Shares in budget airline Ryanair (RYA) fell 5.5% to €9.75 after it cut 3,000 jobs, warned of a 99.5% drop in passenger numbers and accused European rivals of ‘state aid doping’.
Ryanair tends not to sugarcoat its updates to the market and today’s bombshell announcement was no different.
It warned of a net loss of over €100m in the first quarter of its current financial year, with passenger numbers of 150,000 around 99.5% below the 42.4m passengers it had budgeted for.
As a direct result of the crisis resulting from the coronavirus pandemic, Ryanair is looking to cut 3,000 jobs, mainly pilots and cabin crew, while pay cuts will be extended to head office and back office teams, with chief executive Michael O’Leary extending his 50% pay cut for the full financial year to 31 March 2021.
UPDATE HITS EASYJET, WIZZ AIR, IAG SHARES
The airline’s communication to the City, in which it said it only expects to get back to 2019 passengers levels by summer 2022 at the earliest, has reverberated around the industry.
Shares in rival low cost airlines EasyJet (EZJ) and Wizz Air (WIZZ) fell 6.1% to 566p and 3.5% to £27.72 respectively, while British Airways owner International Consolidated Airlines (IAG) dropped 3.7% to 213p, even as it technically announced good news that its two Spanish airlines, Iberia and Vueling, bagged an extra €750m and €260m respectively in financing.
While some return to flight services is expected in its second (July to September) quarter, Ryanair expects to carry no more than 50% of its original traffic target of 44.6m in Q2.
For the full year ended March 2021, Ryanair now expects to carry less than 100m passengers, more than 35% below its original 154m target.
‘STATE AID DOPING DISTORTS LANDSCAPE’
In addition, the airline has lambasted its European rivals and says the state aid ‘doping’ they’ve received ‘distorts the competitive landscape’.
Currently this amounts to over €30bn in addition to payroll supports, Ryanair said, mainly to Lufthansa, Air France-KLM, Alitalia, SAS, and Norwegian.
But London-listed Anglo German rival TUI (TUI) is also in its crosshairs, with Ryanair choosing to highlight the ‘€1.8bn plus’ it has also received in government support.
The airline said, ‘All this State Aid is in breach of EU rules, and will distort Europe’s level playing field in airline competition for many years.
‘Lufthansa, Air France-KLM and Alitalia can now fund many years of below cost selling, whereas Ryanair and other well run airlines will not request (and would not receive) such State Aid.’
Ryanair added that it challenge the ‘unlawful state aid bailouts’ in the EU courts to ‘protect fair competition’ in Europe’s aviation market.
REVIEWING GROWTH PLANS
The airline also said it is reviewing its growth plans and aircraft orders for a ‘post Covid-19 world’, and is in ‘active negotiations’ with Boeing and aircraft lessors to cut deliveries over the next 24 months in a bid to reduce its capital expenditure.
The news is not surprising given airlines, particularly the low cost ones, typically look to buy new aircraft, i.e. add capacity, only when their passenger load factors (how full the planes are) go above roughly 90% on average.
It seems a long time before any airline will get back to such a high load factor, particularly if social distancing has to be enforced on flights, with aircraft makers such as Boeing and Airbus also set to take a huge hit.
‘RETURN TO LOWER FARE FLIGHTS’
Going forward, Ryanair has withdrawn its full year guidance for the year to 31 March 2021, expects to report further losses in the second quarter of this year over the crucial peak summer period.
The firm said it entered the current crisis with almost €4bn in cash, and continues to ‘actively manage’ its cash so it can ‘survive’ the pandemic, and ‘more importantly return to lower fare flight schedules as soon as possible’.
Ryanair said its customers can ‘look forward to more low air fares’, as it claimed it will have to keep fares low to compete with the aforementioned airlines who have received state aid ‘to allow them to sustain below cost selling for months after this Covid-19 crisis has passed.’
