Americans may not be flocking abroad for a while. But
Europe’s leading low-cost airline, is looking attractive for its “defensive moat and battering ram,” according to one analyst.
Ryanair (ticker: RYAAY) is suffering now: 8 million passengers flew on the carrier in the three-month period ending Dec. 31, down 78% from a year earlier. The carrier reported a net loss of 306 million euros in the quarter, with revenues down 82% to 340 million euros. It’s expecting a slow start to 2021 with capacity at 20 to 25% of pre-crisis levels.
The stock is off more than 10% since early December, with its American depository receipts trading around $99, down from highs of around $114. Europe’s travel market is ailing with new lockdowns and restrictions related to concerns about more contagious virus strains and a slow rollout of vaccines.
But budget carriers in Europe could be poised for takeoff once vaccines are widely distributed and the pandemic winds down.
Raymond James analyst Savanthi Syth sees an upside in Ryanair based on its financial strengths and exposure to Europe’s leisure market. While she trimmed her price target to $120 from $125, she reiterated an Outperform rating, writing that “Ryanair’s cost and balance sheet advantages provide it with both a defensive moat and a battering ram.”
Ryanair’s balance sheet has been healthy enough that the carrier has avoided tying up assets in costly sale-leaseback transactions. And expansion plans are under way. Ryanair said on Monday that it had added orders for another 75
(BA) MAX aircraft, taking its total to 210 planes. The plane still needs to be recertified by European regulators, but that may come shortly since U.S. regulators recently reauthorized it. Ryanair aims to take delivery of 24 new MAX planes before the peak summer travel season. The aircraft is a “gamechanger,” the airline said.
Indeed, the economics look favorable. Ryanair CEO
pointed out that the MAX has 4% more seating but burns 14% less fuel than comparable, older planes. That “will give us materially lower operating costs going forward for the next four or five years,” he said on an earnings call.
Ryanair is still expected to burn through cash for months. But bookings appear to be trending up, including a spike in summer ticketing, Syth notes. The carrier could pick up routes and market share, partly because full-service network rivals in Europe are in worse shape with more encumbered assets, stressed balance sheets, and a lack of revenue from long-haul flights.
It may still be a while before Americans travel to Europe. Vaccine rollouts are proceeding slowly in the U.S., and there’s mounting concern that approved vaccines won’t be as effective against new strains of the coronavirus that are emerging in Europe and elsewhere.
The airline industry says that transmission risks on flights are low, and it’s urging the Biden administration not to adopt testing requirements for domestic flights, similar to the recent requirements for international arrivals with all travelers coming to the U.S. now required to show proof of a negative test or recovery.
Some U.S. airlines are doubling down on health safety—or at least the perception of it.
Delta Air Lines
(DAL) said last week that it had hired Dr. Henry Ting, a Mayo Clinic cardiologist, to be its first chief health officer. Delta also reiterated that it’s blocking middle seats through March.
There is very little, if any, evidence that blocking middle seats prevents transmission of the virus or even reduces risk. But carriers are looking at an increasingly tough few months. If blocking seats brings in a few more passengers and revenue to Delta’s coffers, it could be effective safety theater.
Write to Daren Fonda at [email protected]