Low-cost airline Ryanair goes into a steep dive after shock profits warning

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Ryanair fired off a shock profits warning today that sent shares crashing 14 per cent, after the budget airline admitted the summer’s heatwave meant would-be passengers stayed put.

Chief executive Michael O’Leary also warned of slow autumn demand, meaning Ryanair is now slashing capacity over winter, grounding as many as 80 aircraft to cut costs.

That comes off the back of a disappointing summer: the Irish carrier is traditionally able to push through double-digit fare hikes for passengers who book last-minute flights, particularly during its peak summer season. This year, though, the heatwave saw a fall in demand for sunny breaks, meaning Ryanair couldn’t cash in.

The twin pieces of bad news mean the airline, which routinely beats its own forecasts, now expects net profit for the year to be at the lower range of its earlier forecast of €570 million (£483 million) to €600 million. It warned: “if fares and yields continue to weaken over the coming winter there can be no guarantee that the full-year [profit] may not finish at, or slightly below, the lower end of this range.”

Ryanair also trimmed its full-year traffic target by more than 500,000 passengers to just under 81 million.

The news sent shares in rival airlines tumbling: easyJet was off 7%, British Airways owner International Airlines Group was 4 per cent cheaper, as was Thomson Airlines owner Tui Travel, and low-cost carrier Norwegian Air dropped 6 per cent.

“Late bookings in July were weaker than expected, due primarily to the heatwave, and weaker exchange rates,” said O’Leary. “Bookings into September, October and November have been slower too. Last year, we had the Olympic bounce, with a surge in demand after the Games finished, and it may be that we didn’t take that into account in our forecasts. But I think it’s more than that. We have noticed a perceptible dip in forward fares.”

In July, Ryanair reported a 21 per cent drop in net profit to €78.1 million. O’Leary blamed slow demand on the ongoing impact of austerity, tough economic conditions across Europe, and weaker exchange rates.

But investor gloom is good news for passengers: Ryanair said it will “aggressively” cut fares and run seat sales, particularly in the UK, to lure more people to its seats this winter.

The shares fell 92 cents to €5.86.