Ryanair boss of more than three decades, Michael O’Leary, entered his 65th year this week. And a milestone gift from stock market investors appears within his grasp.
Shares in Europe’s largest airline group have moved above €21 on 11 days in the past month – a level that, if sustained for 28 consecutive days, would unlock a €100 million pay-day for one of Ireland’s most successful, if divisive, businessmen.
But so far Ryanair has only managed to maintain three days – between last Tuesday and Thursday – closing at or above the key threshold that would trigger stock options leading to the large bonus.
It’s been here before. The stock briefly breached the key point for several days a year ago, before descending sharply. And it was back below again on Friday, changing hands at as low as €20.38.
Can it make a proper breakthrough and hold altitude?
The stock has been helped recently by a board decision to remove a restriction on non-EU nationals buying the group’s ordinary shares – and a view that Ryanair is something of a haven as worrying red flashes from US airlines are seen as potentially affecting European flag carriers yet.
EU airlines are not allowed to have more than 49.9 per cent of their shares in the hands of investors outside of the union. To protect its European licences in the wake of Brexit, Ryanair moved in 2021 to extend a long-standing ban on non-EU investors purchasing ordinary shares to include those in the UK.
The company decided earlier this month to lift that ban – though it will continue to enforce voting restrictions on non-EU shareholders. This should boost demand for the stock and open up the possibility of Ryanair rejoining certain global equity indices from which it had been excluded as a consequence of its ownership structure.
Big US carriers such as Delta, American Airlines and Southwest Airlines each moved this month to cut their revenue forecasts for the current quarter, as domestic consumers have been rattled by economic and political uncertainty and the American Airlines mid-air collision with a Black Hawk helicopter over Washington DC in January. Government spending on travel has also been hit by US president Donald Trump’s sidekick Elon Musk wielding his chainsaw.
The softening travel spending appears to be limited, for now, to flights within the United States, according to industry figures.
However, analysts, including Andrew Lobbenberg at Barclays, have started to take red pens to their forecasts for European flag airlines that are heavily reliant on carrying passengers across the Atlantic for earnings, believing the problems may spread from the US domestic market to international markets. The fear, too, is that political tensions between Trump’s administration and Europe may put some travellers off popping across the pond.
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Lobbenberg sees Europe’s low-cost carriers, including Ryanair, as a hiding place for investors – helped further by a recent weakening of oil prices and the US dollar (the currency in which fuel is generally quoted).
Ryanair chief financial officer Neil Sorahan said at a JP Morgan conference in New York last week that the economic queasiness in the US could, in theory, drift to Europe with a lag, but that this should not affect summer demand or pricing. O’Leary said last month that he expects summer fares to rise 4 to 6 per cent this year, after falling in 2024.
The US investment bank’s analysts reckon this is the minimum pricing recovery needed for Ryanair’s shares to kick on. The hope is that the company will have further clarity when it reports results for the financial year to the end of March, due in mid-May.
Ryanair has cut its passenger forecasts for its upcoming financial year, to March 2026, twice in the past five months amid delays in new Boeing deliveries after a strike by workers there last year compounded a now long-running crisis at the plane maker.
However, Sorahan signalled confidence that the airline will get the planes needed to reach its 2026 target of flying 206 million passengers – with four of the nine targeted between January and the start of summer having already been delivered.
While Ryanair sees an opportunity to be among the first airlines to get into the Ukrainian market and ramp up passengers when its skies are eventually reopened (O’Leary has set his sights on as many as five million passengers annually within a year or two of that), investors will have to get used to a much slower rate of growth from here.
The company entered a new phase when it paid its first regular dividend early last year. Bernstein analyst Alex Irving believes the group – facing a period of lower aircraft purchases – could comfortably return more than €2 billion a year to shareholders in dividends and share buy-backs on an ongoing basis.
While this may boost its safe-haven status, it will likely mean a chunk of growth-oriented investors disembark. JP Morgan analysts say the lower-growth profile means Ryanair should trade at a 20 per cent discount to its long-term valuation ratio, relative to earnings. This still points to a price target of €26 over the next 24 months, they say.
Perhaps the biggest snag with the stock breaking out from here and delivering the mega bonus is that it will inevitably force investors to engage with the question of life after O’Leary – even if he has long given up predicting when he’ll clear the runway.
