Ryanair (NASDAQ:RYAAY) Profits Take A Hit After Falling Pound

106

Ryanair Holdings plc, (NASDAQ:RYAAY) which operates the low-cost Irish planes, has brought down their profit estimations for the full year, blaming it on the lower Pound price. The Sterling has come down by about 18 percent against the dollar since a British referendum voted to exit the European Union recently.

Not just Ryanair, many other businesses too have taken a hit following Britain’s decision to come out of the Union. It could have far-reaching implications for the economy.

Ryanair now says its profit is likely to be between £1.17 billion and £1.2 billion, which is 5 percent less than earlier estimates. A company spokesman further revealed that revenues earned from fares have come down by 13 percent to 15 percent in the second half of the year because of the falling pound. They had expected it to slide, but the actual numbers indicated that it was more than what the company had expected.

As a result, profit growth for the full year is now projected to be 7 percent, against the earlier expectation of 12 percent.

Other Airline Businesses Are Losing Money Too

Earlier this year, Easyjet (LON:EZJ), which is a rival of Ryanair, had also disclosed that the falling pound is likely to cost the company £90 million in this financial year, which is much higher than the £40 million initial estimate made in July.

Ryanair has issued a warning, saying that the profit outlook could worsen if the pound drops even more, and if there is a further pressure on ticket prices.

Fares are expected to come down by 13 percent to 15 percent in the second half. Also, there have been fewer international travelers in recent months, after terror attacks in a number of cities around the world.

Better Controls to Turn It Around

Michael O’Leary, who heads the budget airline, has however assured investors that they have already imposed “better cost control” to achieve good financial results, following Brexit. These measures are likely to offset the revenue loss by a bit and make the end results look better. “There are going to be no further cuts in average revenue”, he added. Flight capacity is going to be 94 percent, which is slightly better than the forecast.

Other than the falling pound, there are no other issues with Ryanair (NASDAQ:RYAAY) at this time. In this financial year, the Dublin-based carrier has flown 119 million passengers, up 12 percent than last year.