Ryanair Holdings PLC yesterday said that profit would slump for the first time in five years as rising labor costs compound a fuel-price surge that might force weaker competitors out of business.
Net income could fall as much as 14 percent in the year through March next year, Ryanair said.
An increase in kerosene costs would add to the pressure in the short term, but could spur a new round of airline failures that would benefit the Irish firm by eliminating competitors, it said.
“Spot prices close to US$80 a barrel are going to lead to a significant shakeout in the industry as early as this winter,” CEO Michael O’Leary told Bloomberg Television. “Some of those lossmaking airlines who couldn’t make money when oil was at US$40 a barrel certainly can’t survive.”
Europe’s biggest discount airline is also grappling with higher expenses after a rostering foul up left it short of pilots, forcing it to sweeten contracts and recognize trade unions.
O’Leary said the outlook this year depends largely on whether the squeeze from fuel leads to the early exit of weaker carriers, such as Norwegian Air Shuttle ASA, eliminating capacity and bolstering fares, or whether they are acquired before they can go bust.
In the case of Norwegian Air, a “rescue” by British Airways owner IAG SA would bring far less benefit than a grounding, since it would only slow capacity growth, the CEO said.
IAG has had two offers for the Scandinavian discounter rejected and CEO Willie Walsh last week said that he was prepared to walk away if acceptable terms could not be reached.
Ryanair net income rose 10 percent to 1.45 billion euros (US$1.7 billion) in the year ended March 31, Ryanair said in a statement.
The figure is likely to fall back to a range of 1.25 billion euros to 1.35 billion euros in the current 12 months, including 100 million euros of higher crew costs, the carrier said in a forecast it said was “on the pessimistic side of cautious.”
Ryanair was forced to scrap more than 20,000 flights in September after botched staff rotas left it without sufficient pilots to crew all of its planes. The crisis meant the carrier had to refund passengers and engage in talks over unions after suffering the first strike in its history.
The market for experienced pilots would “remain tight” for all European airlines over the next year, O’Leary said.
Ryanair said it has reached agreements with its UK and Italian pilots, and made progress with cabin crew in Britain and Spain, while cautioning that there could be localized strikes as negotiations continue.
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