The Motley Fool

Following the stock market crash, will it be lift-off for the Ryanair share price?

Image source: Getty Images.

Few industries have been impacted more negatively by Covid-19 than the airline industry. The International Air Transport Association estimates revenue losses to the industry of $252bn globally. This is a 44% drop versus 2019 figures. The Ryanair (LSE:RYA) share price has reacted to this by dropping around 33% since the start of the year. I think whether the shares will take-off from this point depends on three critical factors.

Liquidity position

Big competitor easyJet has said that it could potentially run out of cash in August unless it scraps new plane orders. Ryanair, however, is much better placed. It currently has €4bn in cash. This is enough to last for 18 months, even if no planes fly. This definitely gives it some breathing room, however it’s needed. Some analysts have predicted that air traffic will not reach pre-crisis levels until mid-2021. Therefore, whilst I think it should have enough capital to survive, it might not be a comfortable journey.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Return of demand

The Ryanair share price is clearly linked to how quickly aviation demand returns. When this will happen is anyone’s guess. It is possible that there is a lot of pent-up demand, with most countries having spent months in lockdown. If oil prices stay low, this may also enhance the ability of the airlines to offer cheap flights. This is something Ryanair is very good at. In fact, the average fare has dropped from £47 in 2015, to £37 in 2019. Ryanair has also expanded its fleet by 50% since 2015 to around 450 planes (fourth largest in Europe). Therefore, it should be ready to take advantage of any potential demand uptake.

However, it is also possible that demand may return slowly, fuelled by coronavirus fears. This would clearly hurt RYA’s profits in the short-term and therefore the Ryanair share price.

Competitive advantage sustainability

If demand does return and Ryanair has survived this crisis, will it be able to maintain its competitive advantage? Ryanair’s strategy to date has been one of cost leadership. I believe that it will continue to pursue this, even after the crisis is over. All those extra bag charges and cramped seats may annoy customers, but this – along with a razor-sharp focus on expenses – has enabled its current capital position. Therefore, why would it change strategy? It has succeeded in a fiercely competitive market.

Additionally, if some its competitors do go out of business, it may lead to a less competitive market. This would help Ryanair sustain or increase its market share.

It is also worth noting that 32% of its €7.7bn of revenues comes from ancillary sources (hotel bookings, etc). I think this additional diversification should position it well post-crisis.

In conclusion, lift-off may be too strong of a phrase for the Ryanair share price, but in the long term I think it will have a safe landing. Additionally, at a price-to-earnings ratio of 10.3 (12 for the industry), it may be good value.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Charlie Watson does not own shares in Ryanair. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.