What happened? 

Ryanair has announced a jump in profits after experiencing their strongest ever peak summer getaway season. The rise in profit is also because of pushing up prices for tickets in recent months. 

They also announced their first regular dividend payout (£345 million) to shareholders. 

Ryanair: A quick glance 

What? An aviation company 

Industry: The aviation industry 

Founded: 1984, Ireland 

Founder/s: Christopher Ryan, Liam Longergan, and Tony Ryan. 

Current CEO: Michael O’Leary 

Market Capitalisation: $21.59 billion 

Number of destinations they fly to: 5 domestic locations and 227 international destinations in 39 countries. 

Main source of revenue: Selling airline tickets to customers 

What factors have led to this? 

• Strong demand. Airlines have been witnessing a post-Covid surge in demand for flights. Ryanair’s group chief executive Michael O’Leary stated, “We’re pleased to report strong half year results...due to very strong Easter and record summer traffic.” The summer months are when airlines make most of their profits, so when airlines do well during these busy periods, it boosts their annual revenue. 

• Increase in air fares. Average fares have risen by 24% - which climbed to an average of £50, helped the airline to offset higher fuel costs. In the face of a cost-of-living crisis, inflation and higher than average interest rates, to me, it means that people are willing to spend on things of leisure. 

• Higher fuel costs. Airlines around the world have been battling with higher-than-average fuel costs, mainly due to the current war in Ukraine. It has meant that firms in general have been increasing their services and products to offset the increase.  

What does this mean? 

• Ryanair is set to do well. Ryanair is expecting profits to be between 1.85 billion to 2.05 billion euros for the year, which would be a record high. The dividends they are to pay out to shareholders next year is a sign of the positive outlook I believe the company has. 

• The airline industry could have strong demand in the long term. Many airports are experiencing the same number of people pre-pandemic. With airlines such as Ryanair, Wizz Air and EasyJet, it’ll mean the average person can afford to go on holiday and use these airlines, compared to their more expensive counterparts, such as British Airways. 

How do airlines make money? 

Airlines make money all year round. The main source of their profits come during the summer months, when demand for vacationing is at its peak. They often make and even lose money during the winter months. 

In recent months, airlines from British Airways to EasyJet and beyond, have been increasing the price of their tickets. The EU is set to investigate the level of fare increase that airlines have been imposing this summer. The European Commission cannot control air fares, but they do have the ability to find out why the market is the way it is now. 

Ryanair: A Profitable Airline 

Ryanair is one of the most profitable airlines in the world. I was surprised when I found this out.  

What makes the low-budget airline consistently profitable? We can look at some factor below: 

• Low -cost business model. They offer low ticket prices to hundreds of destinations around the world. This appeals to price-sensitive passengers. This model has generated high passenger volumes as a result. 

• Strong ancillary revenue. They generate a lot of revenue from ancillary sources, such as seat selection seats, baggage fees and onboard sales. These additional revenue streams have helped to prop up the company’s revenues throughout the years. 

• Route optimisation. They select routes that are profitable and avoid ones that aren’t. They also make use of technology to minimise costs and optimise its operations such as computerised flight scheduling. 

• Efficient operations. Ryanair operates a single fleet of aircraft, which simplifies training and maintenance procedures. Their highly efficient operations model has a focus on cost-cutting measures to reduce overhead costs. 

Setbacks airlines have faced in recent years: 

• The Covid-19 pandemic. This tough period forced many countries to close their borders and go into lockdowns to contain the spread. However, this move resulted in airlines and related industries, such as the travel and tourism industry, being negatively affected. People cancelled their airline and hotel bookings, travel was almost brought to a significant slow, testing facilities and self-isolation areas were introduced. However, many airlines are experiencing a similar number of passengers pre-pandemic and travel has rebounded. 

• Increase in oil prices. Remember when people had to wait for hours at the gas pump? When gas prices spiked? One reason for this, was due to the current war in Ukraine. Russia is a big exporter of crude oil and many countries imported Russia’s oil pre-war. However, nations, such as those belonging to the G7, imposed a $60 cap on the price of oil, a move done to try and slow down Russia’s financing of the war. However, I should add that Russia has reportedly managed to dodge the price cap on most of its oil exports. 

• Strikes. Employees at airports have gone on various strikes in recent months and it has led to delays and cancellations due to staff shortages. It has had a direct impact on the amount of people entitled to compensation from these airlines due to delays and cancellations. 

• Increase in knowledge. The rise of personal finance influencers, such as Erika Kullberg has led many to understand their rights if their luggage is stolen, their flight is delayed or if their flight is cancelled. It has reulted in more payout from the airlines to passengers. 

My thoughts: 

Some good news for Ryanair. I’ve used them quite a few times, mainly to fly to Ireland over the years. I have enjoyed my experience with them each time too. I’m sure shareholders will be welcoming the good news, especially with the expectation of a dividend payout next year. It should be a move that boosts shareholders and other investors' confidence, not just in the company, but in the aviation industry. 

However, some potential factors can cloud how well Ryanair and the overall aviation industry is doing right now. The world is an unpredictable place and things can happen which mean that a company can be doing well one day, then be doing badly the next day. For example, wars and conflicts that are occurring around the world can turn a good story on its head.  

One factors that the aviation industry should focus on, are oil prices. Airlines need to buy oil for their planes to work and for a business to exist. Oil prices (per barrel) are below $80 as of now, but it could very well increase – especially if the current genocide in Israel spills into neighbouring countries. 

For now, I think Ryanair can relax for a bit as the macroeconomic markets seems to be stable, for now that is. 

That’s it for this week! 

Until next time, remember to stay curious 

DISCLAIMER:  

This blog is for informational purposes only. Parah Insights is not associated with the news sources in this blog, and sharing does not equal endorsement. Parah Insights does not provide financial, tax, legal or accounting advice – always consult your financial and legal advisors to determine what’s right for you and your business.