Ryanair Holdings plc on July 27 reported a fiscal first quarter loss of €185 million, compared to a PY Q1 net profit of €243 million. Highlights of Q1 include:
- Over 99% of the fleet grounded from mid-March to end June.
- Q1 traffic fell from 42m to 0.5m.
- Group airlines operated repatriation, rescue & medical emergency flights.
- Cash preservation prioritised – closing cash €3.9bn
- Cost reduction measures being successfully implemented.
- Successful return to flying implemented in late June.
|Q1 (IFRS) – Group||30 Jun. 2019||30 Jun. 2020||Change|
The past quarter was the most challenging in Ryanair’s 35 year history. Covid-19 grounded the Group’s fleet for almost 4 months (from mid-March to end June) as EU Governments imposed flight or travel bans and widespread population lockdowns. During this time, Group airlines repatriated customers and operated rescue flights for different EU Governments, as well as flying a series of medical emergency/PPE flights across Europe. Our aircraft and crews were kept current by operating skeleton schedules and currency flights which ensured that the Group airlines were ready to efficiently resume flights when lockdown restrictions eased in most EU countries in late June/early July. On July 1, the Group resumed flights across the majority of our route network. We expect to operate approximately 40% of our normal July schedule, rising to around 60% in August and, hopefully, 70% in September. The Group has implemented extensive health measures through the travel journey, especially onboard aircraft, to comply with EU guidelines (published by the ECDC & EASA in May) to ensure that Group airlines maintain the health of our guests and crews while minimising the risk of Covid-19.
Ryanair’s Customer Service teams safely returned to the office in June and, with support from Ryanair Labs, they are working through an unprecedented volume of customer emails and other communications related to flight changes and Covid-19 cancellations, while clearing a record backlog of refunds caused by almost 4 months of EU Government imposed flight cancellations. This process has been delayed by unauthorised screen scrapers providing falsified customer details at the time of booking. It is expected that over 90% of customer cash refund requests will be cleared by the end of July.
At this time, the Group expects FY21 traffic to fall by 60% (from 149m) to just 60m. The Covid-19 crisis has already seen the closure of various EU airlines including Flybe, Germanwings, Level and Sun Express. It has sparked a multi-billion flood of illegal State Aid from EU Governments to their flag carrier airlines including Alitalia, Air France/KLM, Lufthansa, SAS, TAP and others. This illegal State Aid will distort competition and allow unsustainable flag carriers to engage in below cost selling for many years to come. Many other airlines are cutting capacity, with the result that air travel in Europe is likely to be depressed for at least the next 2 or 3 years. This will create opportunities for Ryanair (Europe’s lowest cost airline group) to grow its network, and expand its fleet, to take advantage of lower airport and aircraft cost opportunities that will inevitably arise.
Q1 BUSINESS REVIEW:
Revenue & Costs
Revenue fell by 95% (almost €2.2bn) to just €125m as traffic dropped 99% at just 0.5m. An 85% reduction in costs during Q1 was not sufficient to offset this revenue loss as bookings came to an abrupt standstill in the initial weeks of the Covid-19 crisis. During the past 3 months significant work has been undertaken to improve Ryanair’s cost leadership, which is vital if Group airlines are to compete against hugely subsidised flag carriers who will be able to engage in below cost selling for years to come. The Group have negotiated modest pay cuts with our people and their unions that will, hopefully, help to avoid widespread job losses.
Our Route Development teams are working with airports all over Europe who have suffered substantial traffic declines during the Covid-19 crisis. Discussions are ongoing with aircraft suppliers to reduce aircraft lease rates and purchase prices to reflect the new post Covid-19 reality. The management team at Lauda were forced to implement a deep and painful rescue plan, which involved cutting the Lauda fleet from 38 to 30 aircraft in S.20 and substantially reducing headcount numbers in Vienna and Germany while closing its 3 aircraft Stuttgart base. Lauda worked closely with its people in Vienna to deliver substantial cost savings, enhanced productivity and more efficient rosters as without these savings Lauda’s main Vienna base would have closed on 29 May last.
Boeing MAX update
It is over a year since the Group was due to take delivery of its first Boeing 737-MAX-200 aircraft. Boeing are indicating a late Q3 2020 return to service in the US for the Boeing 737-MAX, allowing Ryanair to, hopefully, accept delivery of its first MAX-200 before the end of 2020 and potentially up to 40 MAXs ahead of Summer 2021. We remain committed supporters of these “gamechanger” aircraft which have 4% more seats, 16% lower fuel burn and 40% lower noise emissions. These new aircraft will enable the Ryanair Group to grow to 200m passengers p.a. over the next 5 or 6 years while reducing the Group’s cost base and significantly lowering its environmental footprint.
Balance Sheet & Liquidity
Ryanair’s balance sheet is one of the strongest in the industry with over €3.9bn cash at 30 June. We own 333 unencumbered B737s (with a book value of approx. €7bn) and hold a BBB investment grade rating from both S&P and Fitch Ratings. Since mid-March, the Group has moved quickly and smartly to preserve cash, cut costs, cancel share buybacks and defer all non-essential capex. This has protected the Group’s very strong liquidity position as it returns to flying in July. Over the winter, Ryanair will (as agreed last year) complete the sale of 7 of its oldest B737s and will continue to focus on cash preservation/generation and the repayment of maturing debt over the next 24 months.
The challenge of Brexit, and in particular a no-deal Brexit, remains high. We hope, before the end of the Transition Period in Dec., that the UK and Europe will agree a trade deal for air travel which will allow the free movement of people and the deregulated airline market between the UK and Ireland to continue. As an EU airline, the Ryanair Group should be less effected by a no-deal Brexit than UK registered airlines. We still, however, expect adverse trading consequences to arise. Ryanair has put the necessary measures in place to ensure that the Group remains majority EU owned, including restricting voting rights of non-EU shareholders, in the event of a “hard-Brexit”. We therefore expect the Group’s AOCs in Austria, Ireland, Malta and Poland to continue to operate freely. In addition, Ryanair’s UK AOC (Ryanair UK) will be able to benefit from any bilateral agreements negotiated between the UK and non-EU countries while facilitating the operation of domestic UK flights.
FY21 will be a very challenging year for the Ryanair Group of airlines. It is impossible to predict how long the Covid-19 pandemic will persist, and a 2nd wave of Covid-19 cases across Europe in late autumn (when the annual flu season commences) is our biggest fear right now. Hopefully EU Governments, by implementing effective track and tracing systems, and EU citizens by complying with recommended face masks, rigorous hand hygiene and other measures, will avoid the need for further lockdowns or restrictions on intra-EU flights. It is vital that European economies begin the process of recovery this summer to minimise the damage arising from the Covid-19 pandemic and this recovery can only be led by intra-EU air travel which is the engine of EU growth and economic activity.
Given the current uncertainty, Ryanair cannot provide any FY21 PAT guidance at this time. The Group currently expects to carry approx. 60m passengers in FY21 and expects to record a smaller loss in Q2 (which reflects a gradual return to flying from 1 July) than in Q1. However, the Ryanair Group will emerge from the Covid-19 crisis with a much lower cost base, which will be essential to fund lower fares as the Group competes against unlawfully State aided flag carriers. Further updates will be provided at Ryanair’s AGM in Sept.