningful" cost savings until the financial year ending
in March 2021. The airline has ordered 135 of the planes with
options for 75 more.
The carrier currently expects the U.S. Federal Aviation
Administration to clear the MAX to resume flying around the end of
June or in July, with Europe's regulator to follow in late July or
possibly August, Mr. Sorahan said in an interview.
Ryanair said it would carry about a million fewer passengers
this year because of the delayed MAX aircraft, which likely equates
to about EUR37 million in lost sales.
"We will be looking for compensation from Boeing, " Mr. Sorahan
said, without giving a figure.
TUI AG and Norwegian Air Shuttle ASA, Europe's largest 737 MAX
operators, also have said their profits were hit by the global
grounding. Both carriers have signaled they expect Boeing to
compensate them for the grounding's financial impact.
Ryanair also said it had taken delivery of its first 737 MAX
simulator and would get two more before year-end. The FAA has
indicated it won't require MAX pilots to undergo extra simulator
time, though some regulators are still considering mandating such
sessions. The FAA this week expects to meet with foreign regulators
to discuss how to manage the MAX's potential return to service.
Mr. Sorahan said the airline was sure Boeing would fix the MAX
and Ryanair would consider, at the right price, also buying larger
737 MAX 10 models. Purchasing rival Airbus A321s would also be an
option, he added, depending on costs.
Airlines in Europe have faced multiple headwinds, including
rising fuel costs and overcapacity in some markets. Several smaller
carriers have gone bust and others -- including Ryanair -- have
issued profit warnings in recent months. Carriers, including
British Airways parent International Consolidated Airlines Group SA
and British budget carrier EasyJet PLC, this month said they would
slow growth. Ryanair said it expected more airlines to go bust in
Europe in winter.
The budget airline's board also approved a EUR700 million share
repurchase.
In the current year, costs are set to increase for the budget
carrier. Fuel costs will be EUR460 million higher than in the prior
year and nonfuel unit costs are rising 2%, which Ryanair blamed on
the MAX delay and a stronger British currency.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
May 20, 2019 03:53 ET (07:53 GMT)
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