Ryanair ( NASDAQ: RYAAY ) posted promising earnings results on Monday, but CEO Michael O’Leary was quick to temper his optimism.
On the positive end, the low-cost carrier posted a return to profit for its first quarter of fiscal 2023 after the pandemic pressured the bottom line for several quarters. On a surge in traffic to 45.5M customers, the Irish airline notched €170M profit, up from a prior loss of €273M in 2021. While profits still remain below pre-pandemic levels, the sharp rebound bolstered optimism on execution.
CEO Michael O’Leary also drew attention to the company’s negotiation with labor unions to minimize delays and maintain a reliable schedule.
“Our decision to work with our unions and agree pay cuts to minimize job losses (and keep crews current) throughout the 2 years of Covid was vindicated in recent months, as many European airlines, airports, and handling companies struggled to restore jobs that were cut during the pandemic,” he said.
While he noted that delays are a fact of travel at present, the issues confronting Ryanair ( RYAAY ) are the fault of airports and air traffic control issues. O’Leary voiced confidence that 100% of scheduled flights will operate in coming months with minimal delay should airport and safety issues be alleviated. This is a particular opportunity given the spate of insolvencies in the European airline industry of late.
“Over the past 2-years, numerous airlines went bankrupt and many legacy carriers (incl. Alitalia, TAP, SAS and LOT) only survived by significantly reducing their fleets and passenger capacity, while receiving multi-billion-euro State Aid packages,” O’Leary explained. “These structural capacity reductions have created enormous growth opportunities for Ryanair to deploy our new, fuel efficient, B737 Gamechangers and our market share has increased significantly across major markets in Europe.”
US-listed shares of the low-cost airline rose 6.38% in premarket hours on the largely positive dynamics in the report.
However, O’Leary advised caution on the road ahead, citing geopolitical uncertainty, health restrictions, and rising fuel costs as significant points of concern.
“While we remain hopeful that the high rate of vaccinations in Europe will allow the airline and tourism industry to fully recover and finally put Covid behind us, we cannot ignore the risk of new Covid variants in Autumn 2022,” he warned. “Our experience with Omicron last Nov., and the Ukraine invasion in Feb., shows how fragile the air travel market remains, and the strength of any recovery will be hugely dependent upon there being no adverse or unexpected developments over the remainder of FY23.”
O’Leary added that while pent-up demand continues to benefit air travel, a leveling off to pre-COVID norms is expectable. Additionally, there is concern that fares are trending above pre-pandemic levels and impacting the value proposition that makes Ryanair ( RYAAY ) such a popular airline for cost-conscious travelers. Of course, rising costs are very much tied to rising fuel costs, an issue not likely to disappear in the near termTaken together, the uncertain headwinds hitting the company into the close of 2022 caused management to withdraw any forward guidance.
“Given our later booking profile, the lack of visibility, volatile oil prices, potential Covid, geopolitical and supply chain risks, it is too soon to provide meaningful FY23 PAT guidance at this time,” O’Leary explained. “We hope to be in a better position to do so at the half year results in Nov. but, as our experience with Omicron last Nov. and Ukraine in Feb. shows, any guidance is subject to a very rapid change from unexpected events which are well beyond our control during what remains a very strong but still fragile recovery.”
View the earnings call presentation .
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Ryanair rises to quarterly profit, offers cloudy forecast for the full year