Key Highlights
- First-quarter net income plummeted 34% to €538m, falling short of analyst expectations by 7%
- Ticket prices declined 6% compared to the previous year amid Middle East geopolitical uncertainty
- Costs for unhedged fuel more than doubled following US-Israel military action against Iran
- Second-quarter fare guidance revised to “modestly lower” versus previous flat expectations
- Morgan Stanley maintained “overweight” rating with €27.60 target price
Shares of Ryanair plummeted over 5% during Monday’s trading session following the disclosure of sharply lower first-quarter earnings and a downward revision to its summer pricing outlook.
The Irish budget carrier reported net income of €538 million for the three months ending in June, representing a 34% decline from the €820 million posted in the same period last year. The result fell short of the analyst consensus estimate of €579 million and significantly underperformed Morgan Stanley’s projection of €639 million.
Total revenue increased by a modest 1.1% year-over-year to €4.43 billion, slightly trailing the consensus expectation of €4.48 billion.
The primary driver of underperformance was ticket pricing. Average fares contracted by 6% during the quarter — a more pronounced decline than the airline had previously anticipated — as passengers delayed bookings amid escalating geopolitical instability in the Middle East region.
During the earnings conference call, CEO Michael O’Leary identified two primary factors: “The principal cause of this was the price of our 20% unhedged fuel doubled in the quarter and fares fell 6%, primarily, we think, due to the impact of the Middle East conflict.”
Fuel Expense Pressures Mount
Following military strikes by the US and Israel against Iranian targets in February, jet fuel prices surged dramatically. While Ryanair had secured hedging contracts for the majority of its fuel needs, the unhedged segment — approximately 20% of total requirements — experienced cost increases exceeding 100% during the three-month period.
Crude oil briefly touched $90 per barrel following an intense weekend of military exchanges between the US and Iran, before moderating somewhat. Oil transit through the Strait of Hormuz, a critical chokepoint for global petroleum supplies, has essentially ground to a halt.
A temporary peace agreement reached last month provided short-lived relief to energy markets, but those improvements evaporated as diplomatic talks collapsed and military operations resumed.
Excluding fuel, per-passenger costs came in 1.5% below consensus projections, while the load factor remained stable at 94%, indicating aircraft continued operating at near-full capacity.
Revised Guidance and Boeing Developments
Ryanair has revised its second-quarter fare expectations, now anticipating prices will be “modestly lower” compared to the prior year, retreating from earlier projections of roughly flat pricing. O’Leary characterized the expected decrease as “something low to mid single digits.”
The carrier maintained its full-year passenger traffic projection, anticipating a 4% increase to 216 million travelers.
Regarding cost expectations, Ryanair withdrew its previous guidance calling for mid-single-digit unit cost inflation. The company now indicates the outcome will be determined by movements in unhedged fuel prices, which analysts had been projecting would contribute 1%-2% to cost growth.
CFO Neil Sorahan emphasized Ryanair’s expanding cost advantage relative to competitors. He noted the unit cost differential with Wizz Air has expanded from 26% pre-pandemic to over 81% currently, while the gap with easyJet has widened from approximately 70% to roughly 150%.
Regarding Boeing aircraft deliveries, O’Leary indicated MAX-10 certification is anticipated “sometime in September or October,” with the initial 15 aircraft scheduled for delivery in spring 2027. The airline has hedged 60% of its 150-aircraft MAX-10 order against euro-dollar exchange rate fluctuations at a rate just above 1.23.
Morgan Stanley anticipates full-year consensus net income will decline from approximately €2.1 billion to around €1.9 billion following these results, though the firm maintained its “overweight” rating and €27.60 price target on the stock.
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