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Ryanair profits slide as discount giant battles labour strife

Airline posts 20% drop in Q1 profit; warns that strikes are hurting flight bookings

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Disruptions from staff walkouts have left customers wary of booking flights. That has resulted in prices being cut just as fuel costs rise and the Irish carrier is shelling out for 20 per cent pay increases already granted to pilots.

London

LABOUR strife is starting to weigh on Ryanair Holdings.

The discount airline posted a 20 per cent drop in first-quarter profit, and warned that sporadic walkouts by trade unions, along with regional air traffic-control strikes, are starting to make customers wary of booking flights.

That's fed into a drop in prices, just as fuel costs rise and the Irish carrier shells out for 20 per cent pay increases already granted to pilots.

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Fares fell 4 per cent during the period ended June 30, and the pricing environment remains weak, Ryanair said. The company kept its profit full-year outlook, but said the guidance is "heavily dependent" on fares this quarter, crew strikes, traffic-controller strikes and other wild cards such as Brexit.

Shares in the Ireland-based carrier fell as much as 6.3 per cent, the most in just over seven months.

While the airline had been able to re-accommodate passengers whose flights were cancelled during recent strikes by Irish pilots, "the real impact is going to be on uncertainty in relation to the forward booking curve," chief financial officer Neil Sorahan said by phone on Monday.

He's "a little bit more pessimistic on fares" than he was when the airline published full-year results in May.

The airline expects further strikes over the peak summer period "as we are not prepared to concede to unreasonable demands that will compromise either our low fares or our highly efficient model," according to the statement.

It may review its winter schedule - shrinking fleets at bases where there's disruption - if strikes continue to hit customer confidence.

"If there's other bases where we can make more money and we can operate more efficiently then we'll look at the allocation" of planes, Mr Sorahan said in an interview on Monday. "We've got mobile assets and these assets can be moved around quite freely."

No decisions about shifting its fleet have yet been taken, he said.

Profit after taxes fell to 319 million euros (S$509 million) in the three months ended June 30, according to the statement. Fares will rise about 1 per cent in the second quarter, down from the 4 per cent previously guided, it said.

The profit drop was due to "lower fares, the absence of half of Easter in the quarter, higher oil prices and pilot costs," chief executive officer Michael O'Leary said in the statement.

Traffic grew despite over 2,500 flight cancellations caused by air traffic control staff shortages and strikes, he said.

Ryanair left unchanged guidance set out in May that net income for the year ending March 2019 will decline for the first time since 2014, to a range of 1.25 billion euros to 1.35 billion euros.

The airline is facing strikes by its Irish pilots and by Spanish, Portuguese, Belgian and Italian flight attendants, who plan walkouts this week.

Germany's Vereinigung Cockpit pilot union is also balloting members who fly with Ryanair, with the outcome due later this month.

This summer's disruptions mark the first major industrial action the budget carrier has seen, after it agreed to accept unionisation in the face of a staffing crunch last year.

A four-hour German pilot strike in December - Ryanair's first-ever strike - led to delays but no cancellations.

The airline said in May, before the latest round of labour opposition, that costs associated with recognising labour groups would reach 100 million euros this fiscal year.

First-quarter revenue rose 9 per cent to 2.08 billion euros. Analysts had expected revenue of 2.04 billion euros, according to eight estimates compiled by Bloomberg.

Ancillary revenue, including from passengers paying extra for priority boarding, rose 25 per cent.

Higher oil prices will see "weaker, unhedged carriers" struggling and going out of business later this year, Mr Sorahan said. "There will be opportunities to pick up bits and pieces from consolidation."

The airline said the risk of a so-called "hard Brexit" is being underestimated and reiterated a warning that the UK's departure from the European Union may lead to Ryanair's UK shareholders losing voting rights.

Ryanair this month won EU approval to take a majority stake in the Austrian airline LaudaMotion.

The Irish carrier said on Monday that LaudaMotion would lose about 150 million euros in its first year but "these results will improve substantially to break even by year 3 of operations."

Ryanair said in May that LaudaMotion will need almost 100 million euros in startup costs and operating losses over the next two years. BLOOMBERG