Ryanair to Reward Investors as it Projects Record Full FY24 Profits Despite Higher Fuel Cost

Recovering Airline Industry

The aviation industry has been recovering from the pandemic and travel demand is almost fully restored to its 2019 levels. The trend continued in August according to the International Air Transport Association (IATA), as global traffic surged 28.2% y/y and stood 95.7% of the pre-pandemic levels. ^[1]

Delta Air Lines posted revenues of $15.5 billion in the third quarter, driven by international travel. This was a record for the period, while Net income surged 60% y/y, to $1.108 billion. Last week, German carrier Lufthansa reported "the highest revenue and profit ever achieved in one summer". Sales rose 8% y/y in Q3, to €10.3 billion (around USD 11.1 bln) and Net Income jumped 29%, to nearly €1.5 billion. ^[2]

However, revenge travel may be over and CEO of Intercontinental Hotels Group Elie Maalouf was succinct during a recent CNBC interview, saying that "we're really past revenge travel — even in China" ^[3]. Demand has almost fully recovered and consumers face elevated inflation that pushes fares up, high interest rates that pressure borrowing costs and economic uncertainty. Moreover, carriers grapple with increased fuel prices, amidst massive supply cuts by Saudi Arabia, Russia and other OPEC+ members, while the situation in the Middle East can aggravate the issue.

Although impressive, Delta's Q3 financials worsened on a sequential basis and it slashed its full 2023 profit outlook on higher fuel spend. Rival American Airlines also downgraded its full year guidance, after posting a half-billion net loss in the third quarter ^[4]. Lufthansa was more upbeat about the future and reaffirmed its guidance, despite higher fuel prices and a challenging geopolitical situation.

Ryanair Blockbuster Results

The Irish low-cost carrier continued the post-pandemic boom, according to Monday's blowout results for H1 FY2024 (six-months ended September 2023). These were largely driven by a strong Easter and "record" summer traffic, as it flew 105.4 million customers during that period, up 11% y/y. Fare prices also attributed to the firm's top and bottom lines, as they increased 24% y/y. ^[5]

As a result, total revenues more than doubled from a year ago, to €10.78 billion (around USD 11.6 bln) and profit after tax (PAT) soared 59% y/y to €2.18 billion, as higher fares offset fuel costs, which rose by 29%. The firm believes that its cost advantage over most EU rivals "continues to widen".

Ryanair Holdings plc (RYA.ie) expects to set new record for full FY2024, in terms of traffic and profitability. It continues to target 183.5 million passengers (up 9% y/y) and projects PAT of €1.85-2.05 billion. Given the strong realized and expected profits, the firm declared its first ordinary dividend to shareholders. It will be to the tune of €400 million (€0.35/share), payable in two installments in February and September 2024. For the following years, it plans to return 25% of prior-year PAT.

Markets reacted positively to the results, upbeat guidance and dividend announcement, with the stock (RYA.ie) gaining around 8% today. This is the fourth straight profitable day as it reacts from a dismal start to the quarter.

Challenges Ahead

Despite the strong results and guidance, there are challenges ahead. Ryanair acknowledged the "risk of weaker consumer spending" in the coming months, while its full year profit guidance assumes modest losses in H2. The forecasts are "heavily dependent upon avoiding adverse event", like the war in Ukraine, but there is such risk given the war in the Middle East – an important energy hub.

There are also risks to the summer 2024 season, arising from the delivery of new Boeing airplanes. Ryanair expressed concerned today that up to 10 737 Gamechangers scheduled for pre-summer, could be delayed into the winter of 2024.

The budget carrier operates in a highly competitive market, exposed to the consolidation trends that could persist over the next years. Lufthansa for example, bought 41% of Italy's ITA, with option to acquire all remaining shares ^[6]. Scandinavian SAS agreed to sell 20% to Air France-KLM (among other buyers) ^[7], while TAP Portugal Air is looking to sell at least 51% according to Reuters. ^[8]

Furthermore, airliners have a hard time meeting their staff needs and even though they have handled increased travel demand better than last year, infrastructure still struggles. These were uncensored by the late-August traffic control failure in the UK, which caused 1500 flight cancellations. ^[9]