Investors would probably do well to avoid the airline sector for the time being, as the past few months have been quite rocky. The Irish budget airline Ryanair is no exception and in mid-January the company issued a profits warning which caused a further reduction in its share price.
Ryanair Profits Warning
Ryanair shares peaked at a price of more than 18.50 EUR in summer 2017, but the airline’s shares have been on a downward slide ever since. In January 2018 the shares were priced at over 16 EUR, but dropped considerably throughout the year to hover around the 11 EUR mark.
The January 2019 profits warning initiated a further steep drop in share price. Ryanair has warned that lower air fares through the winter months and into spring will impact on profits and also that there is over capacity on short haul routes. Both these factors seem to indicate their air fares will not be likely to rise in the near future, which is great news for frequent travellers.
Michael O’Leary, Ryanair’s Chief Executive, stated the company will not rule out further cuts to air fares, which are already anticipated to drop by around 7% for 2018/19 winter months. These low fares have already impacted rival Flybe, which had to be rescued via a cash injection from a consortium led by Virgin Atlantic earlier in January (insert link: ).
Ryanair have suggested their full-year profits will be in the region of €1.0bn, rather than the original forecast of between €1.1bn and €1.2bn.
Oil Prices Provide Hope
There is a slight glimmer of hope for greater profits for the airline due to drops in oil prices and potential for an improved economic situation throughout Europe, following Brexit. Cuts to oil prices will offer the airline some short-term cash flow boosts and the situation in Europe may answer some of the problems associated with over capacity.
Ryanair shares stand at their cheapest rate in around three years at present, and investors will be eyeing the company’s projections of around 11-times forward earnings. However, these shares are unlikely to prove a good buy for anyone looking for quick profits as the overall picture for airlines is fairly discouraging at present.