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The Street
The Street
Veronika Bondarenko

What an airline calls 'good news for consumers' was terrible for the bottom line

When Delta Air Lines  (DAL)  announced second-quarter revenue that set records but still fell below analyst expectations with low sales growth and projected profit of no more than $1.70 and $2.00 per share, analysts promptly warned that this could set off a string of airlines reporting even less rosy results.

While the second-largest and most luxury-minded airline in the U.S. is positioned to withstand industry strains like slowed aircraft production and finding staff to meet flying demand, smaller airlines may not be able to come out of their current predicament. On July 16, Spirit Airlines  (SAVE)  said that it expects an eleventh consecutive loss of between $160 million and $173 million in the third quarter.

Related: Spirit Airlines execs sound warning about worrisome trend

On July 22, Dublin-based low-cost airline Ryanair  (RYAOF)  similarly announced that its post-tax quarterly profit was down more than 46% to €360 million ($392 million USD) even as passenger traffic increased by 10% to just over 55.5 million booked seats.

Ryanair stock tumbled more than 15% upon the news

Ryanair Chief Financial Officer Neil Sorahan said that people are still looking to "get away" but are "minding their pennies" about what they spend amid multiple financial pressures. Down an average 15% from the same period a year ago, lower ticket fares inevitably seeped into the airline's profits.

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"The consumers, coming [from] two years of double-digit fare growth and double digit traffic growth, were just a little bit more frugal," Sorahan said on local business podcast Breakfast Business. "So while traffic was strong, we had to do a little bit more price stimulation than we had originally anticipated — very good news for the consumer."

As a result of the news, Ryanair shares took an immediate hit in pre-market trading and were down by more than 15% at €14.03 ($15.27 USD) by Monday afternoon Dublin time. The airline is also listed on the Nasdaq and also fell down to $114.32.

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'We now expect Q2 fares to be materially lower'

"While Q2 demand is strong, pricing remains softer than we expected, and we now expect Q2 fares to be materially lower than last summer (previously expected to be flat to modestly up)," Ryanair CEO Michael O'Leary said in a statement on the earnings while also adding that it was "too early" to give any guidance for the third and fourth quarters.

To return to better financial numbers, Ryanair expressed plans to operate its "largest ever schedule" of flights to more than 200 destinations.including new ones like Morocco's Tangier. But those flying into or out of Dublin are not likely to, O'Leary and Sorahan warned, benefit from the same lower fares Ryanair has been pushed into offering at other destinations.

While Dublin Airport has been capping annual passengers at 32 million since 2007, higher traveler interest has been creating even stronger pressure on airlines in the last year. 

When the flight schedule for the winter period was announced at the start of July, airlines such as JetBlue  (JBLU)  and United Airlines  (UAL)  discovered that they did not get any of the additional gate slots they had requested — passengers, in turn, will have a smaller number of flights to Dublin from U.S. cities like New York and Boston to choose from.

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