Travel has been booming all summer—and airlines might seem like the obvious winners. But it isn’t that easy, as is evident with Ryanair.
The Irish discount carrier’s first-quarter profits after tax plummeted by 46% to €360 million compared to the same period a year ago.
Ryanair’s results come amid a widening appetite for travel—reflected in a 10% uptick in passenger numbers of 55.5 million for the three months.
Still, that increase hasn’t translated into higher profits. Ironically, lower fares are why the budget airline, offering double-digit tickets to different parts of Europe, has struggled.
For the quarter, Ryanair saw a 15% drop in airfares amid rising operating costs, which dented its overall profitability. It also said that Easter falling into the earlier quarter (and fiscal year) was another also contributed to the slip in profits. Q2 fares to be “materially lower” as “pricing remains softer than we expected.”
“Consumers are just a little bit more frugal,” Ryanair’s Chief Financial Officer Neil Sorahan said on a call. “People want to get out there, but they’re just a bit more cautious in how they’re spending their money.”
The shaky results from Europe’s largest airline caused its shares to fall by as much as 15.48% as of 11.30 a.m. London time.
Summer travel can help airline companies set the tone for the year, as it can be lucrative, especially when demand is high. Despite the bounce back from the COVID-19 pandemic, this year has been tricky to navigate amid aircraft delivery delays and an IT outage last week that disrupted travel.
Other European carriers have faced different setbacks—for instance, Air France-KLM warned earlier in July that its revenue would be hurt by passengers avoiding Paris as the Olympics are set to kick off this week.
Limits in capacity owing to Boeing’s safety crisis could have, in theory, driven up fares. However, airlines have instead had to offer deals to passengers to fill up planes. Ryanair CEO Michael O’Leary said on Monday that the quality of Boeing’s deliveries continues to improve, but the pace is “not sufficient” to catch up to this summer’s demand.
As a low-cost carrier, Ryanair has used the pricing lever to its advantage. However, its goal is still to sell as many tickets as possible by pricing them accordingly, Sorahan said, according to Bloomberg.
“We have tried in recent weeks to close off some cheap seats and price passengers up, but are meeting resistance,” O’Leary said during an earnings briefing.
The Dublin-based company still feels optimistic about its long-term growth, though. In its earnings presentation, it said its eyes are still set on its 2034 goal of profitably growing the number of travelers to 300 million annually. For the current year, it expects traffic to increase by 8% to 200 million, keeping it on track for the 10-year goal.
A Ryanair spokesperson told Fortune that what we’re seeing today in the air travel market is a factor of “two years of strong price growth.” Fliers are increasingly booking trips closer to the travel date, so Ryanair has to “stimulate” them with more discounts.
Whether the Irish airline is alone in facing the impact of consumers holding back remains to be seen.
Competitor easyJet will release its results later this week, while Wizz Air will announce its Q1 earnings on Aug. 1.
