A massive drop in customers follows big share price gains in November. Are valuations justified?
Ryanair and Wizz Air November passenger numbers
Customers at Ireland’s Ryanair plunged by 82% to 2 million and by almost 85% to under half a million passengers at Hungary headquartered Wizz Air.
Shares for each drifted marginally lower in UK trading, having each risen by more than a quarter over November as investors contemplated the rollout of Covid-19 vaccines. Year-to-date, Ryanair is now up by just over 5% and Wizz Air by more than 15%.
Shares for former flag carriers Air France-KLM (EURONEXT:AF) and British Airways owner IAG (LSE:IAG) remain down over 45% and 60% respectively, although each rose by 83% and 59% respectively in November. Shares for plane makers Airbus (EURONEXT:AIR) and Boeing (NYSE:BA) both spiked by more than 40% in the wake of positive vaccine news from Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and AstraZeneca (LSE:AZN).
Passenger numbers on a rolling annual basis at both Ryanair and Wizz are down 60% and 50.6% respectively. Ryanair previously forecast passenger numbers around 38 million for the current financial year, down from 149 million last year. Both airlines felt unable to offer any current full-year profit guidance at recent half-year results.
Given the unknown length of time for which the pandemic could ground and disrupt operations, strength of finances across the air travel industry has become critical. Engine maker Rolls-Royce (LSE:RR.) recently strengthened its finances via a £2 billion cash call.
A September fundraising of €1.25 billion left Ryanair’s cash holding sitting at €4.5 billion come the end of that month. Wizz Air’s cash sat at €1.6 billion as of late September. Ryanair burnt cash at a rate of €190 million per month between April to September, according to broker Morgan Stanley. Leaving it with sufficient cash to cover 10 months of weak demand and cover current debt maturities. Wizz Air previously flagged cash burn at €70 million per month under a full grounding until the end of the financial year 2021.
As with companies across the board during this global pandemic, cash has remained king. Analyst consensus opinion for both Ryanair and Wizz remains favourable, pointing to a 'buy', with many looking beyond the pandemic to next year when, hopefully, travel restrictions ease. There is also arguably a feeling among analysts of “what doesn’t kill you strengthens you.”
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