Ryanair clings to profit goal despite 737 Max grounding

Ryanair Holdings clung to its full-year earnings outlook as a fare war and the grounding of Boeing’s 737 Max jetliner ate into first-quarter profit at Europe’s biggest discount airline.

Margins on ticket sales are shrinking, with a glut of seats hurting prices in Germany and concerns around Brexit weighing on U.K. demand, Ryanair said Monday. At the same time, a jump in revenue from food, extra bags and faster boarding should keep the discounter on track to meet fiscal 2020 targets.

The impact of the fare war has been exacerbated by the global idling of the Max after two fatal crashes, and Chief Financial Officer Neil Sorahan confirmed that with Boeing struggling to get the Max back into service, Ryanair’s first planes aren’t expected until January or February. He revealed cuts to expenses are being sought to make up for missed benefits from the fuel-efficient jets, for which the Irish carrier is one of the biggest customers.

The CFO said Ryanair’s lower cost base means it’s still better off than European rivals, and stands to gain market share from any shakeout of the sector next winter. “Longer term the cost advantage that we have and the strength of our balance sheet means that we’re in a very strong position to participate in the opportunities that will inevitably arise,” he said. Ryanair traded 1.3% higher at 10.15 euros as of 9:16 a.m. in Dublin, where it is based, after earlier advancing 3.4%. The shares are down 5.4% for the year, compared with a 17% decline in the Bloomberg EMEA Airlines Index.

Bernstein analyst Daniel Roeska said in a note that the reiteration of Ryanair’s annual target will support the stock, but management is “in a tough spot,” given a forecast 6% drop in first-half fares, rising fuel expenses and growth of only about 3% next summer due to the Max delays.

Ryanair’s net income fell 21% to $270 million in the first quarter through June, with the fare slump boosting passenger numbers and revenue 11% at the expense of profitability.