Business Context and Reporting Period
Ryanair Holdings plc filed its Form 20-F on July 28, 2020, covering the fiscal year ended March 31, 2020. The filing is prepared under IFRS in euros. Although the request references 2019 Q4, the filing is an annual report; it states that fiscal Q4 2020 was materially affected by Covid-19-related travel restrictions beginning in mid-March 2020.
Ryanair operates a European and North African low-fare airline group comprising Ryanair DAC, Buzz, Lauda, Malta Air and Ryanair U.K. The Group carried approximately 149 million booked passengers, served 242 airports and had 466 aircraft at March 31, 2020.
Financial and Operating Highlights
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total operating revenue | €8,494.8m | €7,697.4m | +10% |
| Operating profit | €1,127.4m | €1,016.8m | +11% |
| Profit after tax | €648.7m | €885.0m | -27% |
| Basic EPS | €0.5824 | €0.7739 | Lower |
| Operating margin | 13% | 13% | Flat |
| Booked passengers | 149m | 142m | +4% |
| Booked passenger load factor | 95% | 96% | -1 percentage point |
| Net cash from operating activities | €1,944.1m | €2,017.5m | Lower |
| Capital expenditure | €1,195.8m | €1,546.7m | -23% |
Scheduled revenue increased 6% to €5,566.2m, driven by 4% traffic growth and a 2% increase in average fares. Ancillary revenue increased 20% to €2,928.6m and represented approximately 34% of total revenue, compared with 32% in FY2019.
Total operating expenses increased 10% to €7,367.4m. Fuel and oil costs rose 14% to €2,762.2m and represented approximately 37% of operating expenses. Staff costs rose 12% to €1,106.9m, depreciation increased 17% to €748.7m, and maintenance costs increased 34% to €256.4m.
Net finance expense increased sharply to €458.7m from €55.4m, primarily because of higher debt, the adoption of IFRS 16 and hedge ineffectiveness. The effective tax rate declined to 3.2% from 6.7%.
Liquidity, Debt and Capital Commitments
- Cash and cash equivalents were €2,566.4m at March 31, 2020, compared with €1,675.6m a year earlier.
- Cash and liquid resources, including restricted cash and deposits with maturities over three months, totaled €3,808m.
- Total borrowings, including lease liabilities, were €4,211.2m, compared with €3,644.4m at March 31, 2019. Reported net debt was €403.2m.
- Ryanair raised €750m through an unsecured syndicated bank facility and repaid €408.1m of long-term borrowings during the year.
- The Group had contractual obligations of approximately €9,488m, including €5,116m of firm Boeing 737-MAX-200 purchase commitments, €3,787m of long-term debt, €179m of finance lease obligations and €266m of operating lease obligations.
- Ryanair provided approximately €4,236m of letters of guarantee for subsidiary obligations.
- The Group held BBB credit ratings from S&P and Fitch. Management stated that available working capital was sufficient for anticipated FY2021 requirements, and the financial statements were prepared on a going-concern basis.
Material Changes Versus the Prior Comparable Period
- Profit after tax fell 27% despite higher revenue and operating profit, principally because of a €353m after-tax hedge ineffectiveness charge related to FY2021 jet-fuel hedges.
- Covid-19 reduced fourth-quarter traffic by approximately 12% and caused the loss of more than 5 million passengers in March 2020. More than 99% of the fleet was subsequently grounded.
- Ryanair adopted IFRS 16 on April 1, 2019, recognizing right-of-use assets and lease liabilities and increasing reported depreciation and finance expense.
- Debt increased because of the €750m syndicated facility, IFRS 16 effects and lease liabilities, partly offset by debt repayments.
- The Group bought back 47.2 million shares for approximately €580.5m during FY2020, but terminated the buyback program in March 2020 to preserve cash.
- Ryanair established Malta Air during FY2020 and continued its transition from a single-airline structure to a multi-airline group.
Guidance, Outlook, Commentary and Risks
Management expected to operate approximately 40% of the normal July 2020 schedule, increasing to approximately 60% in August and 70% in September, subject to government restrictions. The Group forecast approximately 60 million guests for fiscal year 2021 and expected traffic to decline by more than 50% from FY2020. The filing does not provide a clear FY2021 earnings forecast.
Key uncertainties include the duration and potential recurrence of Covid-19 travel restrictions, recovery in passenger demand, refund and voucher obligations under EU Regulation 261/2004, labor negotiations, and the financial condition of business partners. Ryanair announced discussions regarding pay cuts of up to 20% and approximately 3,000 potential job losses.
The Boeing 737-MAX grounding delayed deliveries of 135 firm-order aircraft and 75 options. Management expected regulatory approval and a return to service in North America during the third quarter of calendar 2020, with European approval expected later, but provided no assurance regarding timing.
Ryanair remains exposed to fuel prices, foreign exchange rates, interest rates, aggressive fare competition, airport charges, environmental taxes, Brexit-related operating restrictions, aircraft financing needs, regulatory requirements, cyber risks and legal proceedings. State-aid investigations and appeals involving several airports could result in repayment obligations or affect the Group’s airport strategy. A U.S. securities class action remained pending, with claims relating to the likelihood of unionization surviving a motion to dismiss.
Fuel hedging was a significant unusual item: the Group recognized a €1,228m liability for jet-fuel and carbon derivatives at March 31, 2020, while forecast fuel demand declined because of fleet groundings. Foreign-currency derivative assets related to future aircraft purchases totaled approximately €495m.
Most Important Facts for Investors to Verify
- Whether passenger demand, flight schedules and liquidity developed in line with the FY2021 assumptions, including the 60 million passenger forecast.
- The timing and commercial terms of Boeing 737-MAX-200 deliveries, related purchase commitments and required financing.
- The ongoing cash impact of refunds, vouchers, cancellations and compliance with EU passenger-protection rules.
- The magnitude and reversibility of fuel-hedge ineffectiveness and the future fair value of fuel, carbon and foreign-currency derivatives.
- Debt maturities, covenant compliance, access to capital markets and the effect of lease liabilities under IFRS 16.
- Outcomes of airport state-aid proceedings, the U.S. securities litigation and any related provisions or cash payments.
- Progress on labor negotiations, proposed wage reductions and potential workforce reductions.
- Actual changes in non-EU ownership restrictions, Brexit-related traffic rights and the Group’s ability to maintain its airline operating licenses.