Ryanair Holdings Plc (RYA) plans to move to full seat reservations and may target more primary airports as Europe’s largest discount carrier seeks to refine its offering after trimming its earnings goal twice in as many months.
The airline will move to fully allocated seating from February at a cost of 5 euros ($6.75) to select a seat, Dublin-based Ryanair said today. The company predicted its first profit drop in five years today, causing the stock to slump as much as 12 percent, the most in two months.
The changes remove Ryanair further from the minimal-convenience model it pioneered under Chief Executive Officer Michael O’Leary, the mouthy face of the airline’s budget approach that mixes low fares with brash marketing and the notion that price always trumps a lack of service. Since Ryanair’s first earnings revision in September, O’Leary has been on an offensive to improve the flight experience.
“There are things that we can remove that don’t cost us a lot of money that will significantly improve the customer experience,” O’Leary said, speaking at a press conference in London today. “Most of that revolves around the website, and then me going around preaching a Damascene conversion to customer service.”
Ryanair declined 74 cents, or 12 percent, to 5.36 euros, and the report weighed on shares of smaller rival EasyJet Plc (EZJ), whose stock dropped as much as 6.9 percent in London. Other airlines in Europe, including Deutsche Lufthansa AG (LHA), also fell.
The more traditional approach to customer service comes as Ryanair faces greater competition and declining air fares. Profit after tax for the year ending March 31 will be 500 million euros to 520 million euros, the carrier said today, below its previously estimated earnings band.
Ryanair has cut prices and said it will ground as many as 70 aircraft for the winter season to trim capacity. The company on Sept. 4 predicted net profit of as little as 570 million euros and warned that results could fall short of that number.
“While the next six months look like a good time to take a low-cost Ryanair flight, it is not shaping up as a good investment outlook,” said James Hollins, an analyst at Investec Securities in London. “Investors need to decide whether Ryanair can drive sufficient traffic growth and yield increases in fiscal year 2015 and onwards.”
Profit after tax last year was 569 million euros. Profit for the first six months of the fiscal year gained 1 percent to 602 million euros, as the airline flew 49 million passengers. Revenue rose 5 percent to 3.26 billion euros. Seeking to take advantage of lower fuel prices, the carrier said it extended its fiscal 2015 fuel hedge to 60 percent at $94 per barrel.
“We identified in September that we saw softer economic conditions, we now see them throughout Europe,” Chief Financial Officer Howard Millar said in a telephone interview. “We’re impacted by weaker sterling-euro and generally there are a lot of very low fares out there, so a softer economic environment driving low fares.” The airline will continue “aggressively filling” aircraft, he said.
Rivals across Europe including Air France-KLM Group (AF) and Aer Lingus Group Plc (AERL) have a slashed earnings targets as a stronger euro and sluggish economic growth weigh on sales. While forward bookings are ahead of last year, fares are set to drop by 10 percent in the fourth quarter, Ryanair said, adding that the next 12 months will see a “brief pause” in traffic growth following two decades of consecutive expansion.
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