ii view: Ryanair admits big losses but shares surge 10%

by Keith Bowman from interactive investor |

The budget airline made €1 billion last year but is now losing heavily and desperate to get flying again in July.

Full-year results to 31 March 2020

  • Revenue up 10% to €8.49 billion
  • Adjusted profit up 13% to €1 billion
  • Net debt down 10% to €403 million
  • Share buyback programme suspended

Guidance: 

  • Expects to record a loss of over €200 million in the first quarter 
  • Expects a smaller loss in the second quarter (peak summer)

ii round-up:

Low-cost airline Ryanair (LSE:RYA) reported full-year adjusted profits marginally ahead of City forecasts in these latest results.

Profit for the year to March rose by 13% to €1 billion, but the grounding of flights from mid-March under Covid-19 restrictions reduced profit by over €40 million.

Ryanair shares rose by as much as 10% in morning UK trading having fallen by nearly 40% year-to-date. Shares of low-cost rival easyJet (LSE:EZJ) are down by more than 60%,while shares of IAG (LSE:IAG), the owner of British Airways and Iberia, are down by more than 70%.  

Ryanair’s cash liquidity now sits at €4.1 billion, up from €3.8 billion in March. The airline has recently announced a series of cost cutting and cash preserving measures including staff pay cuts, unpaid leave and up to 3,000 job cuts. Shareholder returns under its share buyback scheme has also been suspended. Average weekly cash burn has dropped from approximately €200 million in March to just over €60 million in May.

Given a scheduled flight programme of less than 1% of normal, the carrier expects to generate a first-quarter loss of over €200 million. But for the second quarter beginning July, management forecasts a smaller loss as it anticipates some return to flights under eased government restrictions. 

It currently expects to carry less than 80 million passengers over the year to March 2021, almost half of its original 154 million target.

Ryanair management believes that over €30 billion of what it considers to be unlawful state aid given to airlines such as Deutsche Lufthansa (XETRA:LHA) and Air France-KLM (EURONEXT:AF), will allow them to offer ticket prices below their true cost, hindering it and rivals and breaching both EU State Aid and competition rules.

ii view:

Ryanair Holdings is the parent company of Buzz, Lauda, Malta Air and Ryanair itself. It normally carries over 150 million passengers annually on more than 2,400 daily flights from 82 bases. It connects over 200 destinations in 40 countries on a fleet of over 470 aircraft, with further Boeing (NYSE:BA) 737s currently on order. 

Many factors outside of management’s control, such as the weather, fuel costs and strikes can hinder financial performance. Company action to try and mitigate such factors is a feature across the sector. Now, the coronavirus has given the airline industry its biggest crisis yet. 

For investors, swift action to conserve cash and its application to raise £600 million under the Bank of England’s Covid financing scheme, have both helped to bolster its balance sheet. The group’s low-cost ticket and business model has proved highly popular with customers over recent years, placing significant competitive pressure on the former flag carrying airlines. But despite a near 40% drop in the share price year-to-date, the degree of uncertainty regarding the outlook remains huge, with Ryanair shares currently for investors with a high appetite for risk.   
 
Positives: 

  • Cash liquidity risen from €3.8 billion to €4.1 billion
  • A leading low-cost business model

Negatives:

  • Significant uncertainty regarding a return of flights
  • Climate change requirements could see fuel taxes introduced/increased

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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