RYAOF - Ryanair: Strong Results In August

Summary

• Despite the cancellation of thousands of flights, the company recorded a record number of passengers in August (even versus the pre-COVID-19 level).
• It reported a strong load factor reaching 96% capacity.
• Ryanair competitors are suffering so we confirm our buy rating target at €19 per share.

Across Europe, there is some chaos in the skies. Airlines and airports are battling with workers for rising inflation and labor shortages. In the UK, British Airways limited the sale of flights this summer until the 15th of August. And easyJet (ESYJY) also stopped several flights during the summer months. This was due to the sharp recovery in demand, due to COVID-19 the company had to quickly recreate its networks with many staff already fired that now are no longer willing to go back. The latest episode of the flight chaos comes from Germany: today Lufthansa had to cancel most of its flights in the main of its Germany hubs after an interruption in talks with the union pilots that consequently have called a strike for 24 hours. In detail, about 800 flights from Frankfurt and Munich, including transatlantic and other long-haul flights, will remain on the ground. The cancellations will affect approximately 130k passengers, while cargo operations will also be stopped.

What about Ryanair?

Ryanair Holdings plc ( RYAAY , RYAOF ) was Mare Evidence Lab's bet on travel recovery . Our buy case recap is based on the company's game-changer strategy equal to : " more seats, less fuel consumption, higher capacity loads, lower tariffs, and consequently more customers that equal more profit " in a continuous positive circle. This was also coupled with a solid balance sheet and a right hedging fuel strategy compared to its closest peers. Today, the company released its passengers' number in the August period .

Source: Ryanair Corporate Website | Traffic

Source: Ryanair Corporate Website | Traffic

In detail, despite the cancellation of thousands of flights across Europe during the summer period due to staff shortages following the stop to flights caused by COVID-19, Ryanair recorded traffic growth of 52% in August, hitting a record of 16.9 million passengers from 11 million achieved in the same period of 2021 when there were the first reopenings after the vaccine campaign, and from 7 million in 2020 in the aftermath of the first lockdown (when several travel restrictions were still in force). The load factor in August rises from 82% to 96%. More important to note is that the August 2022 figure exceeds the 14.9 million registered in August 2019. In addition, the sword of Damocles hangs over the group since the five months of strikes called by the cabin crew in Spain to obtain better working conditions and higher salaries.

All this is happening, while the airline founded by Michael O'Leary is preparing to abandon the policy of tickets at super-discounted costs due to the rise in oil prices. The low-cost airline will no longer offer tickets from €0.99 to €9.99 and the average rate will rise from €40 to €50 over a 5-year period. This was explained by the CEO at BBC Radio 4 suggesting also that air travel demand will continue to rise even versus consumer budget constraints. In fact, he believes that low-cost airlines will become even more popular in the future as tickets for competitors will be even more expensive.

Conclusion and Valuation

While many stakeholders are not in favor of the company's choices, Ryanair is managed to maximize investor returns. A higher average ticket selling price coupled with the game-changer strategy and a better hedging policy will drive the company's profitability over the short and long-term horizon. The company reaffirms its ambition to fly more than 165 million customers this year and we left unchanged our target price set at €19 per share versus the current market price of €12 per share, forecasting a net income of €1 billion. Our Q2 performance comments can be found in this link and a risk paragraph was included in our initiation of coverage .

For further details see: