Irish budget carrier giant Ryanair's warning yesterday that profits would be at the lower end of its guidance certainly spooked some investors as its share price dived from around €6.80 ($8.96) to just over €6.00.
The airline, citing a weaker yield environment for the coming months, said full-year profits were likely to be at the low end of its previously-issued guidance range of €570-600 million. It added that, if fares and yields continue to weaken over the coming winter, "there can be no guarantee that the full year out-turn may not finish at or slightly below the lower end of this range".
A profit of €570 million would be roughly unchanged on the €569 million it made in 2012-13, a performance which marked it out as one of the most profitable airlines for that year. But the sharp response perhaps reflects both the relatively swift change in mood from the carrier and recent history of conservative profit guidance - which has seen it raise its outlook expectations in each of the previous two years.
In releasing first-quarter profits that were down a fifth at the end of July, Ryanair stuck to its full-year guidance. Now, a matter of weeks later, it has scaled back its thinking. But even in its July guidance, Ryanair highlighted its lack of visibility on winter yields and said the guidance was contingent on yield weakness seen in close-in summer bookings not continuing.
While meeting its first half expectations for the six months ending September, the Irish carrier cites a "perceptible dip in forward fares and yields" into September, October and November.
The airline says this reflects increased price competition and some capacity increases in the UK, Scandinavian, Spanish and Irish markets on top of weak economic conditions across Europe and the weaker sterling-euro exchange rates.
Capacity levels in Europe have been relatively constrained, as several network carriers have cut routes as part of restructuring efforts and also in part through the comparatively low growth of traditionally fast-growing EasyJet and Ryanair.
Ryanair deputy chief executive Michael Cawley pointed to "modest capacity growth" across the sector when the carrier raised its profits outlook for 2012-13 for a second time last January, on higher-than-expected yields. Another European low-cost carrier, EasyJet, in May also cited reduced competitor capacity as a factor in its improved first-half profits performance.
Innovata schedules for this October show overall capacity on short-haul European routes from Ireland, Spain and Scandinavia and the UK running around 3.5% higher than the same month a year ago.
The data shows strong increases in capacity on routes between the UK and Spain - up almost 14% on a weekly seats basis - as well as the Spanish-German and the UK domestic markets. By contrast capacity is down a fifth on the domestic Spanish market compared with October 2012, while there were also cuts on Spanish routes to Italy and France.
Source: Innovata Schedules for October 2012 v 2013, based on Irish, Scandinavian, Spanish and UK markets with more than 50,000 weekly seats
Ryanair's response to softening yields is to trim back its capacity plans for this winter. "We will respond to this lower yield outlook by selectively reducing our winter season capacity," says chief executive Michael O'Leary, adding that it will cut its full-year target from 81.5 million to just under 81 million passengers.
He says the airline will also roll out a range of lower fares and aggressive seat sales. These will see the carrier keep more aircraft grounded - it put around 80 on the ground last year - than it had originally envisaged for the coming winter.
But Ryanair is confident that it will hit its revised passenger targets "albeit at lower fares and yields than originally expected" and underlines the size of its operation after it passed the 9 million passenger mark in August, on an earned seat basis.