Developments in the airline industry

Anyone who travels at least a little is very familiar with the name Ryanair, an airline that has made a significant contribution to making flying more affordable. Thanks to its low prices, passengers can fly to numerous destinations, not only in Europe. After a promising recovery in this market following the pandemic, it was subsequently hit by a crisis at Boeing, the world's largest aircraft manufacturer, which has been responsible for several safety incidents. These eventually resulted in significant restrictions on its production and delivery delays. Ryanair, followed by other airlines, warned of these delays at the beginning of the year, announcing the need to increase the price of its tickets. However, aggressive price increases have affected consumer behaviour more than expected. [1]

Cheap tickets meant lower profits

In the first quarter of Ryanair's 2025 financial year (period from 1 April to 30 June 2024), the price of its tickets fell by an average of 15%, resulting in a huge year-on-year drop in profits. According to the carrier's executives, the main reason for the lower prices is the reluctance of passengers to pay high prices in a difficult economic situation and partly due to the timing of the Easter holidays in March. Nevertheless, CEO Michael O'Leary says demand was strong in the first quarter, as the company carried 55.5 million passengers, a 10% increase year-on-year.[2] As Ryanair and other carriers have seen a surge in demand in recent months, expectations for the summer season were even higher. However, these have so far proved false.

Overcapacity

Ryanair's problems underline the wider problem that is currently emerging in the airline industry. The airline has overestimated demand growth on the back of promising figures at the start of the year, to the point where it is now facing overcapacity despite record passenger numbers. These are now resulting in high operating costs, lower ticket prices and, ultimately, disappointing profits. Airlines have therefore been forced to moderate estimates in their financial guidance for the new quarter. In the next few days, the earnings results of other major airlines, which are also expected to show weaker numbers, are on the agenda.  [3]

Ryanair's results and outlook

Ryanair's economic results disappointed analysts' expectations in all respects. The company reported revenues of €3.63 billion (US$3.95 billion) for its first financial quarter of the 2025 financial year, against a consensus estimate of US$4.23 billion. Net profit fell 46% year-on-year to €360 million (US$390.7 million). Despite high demand, current financial guidance assumes significantly lower prices than last year, with the company considering the months of August and September to be key. Ryanair has so far been unable to provide more specific information on its outlook, mainly due to factors such as volatile fuel prices, the instability of new aircraft deliveries, or the overall global economic situation. By the end of the 2025 financial year, the company expects passenger traffic to increase to around 198-200 million, which would be 8% more than in the previous year.[4] [1]

Share performance

Following the release of these results and the uncertain outlook, Ryanair's share price plunged by more than 15% in Monday's trading, hitting its lowest level in almost 9 months. At the close of Tuesday's trading, the price closed at USD 95.15 per share.* This decline also affected the shares of other airline operators.[5] Some investment banks downgraded Ryanair shares, such as Swiss bank UBS from 'Buy' to 'Neutral'. Meanwhile, analysts warn that this summer season could see further declines that could hurt both the company and investors.[6] [2]

Ryanair's share price performance over the last 5 years. (Source: Google Finance)*

Conclusion

The airline industry is facing serious problems caused not only by delays in aircraft deliveries from Boeing, but also by misjudgement of demand. Despite record passenger numbers and increased demand expected over the summer months, Ryanair is experiencing a significant drop in profits and problems with overcrowded capacity. Such developments, not only in Ryanair's case, are leading to adjustments in financial forecasts and a reduction in shareholder value. It is therefore necessary to monitor future economic performance and adjust expectations in line with continuing industry trends.

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results

[1], [2]Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.investing.com/news/stock-market-news/sliding-airline-profits-and-plane-delays-cast-shadows-at-air-show-3528894

[2] https://edition.cnn.com/2024/07/22/business/ryanair-fares-lower-summer/index.html

[3] https://www.msn.com/en-gb/travel/news/summer-travel-boom-not-enough-to-fire-up-airline-earnings/ar-BB1qrkdA

[4] https://investor.ryanair.com/results-centre/q1-fy25-results/

[5] https://www.cnbc.com/2024/07/22/ryanair-q1-2024-results-shares-fall-on-lower-fares-fall-in-quarterly-profit.html

[6] https://www.investing.com/news/company-news/ryanair-stock-target-cut-downgrades-to-neutral-on-pricing-strategies-93CH-3489224