Ryanair tipped to weather turbulence

Ryanair tipped to weather turbulence

By Geoff Percival

Ryanair is well placed to benefit from continuing unrest in the European airline market, says Davy’s Stockbrokers. The broker has reduced its net income forecasts for Ryanair’s current and next financial years by 13% and 15% in the wake of the airline significantly lowering its current year profit forecast last week.

However, Davy’s said Ryanair’s growth model will still endure the current climate of rising fuel prices and overcapacity pressures which are threatening airline survival across Europe and boosting consolidation. Ryanair should weather that storm as it saves on fuel costs by modernising its fleet of planes over the next three years.

“We have only started to see market capacity cuts, but these will accelerate. Europe’s niche airlines have had a difficult summer — Primera Air, Small Planet, VLM, Azur Air Germany and SkyWork have all ceased operations. We expect more casualties from rising fuel prices and overcapacity unless there is consolidation,” said Davy analysts Stephen Furlong and Ross Harvey in a research note.

Key to Ryanair’s stability, Davy’s said, will be its ability to reach settlement with crew and pilot unions over the winter.

“The backdrop of capacity cuts, airline failures and potential consolidation should provide a landscape for negotiation. This will leave Ryanair well placed to expand its lower fare, lowest cost model into next summer,” Davy said.

It also expects Ryanair to launch more share buybacks — €6bn having now been returned to investors since 2008 — with €4.3bn of free cashflow expected to be generated in the next four years.

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