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Ryanair - first quarter loss, passengers down 99%

Emilie Stevens, Equity Analyst | 27 July 2020 | A A A
Ryanair - first quarter loss, passengers down 99%

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Ryanair Holdings Ordinary Shares EUR0.006

Sell: 14.64 | Buy: 14.69 | Change 0.33 (2.28%)
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Ryanair's first quarter revenue fell 95% to €125m as passenger numbers fell 99% to 0.5m. Despite reducing costs by 85% the group made a net loss of €185m compared with a €243m profit last year.

The group began flying again in July and expects to cover 40% of its usual schedule, rising to around 60% in August and 70% in September. Ryanair expects full year passenger numbers to fall around 60% to 60m. The group's "biggest fear" is a second wave of COVID-19 infections in late autumn at the start of the normal flu season.

The shares fell 6.0% following the announcement.

View the latest Ryanair share price and how to deal

Our view

Ryanair is a strong player, but airlines are a tough industry to be in at the best of times, and this feels like it could be the worst of times. The COVID-19 outbreak virtually cleared the skies of non-emergency flights between mid-March and the end of June.

Ryanair's done a pretty creditable job reducing costs, but these will start to climb again now that planes are getting back in the air. Management expects losses to moderate, but this will depend on enough people flying to offset some of the higher costs. We share the group's biggest fear about a second wave of COVID-19 infections, but there's nothing management can do about that.

Ryanair has a relatively strong balance sheet, and owns a lot of its planes outright. The group should be able to sustain itself for a while yet, but resources aren't infinite. Cash is currently pouring out of the business and this may continue until next summer. The winter is usually period of lower profits in normal times, so this year could be particularly painful. As a result analysts expect Ryanair to make a large loss for the year. This means a strong summer in 2021 is essential.

If the group can weather the storm then investors brave enough to stick it out might be rewarded although it's too soon to say conclusively that the worst is behind us.

Prior to today's update the shares changed hands for 2.4 times book value. While this is higher than some peers it's lower than it has been in the past, reflecting the challenges facing the sector. However, book value could be written down if conditions deteriorate, so investors should exercise caution when using backward looking valuation metrics at such a turbulent time.

In our opinion, the prospects for Ryanair, or any other airline, hinge on the length of the disruption, speed of a recovery in demand and the absence of a second wave of infections. This is a really tough period for the group, but we think Ryanair is in a relatively strong position compared to some peers. But even the strongest airlines can't keep running below capacity forever.

Ryanair key facts

  • Price/Book Ratio: 2.4
  • Ten year average Price/Book ratio: 2.9
  • Ryanair doesn't pay a dividend

We've introduced this section in response to recent survey feedback.

Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Q1 trading update

Ryanair's scheduled revenue (which was primarily from unused tickets) fell 93% to €100.7m. Ancillary revenue, which includes priority boarding and on board sales, fell 97% to €24.5m.

Operating costs fell from €2.0bn to €312.8m. The largest costs during the quarter were: €134.0m in depreciation charges for aircraft (down 30%), €68.5m in staff costs (down 77%), €42.4m for marketing and distribution (down 71%) and €36.2m in maintenance costs (down 47%).

Gross debt rose €597.0m to €4.8bn, leaving Ryanair with a net debt position of €827.2m once €3.9bn in cash is subtracted. Debt increased as Ryanair borrowed €680m under the Bank of England's Covid Corporate Financing Facility, offset by some debt repayments.

Find out more about Ryanair shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.