Ryanair shares surge as investors bet on it winning pandemic recovery race

Bullish airline says it could recover from Q1 losses to make a profit this quarter and break even over the financial year
Ryanair shares surge as investors bet on it winning pandemic recovery race

Ryanair saw losses extend in its first quarter, but strong passenger growth has led it to raise traffic forecasts for its latest financial year and eye a near-total wiping out of Covid-driven financial losses.

Ryanair has said it could make a profit this quarter and break even for its current financial year — bullish tones which significantly boosted its shares despite it reporting a widening in first-quarter losses.

The airline group posted a net loss of €273m for its first quarter — the three months to the end of June. 

This was up from a loss of €185m for the same period last year, but was still smaller than expected. Analysts had expected a slightly higher quarterly loss of €277m. First-quarter revenues jumped from €125m to €371m.

Ryanair said the Covid pandemic has continued to “wreak havoc” on its business with current year trading conditions remaining “challenging” and Covid travel restrictions “prolonging uncertainty”. However, investors were buoyed by the airline’s optimism. 

Airline flew 8.1m passengers in Q1

While its losses widened in the first quarter, so too did traffic — with 8.1m passengers travelling across Ryanair’s European route network versus just 500,000 during the same period last year.

Its share price rose by around 4% on the back of its update. Ryanair’s shares have risen nearly 50% over the past 12 months, outpacing the growth of its nearest rivals Easyjet and Aer Lingus owner IAG, which has gained just over 30%.

Analysts clearly view Ryanair as leading the recovery in European aviation and emerging from the Covid crisis as the leading airline group in the region. 

That is largely based on its strong balance sheet — with a cash balance of just over €4bn and a slashed net debt from €2.28bn to €1.66bn being reported – hedged fuel, ability to invest in opportunities, enlarged route and base network and modernised fleet.

Ryanair 'at a tipping point' to rebound

“It appears that we are at a tipping point for Ryanair to rebound even stronger as the market leader post-pandemic,” Davy analysts Stephen Furlong and Ross Harvey said in a research note.

“It is seeing a strong rebound of pent-up travel demand into August and September, with pre-Covid growth planned to resume strongly in summer 2022. We continue to believe that Ryanair is hugely geared to a market recovery and is best positioned,” they said.

Ryanair said it could carry up to 100m  passengers in its current financial year, which runs to the end of next March. 

That would be higher than the previously-guided lower end of an 80m to 120m passenger range, and is loosely based on an already strong recovery in bookings for the current quarter. Pre-pandemic, Ryanair ferried about 150m people a year.

Bookings expected to reach 10m in August

Ryanair expects passenger bookings to rise from over 5m in June to almost 9m this month and over 10m in August, barring any further Covid setbacks across Europe.

Ryanair group chief executive Michael O’Leary said if most of Europe’s adult population is fully vaccinated by September, “we believe we can look forward to a strong recovery in air travel for the second half of the fiscal year and well into summer 2022”.

The group said while a “meaningful” annual earnings forecast is “impossible” at this point in time, a “likely” outcome, based on current trends, would be for “somewhere between a small loss and breakeven” for the full year.

“This is dependent on the continued rollout of vaccines this summer, and no adverse Covid variant developments,” it warned.

Ryanair suffered a net loss of €815m in its last full financial year.

Hopeful of turning a profit in this quarter

Chief financial officer Neil Sorahan said the carrier is hopeful of making some level of profit in the current quarter.

“We would hope in Q2 that we make a profit,” he said. “A lot will depend on how that final outcome is, but we have a lot of hopes as we get into the autumn as well. Germany and central and Eastern Europe have been very strong,” Mr Sorahan said.

Ryanair also said it could place a significant order for Boeing's Max-10 aircraft this year but only if the price is right as the airline is not under any time pressure, Mr Sorahan said.

A large order from Ryanair would provide a major boost to the Max, which was grounded for 20 months after two fatal crashes. 

Ryanair is already the largest European customer for the Max, with 210 firm orders of the 197-seat Max-200 model.

Airline will buy Max-10s 'if the price is right'

It has repeatedly said it is interested in a significant order of the larger 230-seat Max-10, which took off on its maiden flight in June.

"Maybe the back end of the year we will do something. Maybe not. It's all predicated on price," Mr Sorahan said.

"If the price is right, we're interested but it's a post FY26 timeframe so we are under no time pressure there," he said, referring to the airline's financial year to March 31, 2026, when its current order ends.

In a presentation to investors, Mr O'Leary said the Max-10 was something the airline would "revisit with Boeing maybe towards the end of the year."

"We think the Max-10 is a great aircraft, but you know we are very disciplined in Ryanair we will only place orders when we think the price is right," he said.

Building low-price capacity in Europe 

Ryanair intends to pump more capacity into European markets in the coming months, keeping ticket prices low so it can overpower weaker rivals as travel rebounds in Europe.

Ryanair is putting its strong balance sheet to work; hedging on fuel prices to hold down costs, expanding in places such as Italy, Scandinavia and Morocco, and rolling out a fleet of the new Boeing Max planes it dubs “gamechangers”.

It is betting its rivals - from network giants Air France-KLM and Lufthansa to a restructured Alitalia won’t be able to keep up.

Bernstein analyst Daniel Roeska said Ryanair’s passenger outlook bolsters evidence that “the recovery is real and happening right now".

• Additional reporting Bloomberg and Reuters 

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