Europe’s Largest Low-Cost Airline Rebounds to Net Profit

Ryanair Holdings (#RYAAY) reported a remarkable turnaround in its financial performance, achieving a staggering €1.43 billion profit for the full year, a significant improvement from the €355 million loss recorded in the previous year. Also, its revenue witnessed a substantial surge, reaching €10.78 billion (+124%). Several factors contributed to this impressive feat, including a robust revival in traffic, fare increases, an industry-leading cost base, and profitable fuel hedging strategies.

Operating figures for FY2023
■ Traffic soared by 74% to 168.6 million passengers, a solid 13% increase compared to FY20.
■ Fares were raised by 10% to pre-COVID levels.
■ Unit costs, excluding fuel, dropped to €31.
■ The fleet now comprises 537 aircraft, including the addition of 98 B737-8200 Gamechangers as of March 31.
■ Five new bases and approximately 300 new routes were established.
■ Significant market share growth was achieved in Italy, Poland, Ireland, and Spain.
■ An order for 300 MAX-10 aircraft was signed, aiming to upgrade the fleet and accommodate the traffic of 300 million passengers per year by FY34.
■ Fuel for FY24 is 85% hedged at $89 per barrel.

About growth

• Ryanair’s market share experienced significant growth, particularly in Italy (rising from 27% to 40%), Poland (increasing from 26% to 36%), and Ireland (jumping from 49% to 58%). During the summer season, Ryanair boasts the largest schedule, offering approximately 2,500 routes and over 3,000 daily flights. Several factors contributed to this success: firstly, structural capacity cuts in the EU resulting from multiple airline shutdowns or fleet reductions due to the COVID-19 pandemic. Secondly, high oil prices prevented weaker airlines without hedging strategies from expanding their capacity. Thirdly, there was a scarcity of both new and leased aircraft. Lastly, the return of Asian and American tourists to Europe, fueled by the strength of the US dollar, played a significant role in this market growth.
• The European capacity growth is expected to be constrained for approximately four more years due to a substantial backlog in OEM aircraft deliveries. This situation provides Ryanair with a noteworthy advantage as they have the remaining 110 B737 Gamechangers to be delivered over the next three years. Also, Ryanair enjoys several other competitive advantages. Firstly, they benefit from a unit cost advantage over all their competitors. Secondly, they have effectively hedged their fuel costs. Moreover, Ryanair maintains a strong balance sheet and has secured a portfolio of aircraft orders at exceptionally low prices.

Balance sheet and liquidity

• Ryanair boasts one of the strongest balance sheets in the industry, reflected in its BBB+ credit rating and €4.7 billion in cash at the end of the year. The airline’s cost advantage is significantly amplified by the fact that nearly the entire fleet of B737s is owned, with 99% being unencumbered. This stands in contrast to competitors who face growing rates and leasing costs.
• As of March 31, net cash amounted to €0.56 billion, a notable improvement compared to the net debt of €1.45 billion on the same date in the previous year. Despite capital expenditures exceeding €1.9 billion, primarily due to delivery delays, Boeing costs have been deferred to FY24, which will mark the peak of capital expenditure. Going forward, the company aims to maintain a generally balanced net cash-to-debt ratio, with annual aircraft CAPEX exceeding €2 billion from 2027 onwards.

Forecast

Ryanair aims to achieve a 10% increase in traffic, targeting approximately 185 million passengers this year. However, Boeing’s recent delivery delays may result in some of that growth being deferred to the second half of the year, which typically yields lower margins. Fuel costs in FY24 are projected to rise by over €1 billion, despite utilizing an economical fleet, owing to escalating oil prices. Despite outperforming competitors, Ryanair anticipates modest growth in unit costs (excluding fuel) due to factors such as annual wage recovery, high summer crew ratios, and higher route fees. The B737 Gamechanger deliveries in the first half of the year aren’t expected to fully offset these cost increases. So far, summer demand remains stable, with peak fares exceeding last year’s figures. The forecast heavily relies on avoiding adverse events such as war or further delays in Boeing’s deliveries.