August 8, 2022

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After a dreadful third quarter last year, when the pandemic placed most of us under...

After a dreadful third quarter last year, when the pandemic placed most of us under effective house arrest and unable to fly, things could only get better at Ryanair this time around.
Passenger numbers almost quadrupled to 31.1 million in the three months ended December 31, revenue more than quadrupled to €1.47bn while net losses fell by 70pc to €96m.

However, the three months ended December 2021 were utterly unprecedented. A better comparison would be with Ryanair’s performance for the three months ended December 2019, ie before Covid-19 struck.
The picture painted by this comparison is far less flattering with passenger numbers of 35.9 million, revenues of €1.91bn and net profit of €88m two years ago. In other words, Ryanair still has a way to go before it returns to pre-pandemic passenger and profit levels.
The company itself acknowledged this at the results announcement last week. Ryanair now expects to carry between 90 million and 100 million passengers this year, down from 149 million during the 12 months to the end of March 2020 and is guiding net losses of between €250m and €450m compared to a net profit of just over €1bn two years earlier.
“Quarter three traffic bounced back very quickly as the Covid restrictions rolled off in October, November, December. We saw traffic rebound by almost 300pc. We had a very strong load factor at 84pc, significantly ahead of other EU airlines”, said Ryanair boss Michael O’Leary at the results announcement.
“Close-in bookings and yields were however badly damaged by the emergence of the omicron variant in December. It emerged in the last week of November, that critical time for building Christmas volumes and yields.”
This meant that Ryanair carried 9 million passengers in December, compared to the 11 million it had expected to carry. Yields were also lower than expected in December.
The omicron effect continued into January. Instead of the 10.5 million passengers it had been hoping to carry last month, the actual figure was somewhere between 6 million and 7 million with yields also taking a pasting as Ryanair slashed fares in an effort to get more bums on seats.
“We see the yield impact running on into February. While we are beginning to see a recovery in passenger bookings into February, the first half of February will be weak, the second half contains the schools’ mid-term break, St Valentine’s Day, etc, so we only see a strong recovery in bookings, albeit at lower fares, in the second half of February and we think that will continue into March”, says O’Leary.
And what about the key summer booking season – Ryanair traditionally makes virtually all of its profits in the first half of its financial year, from April to September?
“We expect a very strong bounce back in traffic, albeit maybe at lower yields as people who have been locked up for two years return to travelling… our summer 2022 capacity is now on sale and we expect that to run at 115pc of our pre-Covid summer 2019 capacity,” he says.
But – and it’s a very important “but” – “All of that depends on there being no more negative Covid developments. The omicron variant was a very unwelcome development in December and we would be wary and cautious that there will be other variants and challenges arising out of Covid that we may have to address, not necessarily over the next 12 months but over the next three to six months.”
All of this means that, following after-tax losses of €815m last year, Ryanair is guiding losses between €250m and €450m for the year to the end of March. Davy analyst Stephen Furlong is pencilling full year after-tax losses of €348m followed by after-tax profits of €1.27bn in the year ended March 2023 and €1.62bn in the year to March 2024.
Covid-19 isn’t the only challenge facing Ryanair. While the airline is well-hedged against the recent rise in oil prices, with most of its aviation fuel requirements capped at prices of between $580 and $640 a ton, compared to a current spot price of $827, out to the end of March 2023, it will begin to feel the full impact of higher oil prices coming into the summer of 2023.
Ryanair is also locked in a stand-off with aircraft manufacturer Boeing. While it is taking delivery of 210 new-model 737s over the next five years, there has been no agreement on any possible follow-on orders. Ryanair suspended negotiations with Boeing last November. O’Leary says that he is “disappointed” with Boeing’s apparent refusal to budge on price.
“They [Boeing] need to be much more aggressive on the sales front and they need to be doing a deal with Ryanair”.
 Boeing took 749 gross orders for new-model 737s last year. The orders have continued to pour in this year with US low-cost carrier Allegiant ordering 50 737s, with options for a further 50, last month while Qatar Airways ordered 50 aircraft last week. And giant US carrier Southwest held out the prospect of converting some or all of its 226 737 options into firm orders in its recent fourth-quarter earnings call. 
Even with its recently-announced increase in 737 production from 26 to 31 aircraft a month, Boeing has more orders than it can cope with for the time  being. This means that it can take a much harder line on price than Ryanair would like.
Ryanair is hoping to use the aircraft it already has on order to increase passenger numbers to 225 million by the year ended March 2026. But what then? While it can delay selling off older aircraft in the short-term, the new-model 737s burn 16pc less fuel per passenger and are 40pc quieter than their predecessors. With oil prices rising, Ryanair desperately needs the efficiencies these new aircraft will bring.
So, who will blink first? O’Leary sounds a confident note.
“We’re delivering 50pc passenger growth over the next five years. Nobody is going to grow faster, stronger or more profitably than Ryanair”.

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