Business

Ryanair profits hit by strikes and higher fuel costs

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Image caption Ryanair chief executive Michael O'Leary hopes more smaller rivals will disappear

Strikes by air traffic controllers and Ryanair pilots and cabin crew have contributed to a slide in half-year profits over the summer.

The airline reported a 7% fall in profits to €1.2bn (£1.06bn) for the six months to 30 September.

Profits were also hit by higher fuel costs and what Michael O'Leary called "the worst summer of ATC [air traffic control] disruptions on record".

However, traffic rose 6% and its planes were 96% full.

Average fares slipped 3% to €46, but ancillary revenues - such as luggage and seat reservation fees - jumped 27% to €1.3bn.

'Worrying effect'

After many years of ignoring workers' attempts to get it to recognise unions, Ryanair finally agreed to do so at the end of 2017.

However, continuing rows over working conditions led to the airline being hit by a wave of industrial action over the summer by staff in several European countries.

Mr O'Leary said the strikes had had little impact on its schedules and that rivals such as Air France and Lufthansa had been hit harder by industrial action this summer.

However, Neil Wilson at Markets.com said strikes were having a "worrying effect on customer confidence ... in Ryanair, as evidenced by the weak forward bookings. Progress has been made on securing deals with unions but there is a lot of work to do still."

Rising oil prices have also bumped up Ryanair's fuel bill, eating into profits. The carrier spent €1.3bn on fuel in the first half of the year, up 22% from a year earlier.

Earlier this month, Ryanair warned that profits for the full year would be 12% lower than previously forecast at between €1.1bn and €1.2bn. It reported a record €1.45bn profit after tax for the year to 31 March.

"This full-year guidance remains heavily dependent on air fares not declining further - they remain soft this winter due to excess capacity in Europe - [and] the impact of significantly higher oil prices," Mr O'Leary added.

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Gerald Khoo, an analyst at Liberum, said Ryanair's margins were being squeezed by lower average fares and higher fuel and staff costs, but remained at industry-leading levels. "We do not see these being fundamentally undermined by the move to recognise unions," he added.

A number of airlines have collapsed in recent weeks, including Primera Air and Cobalt, and Mr Wilson said Ryanair remained "very well placed to capitalise on the inevitable and long overdue consolidation in the sector".

He added: "Consolidation should ultimately be good for Ryanair, but it's a turbulent ride at the moment."

Mr O'Leary told Bloomberg that he hoped that more smaller airlines failed "because they deserve to disappear".

He predicted a "very, very difficult winter" for some airlines and also questioned the viability of rivals such as Norwegian, which was paying $85 a barrel for fuel compared with Ryanair's $68.

The controversial boss also dismissed the prospect of a no-deal Brexit because it would mean flights being grounded on 1 April - the day after the UK is due to leave the European Union. Such a prospect would cause the government to fall, Mr O'Leary said.

Shares in Ryanair have fallen by 40% since their peak of almost €20 last August before the strike action began. Its shares rose 3.6% to €11.86 in early trading in London on Monday.

The airline came under fire over the weekend for apparently failing to remove a passenger from a flight after he racially abused a woman in her 70s.

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