Ryanair adds more frills after profit warning

Ryanair is to overhaul its check-in process. Picture: Contributed
Ryanair is to overhaul its check-in process. Picture: Contributed
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BUDGET airline Ryanair is to overhaul its check-in process, signalling the end of passengers scrambling for seats on its planes, after warning of its first fall in profits for five years.

The Dublin-based carrier, under pressure to improve its customer service, said the move was in direct response to “enormous demand” from travellers.

While passengers will still have to pay to choose their own seats, Ryanair’s outspoken chief executive, Michael O’Leary, said the group will introduce allocated seating from 1 February, “enabling families or other groups to ensure that they sit together”.

O’Leary last month unveiled plans to relax baggage restrictions for passengers, who will be allowed to take a second small carry-on bag, while charges for hold luggage and printed boarding cards will also be reduced.

Yesterday’s continued shift in strategy, seen as an effort to win premium passengers away from rivals such as EasyJet, came as Ryanair warned profits will be hammered this winter because of downward pressure on fares.

Shares in the firm slumped 12.8 per cent to €5.32 as it predicted a 9 per cent drop in average fares for the current quarter and a possible decline of 10 per cent in the final three months of its financial year.

Issuing its second profit alert in as many months, Ryanair said earnings for the year to 31 March – which had previously been forecast to come in between €570 million and €600m – could now be as low as €500m “due entirely to this lower fare environment”.

The cautionary stance comes in sharp contrast to last month’s trading update from EasyJet, in which the Luton-based airline said it was targeting a full-year profit of between £470m and £480m, compared with earlier guidance of £450m to £480m.

Ryanair’s profits for the six months to 30 September edged up 1 per cent to €602m, in line with analysts’ expectations, on revenues 5 per cent higher at €3.3billion. It is likely to make a loss in the second half. Passenger numbers rose 2 per cent to 49 million, and O’Leary said an average 2 per cent reduction in fares helped boost passenger figures by 6 per cent in October.

He added: “People are characterising this as ‘what’s gone wrong?’ Nothing! We are booming ahead.

“There is a weaker pricing environment out there. Get over it. Wherever that pricing falls, it will be significantly below what our competitors can withstand.”

He said the Irish government’s decision to scrap air passenger duty from April, along with an order for 175 Boeing jets, meant the carrier is “well positioned to return to strong and profitable traffic growth from September 2014 onwards”.

Although Ryanair’s ticket prices are falling, the group saw “ancillary” revenues surge by 22 per cent to €713m, driven by the roll-out of reserved seating, priority boarding and higher credit card fees.

Several competitors, including Norwegian and Aer Lingus, have also warned of strong competition pushing down prices, but David Holohan, an analyst with Merrion Stockbrokers, said: “This is a weak and disappointing profitability guidance from Ryanair, indicating that the airline is experiencing a more difficult operating environment than several of its peers.”

Shares in EasyJet fell 5.1 per cent to 1,230p yesterday, while International Airlines Group – owner of British Airways and Spanish carrier Iberia – dipped 2.1p to 351.8p.