Even though the airline industry is facing challenges, Ryanair could still be a good long-term investment.
The airline industry has struggled lately because oil prices, its biggest challenge this year, remain high. Since July, airline sector funds have dropped sharply, while Brent crude prices have gone up.
Ryanair’s American depositary receipts have dropped a lot this quarter and are still down for the year. Its European shares have fallen too. Other airlines like Southwest, American, United, and Delta have also seen their shares fall since July.
Last week, Ryanair lowered its passenger target for fiscal 2027 to 214 million, down from 216 million. The company said this change helps limit its risk from jet fuel costs during the usually unprofitable winter. Ryanair is 80% hedged on jet fuel this year and believes that competitors with less protection may have trouble keeping up or even surviving this winter.
This situation supports the long-term positive outlook for Ryanair. As the leading low-cost airline in Europe, Ryanair could gain more market share if smaller, weaker competitors struggle this winter. When things get better, Ryanair may benefit the most.
Citi noted that a tough winter will hurt profits this year, but smaller airlines in Ryanair’s market will likely be hit even harder because they have weaker finances and less fuel hedging. Over time, this could make Ryanair even stronger. Citi remains positive on Ryanair’s European shares.
Ryanair CEO Michael O’Leary said during the company’s first-quarter earnings call that competitors are facing rising costs, which increases Ryanair’s cost advantage. This should let Ryanair raise fares less than its rivals, helping it win more customers in the low-cost market.
Barclays said that investors focused on the short term might be cautious about Ryanair because of current challenges. However, they believe it makes sense to invest for the long term. Besides Ryanair’s known strengths like low costs, a strong balance sheet, and a modern fleet, Barclays pointed out other possible benefits. These include changes in European environmental rules, the small chance that Ryanair starts a holiday-booking business, and its plan to bring more business functions in-house compared to other airlines.
