Ryanair shares soared by nearly 9% yesterday despite the airline narrowing its forecast for full-year earnings and warning that it may have to wait longer for delivery of its new fleet of Boeing 737-Max jets.
Investors were buoyed, however, by strong second quarter earnings pointing to a better-than-expected full-year outcome and the suggestion that rising air fares next year will compensate for cost pressures brought by the ongoing delay in the aircraft deliveries.
Ryanair posted unchanged after-tax profits, of €1.15bn, for the six months to the end of September; but saw 11% year-on-year growth in first half revenues to €5.39bn.
However, the company generated more than €910m in post-tax profit for the second quarter, alone, which was well ahead of analyst expectations for around €836m. Goodbody aviation analyst Mark Simpson called the quarterly earnings performance “a very positive outcome,” saying “our first thoughts on profit after tax numbers [are] likely to move towards €870m for fiscal year 2020 versus our current forecast of €844m.”
Ryanair has narrowed its post-tax profit guidance for its current year, which runs to the end of March, to €800m to €900m. That compares to a previous forecast range of €750m to €950m.
Ryanair said it now expects to receive only 20 of the 58 Boeing Max jets it had anticipated by next summer. Delivery is due to begin next March or April at the earliest, but Ryanair’s group chief executive Michael O’Leary warned “the risk of further delay is rising”.
In July, Ryanair said it expected to be flying 30 new 737-Max planes next summer with its first delivery due in January. Ryanair is one of Boeing’s biggest customers for the grounded plane with 210 on order.
Mr O’Leary said he did not expect Boeing to achieve its target of getting the plane — which has been grounded since March following two fatal crashes — back in service in the US by Christmas.
US carriers do not expect to fly the Max until 2020, according to their schedules, as they wait for regulators to end the global grounding. Ryanair faces longer delays as it has to wait for approval by the European Union Aviation Safety Agency and specific certification for the Max-200 model, each of which are likely to cause several weeks of extra delay.
Ryanair said it now expects to fly 157 million passengers in the year to the end of March 2021, a growth rate of just 2.6% from its target of 153 million in its current financial year, its slowest growth rate in seven years. Further delays could reduce to zero growth at an airline that on average has seen annual passenger numbers rise 10% since 2014.
However, Ryanair’s chief financial officer Neil Sorahan said there was “no risk at all” that the airline would fail to meet its target of flying 200 million passengers per year by March 2024.
In the first half of its current financial year Ryanair carried 85.7 million passengers, 11% up on the corresponding period last year.
Mr O’Leary said the Boeing-Max fleet will prove to be a “gamechanger” for Ryanair transforming the airline’s cost base and its business “for the next decade but said the delivery delays will push any expected savings out to 2021.
Ryanair is also set to ask competition authorities to force Aer Lingus and British Airways owner IAG to make divestments as part of its purchase of Air Europa.
IAG has announced a €1bn takeover of Spain’s Air Europa to boost its presence on routes to Latin America and the Caribbean.
“I think it is a good deal for IAG, for Willie Walsh. I think it is a bad deal from a competition point of view,” Mr O’Leary said.
“It is a merger to monopoly in Madrid and I think we would certainly be looking for the competition authorities to require some competition divestments, particularly in the Air Europa short-haul,” he said.
- Additional reporting Reuters