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Ryanair Trims FY19 View Due to Strikes & Other Headwinds

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Ryanair Trims FY19 View Due to Strikes & Other Headwinds

Successive strikes in September as well as escalating oil prices force Ryanair (RYAAY) to lower profitability view for fiscal 2019. Simultaneously, the carrier cuts back its winter 2018 capacity.

Ryanair Holdings plc RYAAY has trimmed its guidance for fiscal 2019 due to rising oil prices, higher EU261 costs and back-to-back strikes.

Bearish FY19 View

The carrier now anticipates full-year profit (excluding Laudamotion) in the range of €1.10-€1.20 billion (previous outlook was in the band of €1.25-€1.35 billion). Ryanair gauged that the two recent strikes across five European countries will adversely impact the second quarter and third- quarter traffic and fares. Customer confidence has been largely hit by fear of potential strikes. Additionally, the strikes have resulted in higher EU261 care and re-accommodation expenses.

Ryanair’s second-quarter fares are down nearly 3% (prior forecast was a rise of 1%) due to soft close-in bookings and fares, primarily arising from successive walkouts in September.  The carrier had earlier expected fares to recover during the third quarter. However, the current scenario says otherwise. Possibility of further strikes has dampened customer confidence and fares over the past week. Consequently, the European low-cost airline now estimates second-half fares to decline 2% from the earlier expectation of flat year over year.

Additionally, fuel costs in fiscal 2019 will be higher than last year’s tally by approximately €460 million. Earlier, the same was anticipated to be €430 million higher. "Other Costs" during the fiscal year are likely to be affected by higher EU261 care and re-accommodation costs.  Also, the company estimates FY19 traffic to be 138 million (past view: 139 million excluding Laudamotion), reduced by sluggish traffic growth in the second half. Low airfares, higher oil prices as well as additional EU261 costs have forced the carrier to further slash its capacity guidance for winter 2018 by 1%.

Ryanair Holdings PLC Price

Ryanair Holdings PLC Price | Ryanair Holdings PLC Quote

September Traffic

Traffic in September climbed 11% to 13.1 million customers while load factor remained unaltered at 97% on the back of low airfares. The traffic is inclusive of the Lauda traffic of 0.5m customers with 93% load factor.

Ryanair canceled more than 400 flights in the month due to strikes held on Sep 12 and Sep 28 as well as ATC staff shortage in the UK, Germany and France.

Zacks Rank & Key Picks

Ryanair carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are Spirit Airlines, Inc. SAVE, Trinity Industries, Inc. TRN and Werner Enterprises, Inc. WERN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Spirit and Trinity have gained more than 19% and 13%, respectively, in the past six months. Meanwhile, Werner Enterprises boasts an encouraging earnings record, having outpaced the Zacks Consensus Estimate in three of the last four quarters with an average beat of 7.3%.

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