You’ve probably read that the airline industry is saturated and competitive. That’s good for us as consumers when trying to book a flight. When looking at it from an investment perspective, it’s a bit less encouraging and much more complex.
Global issues affect airlines and air travel. These include fuel prices, consumer demand and competition, and currently the worldwide health crisis that’s decimating some share prices across the industry.
Ryanair (LSE:RYA) operates in the budget airline space and is a major player within it. Founded in 1984, the Irish operator is headquartered in Dublin and consists of a fleet of approximately 300 aircraft serving over 40 countries.
While in 2019 it was voted the least-liked short-haul airline for the sixth year running in a Which? survey (and came last in a rating of 100 UK brands for customer service), its shares still hit a 12-month high as recently as January.
Recent performance and coronavirus
Last month it released a trading update, advising third-quarter profit was €88m (£74m) compared with a €66m loss in the same period of the previous year — a 200% increase. And it said profit should be greater than expected due a 1% upturn in flights booked between January and April compared to forecasts. An admirable result, although this will have been an effect of the Thomas Cook collapse and was pre-coronavirus.
On the other hand, it announced potential closures of bases and job losses due to the delivery date of its Boeing 737 Max order being pushed back once more. This is another setback in its strategy and for its emission goals longer term, both of which are ambitious.
The coronavirus, which has been spreading fast throughout the world, has affected its operations, of course. It said it will cut up to 25% of flights in and out of Italy from 17 March to 8 April. Italy is a popular destination in its offering but has been affected massively, especially the Northern part of the country.
Ryanair boss Michael O’Leary attempted to allay fears saying: “It makes sense to selectively prune our schedule to and from those airports where travel has been most affected by the Covid-19 outbreak.”
What I would do now
After that January high, its share price in the last month has seen a decrease of 20%. However, since September 2019, it has seen an increase of approximately 30%. I believe this to be a direct result of the Thomas Cook collapse. Its current price-to-earnings ratio sits at around 13, compared to the FTSE 100 ratio if 15, which represents an average valuation of shares.
Reviewing its dividend per share reveals a disappointing drop in each of the past two years. As for profit, its figures make for interesting reading and a graphical representation could be likened to that of a yo-yo.
I’m not usually an advocate of investing in an airline due to fierce competition and too many external factors that affect success. And at this point I’ll stick with that view.
I would not invest in Ryanair due to current performance, previous controversies and of course the coronavirus. While, I do see potential long term, it’s not one for me or my portfolio.
Jabran Khan 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.