Ryanair issues profit warning

Falling profits at Ryanair have led to a rethink at Europe's biggest budget airline.

Shares in Ryanair plunged by 12% this week after it issued a second profit warning in two months.

Ryanair now expects to make €500m in the year to 31 March 2014. That would represent a decline of 10% on the previous year, the first fall in earnings in half a decade.

What the commentators said

There are now people "who won't fly with it if there is any available alternative even if that alternative is, in reality, not very different".

Ryanair is paying the price for its abrasive service, said Nils Pratley in The Guardian. Competition in the no-frills sector has increased in recent years and it is tacitly admitting that rivals "offer a more pleasant experience".

It is copying easyJet's allocated seating policy and revamping the website, which chief executive Michael O' Leary has described as crap'. The number of clicks required to book a ticket will fall from 17 to five.

Another weak spot for Ryanair is that, unlike easyJet, it hasn't managed to attract many business customers. They may be willing to pay a little extra to reach airports closer to their destination.

Ryanair, concluded Olaf Storbeck on Breakingviews,"has discovered the limitations of its long-standing strategy to offer ultra-cheap flights to airports in secondary or tertiary locations".

Given the firm's record, it shouldn't be written off. But the shares, even post-plunge, look too pricey.

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