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The Ryanair share price: set to explode?

Ryanair cabin crew walk through an airport
Image: Ryanair

The Ryanair (LSE: RYA) share price has been on a rollercoaster over the past two years. It sunk to a €9 low in August 2019, before rocketing to €14 in January 2020. When the stock market experienced a mini-crash in March 2020, it fell back to €9, then rose to a high of €17.5 by May 2021. At €15.80 as I write, I think it could be an excellent buying opportunity for me right now.

When I wrote about IAG and Rolls-Royce back in July, I was worried about the outlook for summer travel. It seems I was right, as continued travel restrictions has meant that tourism and business travel this year has remained subdued. However, green shoots seem to be appearing. 

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Come fly with me

There’s been about £200bn of forced savings generated in British bank accounts over the past two years, so consumers have plenty of savings stashed away for holidays. And I think the extended holiday frustration is likely to lead to a flight boom.

4.4m people flew with Ryanair in July 2020, and this figure leaped over 100% to 9.3m in July 2021. As we enter autumn, the company wants to capitalise on this increased demand, launching 14 new routes flying out of Stansted, Gatwick, and Luton. This will create 500 new jobs in anticipation of further growth in 2022.

Yesterday CEO Michael O’Leary commented that he is expecting a “dramatic recovery” in European short-haul flights, predicting that the airline will fly 10.5m passengers a month until 2022. This could be great news for the Ryanair share price.

O’Leary also wants the government to scrap PCR tests for fully vaccinated arrivals. This now seems a possibility as the government could be scrapping plans for internal vaccine passports.

There’s also pressure on the government to suspend Air Passenger Duty, which will have a strong positive effect on profit margins. O’Leary believes that the duty makes “UK airports uncompetitive against lower cost EU airports.”

Market share bonanza

Speaking of profitability, the airline has warned that the price of holiday flights is likely to be “dramatically higher” next year. It predicts that new green taxes combined with inflation will start to push up prices organically.

However, the biggest effect will come from the lack of available short-haul flights. All of Ryanair’s competitors have reduced their fleets because of the impact of the pandemic. The misfortunes of Norwegian, Flybe and Thomas Cook has collectively reduced seat capacity by 38m a year. So there’s now 20% fewer short-haul European flights than there were pre-pandemic. And I don’t have to be an economist to work out what’ll happen when demand for flights rises at the same time that supply has fallen.

Not all plane sailing for the Ryanair share price

It’s important for me to remember that the same concerns I had for IAG and Rolls-Royce also apply to Ryanair. New travel restrictions, or indeed, any shock to our fragile economic recovery could spell disaster. Ryanair already expects losses to continue until March 2022.

And the end of the furlough scheme is likely to be problematic. The airline can either swallow further losses in the short term, or risk letting qualified staff go during a labour shortage.

But with most analysts expecting a strong comeback in 2023, the Ryanair share price is an attractive proposition as a recovery play. 

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Charles Archer has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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