Ryanair shares fell on Monday after the group released strong full-year results, but investors focused on what was to come and on possible disruption from the conflict in the Middle East.
Full-year results were strong. Revenue was up 11% to €15.54bn, traffic up 4% to 208.4m passengers, load factor held at 94%, and revenue per passenger up 7% as fares rebounded 10%.
But comments from the CEO that suggest a plan to keep fares flat raised concerns about the impact on profitability in the coming period.
“Ryanair shares slipped sharply this morning despite posting record full-year profits, as investors zeroed in on a notably cautious summer outlook rather than the impressive numbers,” said Adam Vettese, market analyst for eToro.
“The Irish low-cost giant delivered pre-exceptional profit after tax of €2.26bn for the year to March, up 40% on last year and ahead of City forecasts. Passenger numbers hit a new high of 208.4 million, revenues rose 11% and the balance sheet is now essentially debt-free with net cash of €2.1 billion. Cost control was again exemplary, with operating expenses falling 6% despite industry wide pressures.”
While the market initially turned its nose up at the prospect of Ryanair keeping fares flat as costs rose, analysts highlighted Ryanair’s ability to maintain lower prices due to its hedging strategy – something its competitors have failed to put in place to the extent Ryanair has.
“In the short term, with oil prices surging due to ongoing instability in the Middle East, Ryanair’s hedging strategy has become a major competitive advantage, with the airline being roughly 80% hedged for the current year,” said Louis Knight, AVP at Third Bridge.
“Our experts point to Michael O’Leary’s ability to use these “locked-in” lower costs to reduce ticket prices and undercut rivals such as Wizz Air and SAS, which are less protected and may be forced to raise fares.”