ii view: Ryanair flags possible loss of close to €1 billion

Battling the worst year in its history, we assess prospects for this low-cost airline.

Third-quarter results to 31 December

• Revenue down 82% to €340 million
• Loss of €306 million compared to profit €88 million last year
• Cash of €3.5 billion held as of 31 December

Guidance:

• Expects a full-year loss of between €850 million to €950 million

ii round-up:

Low-cost airline Ryanair (LSE:RYA) expects to report an annual loss of up to €950 million as it navigates the most challenging 12 months in its 35-year history. 

Potentially full-year passenger numbers of under 30 million are now forecast, hit by increased travel restrictions under new virus variants, and down from a previous forecast of 35 million. That's also in stark contrast to last year's near 150 million travellers.   

But the Irish airline again underlined a BBB credit rating and cash of €3.5 billion as of late December. And it's still confident enough to be taking delivery of new Boeing (NYSE:BA) aircraft in the near term.

Ryanair shares traded either side of breakeven in UK trading, leaving them down under 5% over the last year and up by more than 60% since late March pandemic lows. Shares for rival easyJet (LSE:EZJ) are down by more than 40% over the last year, while shares for British Airways owner IAG (LSE:IAG) are down around 60%. 

Passenger numbers in this latest quarter to the end of December fell by 78% to 8 million, resulting in a loss of €306 million compared to profit of €88 million for the Christmas quarter last year.

In December, Ryanair upped its demand for the new more fuel-efficient Boeing Max or its variant the B737-8200 by a further 75 aircraft, taking its firm order to 210. The new Boeing burns 16% less fuel but has 4% more seats and reduces noise pollution by 40%. It hopes to receive up to 24 planes before the usual summer peak.

Approximately 80% of its owned aircraft fleet is unencumbered with a book value of over €7 billion. Broker Morgan Stanley currently estimates that liquidity of €3.5 billion gives Ryanair eight to nine months of breathing space before reaching a minimum cash level of €1 billion. Ryanair plans to repay over €1.5 billion of maturing debt in the next six-months. 

Full-year results to the end of March are currently scheduled for 17 May. 

ii view:

Dramatically reduced passenger numbers due to the Covid pandemic have left airlines in a battle for survive. Cash is now king, and many operators have moved to raise more money. Ryanair raised over €1 billion in September 2020 and is continuing to assess options, although has no imminent plans.  

For investors, one of the strongest balance sheets in the industry offers comfort. A more than 60% reduction over this latest quarter continues to underline management’s laser like focus on cost reduction. And the rollout of vaccines during 2021 now offers firm hope. But the pace of vaccine rollouts, particularly across its European markets, is now raising concern. In all, while Ryanair’s chances of surviving and prospering post the pandemic look favourable, a 60%-plus gain in the share price since the March lows may arguably have left the shares up with events for now. 

Positives: 

• Cash liquidity of €3.5 billion as of 31 December
• Costs down by 63% over this latest quarter

Negatives:

• Highly uncertain outlook due to Covid-19
• Considers EU assistance to rivals unfair

The average rating of stock market analysts:

Buy