BofA says Ryanair customers responding to lower fares

Bank of America analysts reiterated their Buy rating on Ryanair (RYAAY) despite cutting their price target to €24 from €25 per share. This adjustment reflects a revised outlook on airfare trends.

“We heard a mixed message on 2Q pricing trends from airlines,” states the BofA note. “The company emphasized the need to stimulate demand in May and June.”

To achieve this, Ryanair lowered fares, leading to a 4% reduction in BofA’s FY25 net income estimate (€2.1 billion). Analysts lowered their F1Q25 fare estimate to -5% year-over-year, putting them 6% below consensus.

Despite the soft first quarter, BofA sees positive signs. “May traffic growth of 11% y-y with loads of 95% (+1ppt y-y) shows a positive customer response to the lower fares,” the note explains.

While F1Q saw lower fares, the outlook for peak summer (F2Q) is more optimistic. “Peak summer 2024 fares (F2Q) are expected to be flat to modestly up year-over-year,” BofA reports. They slightly adjusted their F2Q fare estimate to +2% year-over-year.

Looking ahead, BofA expects Ryanair’s unit costs to rise modestly in FY25 due to factors like labor expenses and higher fees. However, these increases will be partially offset by fuel savings and interest income.

The airline has a strong hedging strategy, with over 70% of FY25 fuel requirements secured at $80 per barrel.

The report also highlights potential for further shareholder returns this year. “Ryanair announced a €700 million share buyback in May to be completed by October. The airline will pay a €480 million dividend,” says BofA. “We see scope for additional cash return this year as its cash position remains strong,” concludes the BofA note.