Ryanair investors ‘highly sceptical’ of air fares rebound

Deutsche Bank analysts expect Ryanair to see its fares per passenger decline 3% for the full year

Ryanair, led by chief executive Michael O’Leary, said last Monday that its average air fares fell by 6 per cent to €36 in the three months to the end of June,

Ryanair, led by chief executive Michael O’Leary, said last Monday that its average air fares fell by 6 per cent to €36 in the three months to the end of June,

 

Investors in Ryanair, whose stock has fallen almost 15 per cent so far this year, are “highly sceptical” about the carrier’s ability to deliver a rebound in fares in the second six months of its financial year to the end of next March, after a weak first-half, according to analysts in Deutsche Bank.

However, the analysts, led by Deutsche’s Jaime Rowbotham, said they “don’t see it as that unreasonable”, given the very weak comparative period of the fourth quarter to the end of last March, when fares dropped 15 per cent. Base closures by competitors, including Norwegian, and Ryanair’s own move to cut capacity should also underpin the company’s ability to rebuild fares in the second half, they said.

Ryanair, led by chief executive Michael O’Leary, said last Monday that its average air fares fell by 6 per cent to €36 in the three months to the end of June, contributing to a 21 per cent drop in its profits to €243 million for the period.

While Mr O’Leary said that the company has “almost zero” visibility into the second half, it maintained its guidance that its fares would come in at between a decline of 2 per cent and 1 per cent increase.

“We do not share the kind of unbridled enthusiasm and optimism that was reported in recent weeks by Wizz and easyJet on their conference calls, we would remind everybody that back in January there was also a shared sense of unbridled optimism about summer fares from both of those competitors,” he said.

The Deutsche analysts expect Ryanair to see its fares per passenger to fall by 6 per cent in the second quarter, followed by a 3 per cent rebound in the second half, which would deliver a 3 per cent decline for the full year. That would be slightly worse than lower end of Ryanair’s guidance.

Ryanair moved within two days of its latest quarterly figures last Monday to say that as many as 900 jobs are at risk at the company, as it grappled with delays to expansion plans forced by the grounding of Boeing’s 737 Max jetliner.

The Dublin-based carrier had already warned it would close some European bases and shrink others in response to the Max crisis, which has stalled a fleet upgrade, and concerns around Brexit, without indicating how many positions might go.

Still, the Deutsche analysts continue to rate Ryanair’s shares a buy, with their new, lowered stock price target of €12.50 pointing to 36 per cent upside from where the stock is currently changing hands.