Tuesday 26 March 2019

Ryanair's market cap fall hits €2bn as union talks loom

Ryanair boss Michael O'Leary Photo: PA
Ryanair boss Michael O'Leary Photo: PA
John Mulligan

John Mulligan

Ryanair shares slumped more than 4pc at one stage yesterday, bringing the total decline in its market capitalisation to more than €2.4bn in just two days of trading.

Davy Stockbrokers cut its price target on Ryanair shares to €17, but they sank to €14.30 in early trading.

They recovered somewhat later in the session, to finish the day about 2pc lower. They were down 3.2pc in post-trading, however. More than €2bn has been cut from Ryanair's market capitalisation since last Thursday.

The precipitous decline in the shares began on Friday after the airline dramatically announced that it will recognise unions, reversing a 32-year practice of keeping the door firmly shut on organised labour.

Its shares slumped 9pc that day.

The airline and trade union Impact are set to begin talks this evening - a move that saw the union suspend a 24-hour strike by some staff Ryanair pilots that was due to begin this evening at Dublin Airport.

That meeting will seek to establish dialogue between the sides, which will focus initially on creating a framework for pilot representation at the airline.

Despite the share decline, Davy - Ryanair's own house broker - said that it still expects management to continue executing on its strategy to deliver 200 million passengers a year by 2024, when it will have a fleet of about 600 aircraft.

It currently has about 400 jets.

Davy analyst Stephen Furlong said Ryanair's acceptance of unions "should de-risk, to some extent, industrial relations strife and the summer booking curve should build".

JP Morgan analyst Christopher Combe also said that he believed the market reaction to unionisation "appears overdone". Ryanair has been offering a number of seat sales since its rostering fiasco in September that saw it cancel thousands of flights and ground some aircraft into next year.

The airline's chief executive, Michael O'Leary, indicated to pilots last Friday that the unionisation of Ryanair could also help the airline expand in the longer term in countries including France and Denmark.

Mr O'Leary is also one of Ryanair's single largest shareholders, with almost a 4pc holding.

"The €1.5bn taken off Ryanair's valuation following the announcement of its agreement to recognise unions clearly reflects market surprise and uncertainty," said Mr Furlong.

He said that while Davy was cutting its price target to €17 from €20, it was maintaining its 'outperform' rating on the airline's shares.

"We expect this management team, which built an €18bn-plus market capitalisation business, to continue to execute on the strategy to deliver 200 million passengers on circa 600 aircraft by full-year 2024 at the industry's leading cost base and returns," added Mr Furlong.

Mr Furlong pointed out that Ryanair's cost of €27 per passenger, excluding fuel, is about 50pc lower than that of Easyjet's, but that staff costs only account for €4 of the difference in the figure. He said that shows Ryanair still has a "significant cost advantage".

"We do not see this equalising as it is largely productivity driven," Mr Furlong pointed out.

He said that those productivity advantages include Ryanair's regional mix of bases, flying larger aircraft than Easyjet, and the latter's level of primary airport exposure.

He added that Davy's forecasts already assume that Ryanair's labour costs will rise to €6 per passenger in the next full financial year, an increase of about €100m.

Irish Independent

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