Ryanair reported a 7% fall in H1 profits to €1.20bn (excl. Laudamotion losses). Average fares declined 3% due to excess capacity in Europe, an earlier Easter in Q1, repeated ATC strikes/staff shortages which caused a spike in cancellations of higher fare, weekend flights.

Higher fuel, staff and EU261 costs have offset strong ancillary revenue growth. Ryanair’s Michael O’Leary said: “As recently guided, H1 average fares fell by 3%. While ancillary revenues performed strongly, up 27%, these were offset by higher fuel, staff and EU261 costs. Our traffic, which was repeatedly impacted by the worst summer of ATC disruptions on record, grew 6% at an unchanged 96% load factor.

H1 highlights include: Traffic grew 6% to 76.6m (LF 96%) Ave. fare fell 3% to under €46. Ancillary revenue rose 27% to €1.3bn. Agreements signed with Irish, UK, Italian, Portuguese (pilots) & German (cabin crew) unions. Laudamotion holding increased to 75%. 23 new B737s delivered . €540m returned to shareholders via buybacks.

New Routes & Growth: We took delivery of 23 new B737s in H1 (bringing the fleet to 450) and launched over 100 new S.18 routes. We have trimmed winter capacity by 1% (including base closures in Eindhoven and Bremen) in response to weaker fares and higher oil prices. We expect FY19 traffic will grow to 141m (incl. 3m Laudamotion). As we look beyond this winter, we have announced new S.19 bases in Bordeaux, Marseille, London Southend and increased capacity in Luton. We plan to operate over 100 new routes in S.19.

With spot fuel reaching $85bbl, rising interest rates and the stronger US dollar, airline margins are under pressure and it is inevitable that more of the weaker, unhedged, European airlines will fold this winter. In recent weeks Skyworks (Switz.), VLM (Bel.), Small Planet & Azur Air (Ger.), Cobalt (Cyprus) and Primera Air (Stansted & Scandinavia) collapsed. At the same time, many larger airlines are closing bases and cutting routes to minimise winter losses. We expect more failures this winter and we cannot rule out further capacity cuts or base closures in Ryanair if oil prices rise or air fares fall further. Over the medium term, this consolidation will create growth opportunities for Ryanair’s lowest fare/lowest cost model.