2020 was a tough year for the airline industry. Many companies saw their share prices plummet in March last year, and Ryanair (LSE:RYA) was no exception. Within a few months, the stock crashed by 40%, bringing it to its lowest point in nearly five years.
But since then, the company has been making a swift recovery and is now trading above pre-pandemic levels. Last week its climb continued to be just shy of a new three-year high. What’s causing this growth? And should I be adding the stock to my portfolio?
The rising Ryanair share price
One of the main contributing factors of Ryanair’s growing share price stems from the return of international travel. Lockdown restrictions and border closures were introduced last year to counter the spread of Covid-19. This ultimately led to the majority of flights being grounded.
With the vaccine rollout progressing relatively quickly both here in the UK and in America, planes are once again taking to the skies. Holiday travel for Britons is set to resume next week. And while the list of ‘green’ countries remains quite limited, it does include popular destinations such as Portugal, which Ryanair flies to.
What’s more, even without the imminent boost to business, the number of non-holiday flights is already back on the rise. In April alone, the company completed 8,000 trips transporting around a million passengers around the world. By comparison, only 40,000 passengers were flying a year before.
Needless to say, that’s quite a substantial recovery, especially since each aircraft is currently operating with a 70% carrying capacity. Therefore seeing the Ryanair share price climbing is not that surprising to me.
Looking ahead
As promising as I find these numbers, there are a few things that concern me. Ryanair is prominently a short-haul flight business operating within Europe. But the vast majority of its destinations still have significant travel restrictions in place due to high infection rates. As a result, the management team estimates that total passenger numbers for 2021 will be at the lower end of guidance.
This is particularly worrying as the vaccine rollout within Europe is still progressing relatively slowly. With a third wave of infections predicted to occur later this year, many of these countries could be moved from the ‘amber’ list to the ‘red’ list. And consequently, it would likely have a significant impact on the Ryanair share price.
The bottom line
These disruptions are ultimately short-term problems. And given the company has a large cash war chest of around €3.8bn (£3.3bn) with the additional capability of signing sale-leaseback agreements, its liquidity remains strong, in my opinion.
And so I think the Ryanair share price can continue to grow this year and over the long term. But having said that, this isn’t business I’d want to add to my portfolio. Looking back at its pre-pandemic financials, while revenue has continued to grow, its profit margins have suffered, resulting in a consistently contracting bottom line. Personally, I think there are far better businesses to own today.
