Join our community of smart investors

Ryanair takes strong action on costs

The airline took a hit to profits from ineffective fuel hedges
May 18, 2020

Ryanair (RYA) expects to record a €200m (£178m) loss in its first quarter as a result of the recent collapse in aviation traffic. Most of the airline’s fleet has been glued to the tarmac since mid-March and regardless of whether some flights are restored in July, the knock-on effects of the pandemic have been calamitous. The low-cost carrier anticipates carrying around 80m passengers over its 2021 financial year, well down on the the 154m travellers it had targeted for the period.

IC TIP: Hold at 9.04€

Groundings in the period under review cut full-year traffic by 5m passengers, thereby constraining pre-tax profits by more than €40m. However, trading patterns prior to the lockdown were encouraging. The group experienced a 10 per cent sales lift over its full-year, driven by a combination of traffic growth, fare increases and a 20 per cent jump in ancillary revenues, as more passengers opted for priority boarding and preferred seat services. But the airline’s overall pre-tax profits sustained a €353m blow linked to its 2021 fuel hedges, as the price of crude collapsed due to a sharp fall in global demand and Saudi/Russian inaction on production cuts.

Ryanair took swift action to keep on top of the high costs of being grounded with almost no income, and has cut its average weekly cash burn from €200m to €60m. It is negotiating with partners to reduce new airplane deliveries (including a 210 jet order for the disastrous Boeing 737 Max), with traffic expected to be substantially weaker over the coming year. It has also suspended share buybacks, having returned €581m to shareholders over its 2020 full-year. 

Broker Citi forecasts full-year 2021 pre-tax losses and diluted losses per share of €829m and 66¢ respectively, before pre-tax profits and earnings per share of €615m and 49¢ in 2022.

RYANAIR (RYA)

    
ORD PRICE:904¢MARKET VALUE:€9.85bn
TOUCH:903-905¢12-MONTH HIGH:1,697¢LOW: 805¢
DIVIDEND YIELD:NILPE RATIO:16
NET ASSET VALUE:456¢NET DEBT:8%**
Year to 31 MarchTurnover (€bn)Pre-tax profit (€bn)Earnings per share (¢)Dividend per share (¢)
2016*6.541.72116nil
20176.651.47105nil
20187.151.61122nil
20197.700.9577.4nil
20208.490.6758.2nil
% change+10-29-25-
Ex-div:na   
Payment:na   
£1=€1.12 *Excludes €398m cash return paid in November 2015 **Includes lease liabilities of €246m