Ryanair presses pause on share buybacks as Brexit looms

Ryanair, which has returned more than €6 billion to shareholders over the past decade through share buybacks and special dividends, has pressed the pause button for at least six months on further stock repurchases amid uncertainty about the outcome of Brexit talks.

Speaking on a call with analysts after Ryanair posted a 7 per cent slump in first-half profits to €1.2 billion, group chief executive Michael O’Leary said it was “appropriate” to wait for some clarity on the UK’s exit from the European Union before buying back more shares. Ryanair spent €750 million acquiring its own stock between February and early October as its market value fell.

“The risks of a no-deal or hard Brexit have risen materially,” Mr O’Leary said. “Although on balance we still expect that the UK will stumble into transition at the end of March. That transition period will last at least 21 months out to December 2020 and probably be extended thereafter.”

The first-half profit drop came as strikes hit bookings, rising oil prices rose, and Ryanair’s average fares fell by 3 per cent during the period as European airlines grappled with “excess capacity”. Fares are expected to ease by a further 2 per cent during the second half of Ryanair’s financial year, the company said.

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However, the carrier said that higher fuel, staff and passenger compensation costs as a result of cancelled flights were offset by a 27 per surge in first-half ancillary revenue, to €1.3 billion.

Passenger numbers rose by 6 per cent during the period to €76.6 million, while revenue increased by 8 per cent to €4.79 billion.

Strike fears

Ryanair warned three weeks ago that its full-year profit forecast would fall by 12 per cent to between €1.1 billion and €1.2 billion, as fears of strikes hit forward bookings from customers, while rising oil prices also took their toll.

“Our full-year guidance remains heavily dependent on air fares not declining further – they remain soft this winter due to excess capacity in Europe, the impact of significantly higher oil prices and on our unhedged exposures, the absence of unforeseen security events, ATC [air traffic controller] and other strikes and the impact of negative Brexit developments,” Ryanair said on Monday.

Mr O’Leary said at the time of the profit warning that while the carrier had “successfully managed” five strikes by a quarter of its Irish pilots during the summer, two co-ordinated strikes in September by cabin crew and pilots in Germany, the Netherlands, Belgium, Spain and Portugal had hit bookings and forward air fares, especially for the October school midterm and Christmas periods.

Carriers, including Ryanair, also had to contend with what Mr O’Leary called the “worst summer of ATC disruptions on record” during the first half of its financial year.

Since Ryanair’s unprecedented step last December to agree to recognise labour unions, the company has reached recognition agreements with pilot and cabin crew organisations in Ireland, Italy and the UK, as well as accords last week with German cabin crew and Portuguese pilots.

“Progress has been slower in other markets such as Spain and Portugal [cabin crew] and Germany [pilots] where competitor employees have interfered to delay agreements with our people and their unions,” it said. “While we hope to finalise more union agreements in the coming months, we cannot rule out occasional industrial action, but we expect their impact to be very limited.”

The company’s €1.2 billion first-half profit and full-year guidance exclude losses at Laudamotion, the low-cost Austrian airline in which it recently acquired a 75 per cent stake.

“Despite a difficult first summer, Laudamotion will carry almost three million guests this year but will loss approximately €150 million in start-up year-one exceptional costs,” Ryanair said. “We are assisting them to improve cost control, fuel hedging and fleet management.”

Ryanair said that with airline margins under pressure in Europe oil prices and the value of the dollar rise, “it is inevitable that more of the weaker, unhedged, European airlines will fold this winter”.

The company said that 90 per cent of its own fuel needs are hedged at $68 dollars per barrel, below the current market price of about $80.

Mr O’Leary told Bloomberg TV on Monday morning that he would be happy to remain as chief executive for another “two to three years”.