the loss of profit for a full year is in line with expectations

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Ryanair announced an annual loss of 815 million euros, as expected. This is the result of an 81% drop in passenger numbers due to Covid restrictions.

The group expects to fly between 5 and 6 million guests in the current quarter, and annual traffic is expected to be at the bottom of the 80-120m guide range.

If the vaccine rollout allows for summer travel between July and September, Ryanair expects fiscal 2022 profits to break even.

Shares were broadly stable after the announcement.

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Our point of view

With nearly a year of pandemic-related disruption behind us, the massive losses in the airline industry don’t seem so shocking anymore. Ryanair’s loss of 815 million euros for the full year is well within expectations, and management is cautiously optimistic about the breakeven point this year.

Cost reduction efforts limited losses due to passenger shortages, and increased spending on extras such as priority boarding helped moderate the blow from an 81% drop in passenger numbers. But even the most frugal airline cannot operate below capacity indefinitely.

Ryanair is no stranger to tightening its belts – its unit costs per passenger are significantly lower than its peers and that put it in a stronger position when air travel collapsed. The group has more than halved its operating costs, but it still spent nearly 2.5 billion euros last year. Despite a respectable cash flow, if the planes stay in their hangars another summer, Ryanair could be forced to ask for more money from shareholders.

Nevertheless, management is preparing for full terminals. Some European routes are widened, as is the position at London Stanstead. The growing network will be served by new, more efficient Boeing aircraft with increased capacity and reduced fuel consumption.

However, none of this will matter if enough people aren’t traveling this summer. The group’s plans to break even this year hinge on a successful vaccine rollout and a semblance of a travel season between July and September.

There is risk management that has taken the plunge, sending money out the door before another lost travel season. Of course, if travel picks up in the next few months, this bold move could give Ryanair a competitive edge.

Passengers were willing to pay more for extras like reserved seats and priority booking last year. This is likely a change related to the pandemic, as people were willing to pay the price to distance themselves from other travelers. If this mentality persists after COVID, it could hurt Ryanair’s business model – getting people on planes at super low prices.

Economic winds are blowing against the airlines right now. Even low-cost airlines would suffer from an economic downturn and the industry will remain under pressure as long as travel restrictions are in place. Ryanair is set to embark on summer travel, but continued government restrictions could mean the group is fully dressed and has nowhere to go.

Ryanair key figures

  • Price / book ratio: 3.75
  • 10-year average price / book ratio: 3.06
  • Potential dividend yield (next 12 months): 0%

All ratios are from Refinitiv. Remember that returns are variable and are not a reliable indicator of future income. Keep in mind that key figures shouldn’t be considered in isolation – it’s important to understand the big picture.

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Annual results

Ryanair operated around 26% of its normal flight schedule with aircraft around 71% full. This means that programmed revenue (revenue from ticket prices) fell 81% to € 1 billion.

Ancillary income fell by 80% to € 599.8 million due to the drop in the number of passengers. However, passengers were willing to spend more on things like priority boarding and reserved seats, which increased spend per passenger by 11% to almost € 22.

Operating expenses fell 66% to 2.5 billion euros, the result of staff reductions, lower airport and handling costs and an 80% drop in fuel and oil expenses.

Ryanair has increased its order for B737-8200 “Gamechanger” aircraft after obtaining further “modest” price discounts. The group plans to take its first delivery of the plane in May to end the year with more than 60 planes, which offer 4% more seats and 16% less fuel consumption. The new fleet is expected to contribute to management’s plans to increase its annual passenger count to 200 million over the next 5 years.

Free cash outflows amounted to 2.7 billion euros, compared to 748.3 million euros last year. Ryanair ended the year with € 3.15 billion in free cash flow and net debt, which includes lease debt, of € 2.3 billion.

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This article is original content from Hargreaves Lansdown, published by Hargreaves Lansdown. Unless otherwise stated, estimates, including potential returns, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Returns are variable and not guaranteed. The value of investments goes up and down, so investors could suffer a loss.

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