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Ryanair (RYAAY) Rides on Buoyant Air Traffic Despite Cost Woes
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Ryanair Holdings (RYAAY - Free Report) is benefiting from buoyant air-travel demand (particularly on the leisure front). The company currently carries a Zacks Rank #3 (Hold).
However, escalated fuel costs are limiting the bottom-line growth.
Factors Favoring RYAAY
The gradual improvement in air-travel demand is a huge boon for Ryanair. Owing to this tailwind, the company reported healthy traffic data for March. The number of passengers ferried on RYAAY flights in March was an impressive 12.6 million. This compared favorably with the year-ago figure of 11.2 million.
Load factor (% of seats filled by passengers) was 93% in March 2023 compared with 87% a year ago. Ryanair expects its traffic in fiscal 2023 to be 168 million, indicating 13% growth from the pre-COVID-19 traffic numbers.
Ryanair’s measures to expand its fleet to cater to the improvement in travel demand are encouraging. The company’s efforts to bring down its debt levels are commendable as well. Net debt at RYAAY declined to €0.96 billion at the end of the third quarter of fiscal 2023 (ended Dec 31, 2022) from €1.45 billion at the end of the fourth quarter of fiscal 2022.
Key Risks
Rising fuel prices thanks to the prolonged Russia-Ukraine war pose a threat to Ryanair’s bottom line. The airline’s fuel and oil expenses increased by more than 200% year over year in the first half of fiscal 2023 due to a rise in sectors flown and high jet fuel prices. Fuel costs increased 52% in the fiscal third quarter.
Apart from higher fuel prices, the ramp-up in the airline’s operations is pushing up total costs. Operating costs were up 36% in the fiscal third quarter. Labor-related tensions also do not bode well.
Copa Holdings' focus on its cargo segment is very encouraging. In fourth-quarter 2022, cargo and mail revenues jumped 69% to $27.09 million, owing to higher cargo volumes and yields. Currently, CPA sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For first-quarter and full-year 2023, CPA’s earnings are expected to register 485% and 40.5% growth, respectively, on a year-over-year basis.
GATX carries a Zacks Rank #2 (Buy) at present. The gradual improvement in the North American railcar leasing market is a huge positive for the company. Management expects a recovery in the North American railcar leasing market to continue in 2023.
We are also impressed by GATX's measures to reward its shareholders through dividends and buybacks despite the economic uncertainty. For full-year 2023, its earnings are expected to register 10.5% growth on a year-over-year basis.
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Ryanair (RYAAY) Rides on Buoyant Air Traffic Despite Cost Woes
Ryanair Holdings (RYAAY - Free Report) is benefiting from buoyant air-travel demand (particularly on the leisure front). The company currently carries a Zacks Rank #3 (Hold).
However, escalated fuel costs are limiting the bottom-line growth.
Factors Favoring RYAAY
The gradual improvement in air-travel demand is a huge boon for Ryanair. Owing to this tailwind, the company reported healthy traffic data for March. The number of passengers ferried on RYAAY flights in March was an impressive 12.6 million. This compared favorably with the year-ago figure of 11.2 million.
Load factor (% of seats filled by passengers) was 93% in March 2023 compared with 87% a year ago. Ryanair expects its traffic in fiscal 2023 to be 168 million, indicating 13% growth from the pre-COVID-19 traffic numbers.
Ryanair’s measures to expand its fleet to cater to the improvement in travel demand are encouraging. The company’s efforts to bring down its debt levels are commendable as well. Net debt at RYAAY declined to €0.96 billion at the end of the third quarter of fiscal 2023 (ended Dec 31, 2022) from €1.45 billion at the end of the fourth quarter of fiscal 2022.
Key Risks
Rising fuel prices thanks to the prolonged Russia-Ukraine war pose a threat to Ryanair’s bottom line. The airline’s fuel and oil expenses increased by more than 200% year over year in the first half of fiscal 2023 due to a rise in sectors flown and high jet fuel prices. Fuel costs increased 52% in the fiscal third quarter.
Apart from higher fuel prices, the ramp-up in the airline’s operations is pushing up total costs. Operating costs were up 36% in the fiscal third quarter. Labor-related tensions also do not bode well.
Stocks to Consider
Some better-ranked stocks in the Zacks Transportation sector are Copa Holdings (CPA - Free Report) and GATX Corporation (GATX - Free Report) .
Copa Holdings' focus on its cargo segment is very encouraging. In fourth-quarter 2022, cargo and mail revenues jumped 69% to $27.09 million, owing to higher cargo volumes and yields. Currently, CPA sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For first-quarter and full-year 2023, CPA’s earnings are expected to register 485% and 40.5% growth, respectively, on a year-over-year basis.
GATX carries a Zacks Rank #2 (Buy) at present. The gradual improvement in the North American railcar leasing market is a huge positive for the company. Management expects a recovery in the North American railcar leasing market to continue in 2023.
We are also impressed by GATX's measures to reward its shareholders through dividends and buybacks despite the economic uncertainty. For full-year 2023, its earnings are expected to register 10.5% growth on a year-over-year basis.