Irish budget carrier Ryanair (RYAAY) has narrowed the high-end of its annual loss guidance for fiscal 2022 ended March 31. The company is seeing a recovery in flight demand from pandemic lows.
It now expects net loss to be in the range of €350 million to €400 million. It previously anticipated the loss to be in the range of €250 million to €450 million. Ryanair’s balance sheet is also strengthening. Its net debt decreased to €1.5 billion at the end of fiscal 2022, from €2.3 billion at the end of the previous year.
Ryanair flew more than 97 million passengers in fiscal 2022, compared to only 27.5 million passengers in fiscal 2021. Although the airline’s traffic is rebounding, it remains below pre-COVID-19 pandemic level of 149 million passengers. The company plans to release its actual fiscal 2022 results on May 16.
Ryanair’s Fuel Hedging
As air travel demand rebounds, Ryanair is increasing its fuel hedging – a contractual arrangement through which airlines attempt to reduce exposure to fuel price volatility. The airline has now hedged 80% of its fiscal 2023 fuel requirement. It has also hedged 10% of its fuel demand for the first half of fiscal 2024.
What Is the Takeaway for Ryanair Investors?
If the net loss is shrinking, Ryanair may have more flexibility to continue to strengthen its balance sheet. Locking in fuel supply contracts at potentially favorable prices through the hedging mechanism may allow Ryanair to control costs and take advantage of the growing budget airlines market. The global low-cost airlines market is forecast to exceed $440 billion by 2030 from $155 billion in 2016.
Wall Street’s Take
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on one Buy. The average Ryanair price target of $130 implies 46.7% upside potential to current levels. Shares have declined 17% year-to-date.
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in RYAAY is currently Positive, as 5 hedge funds increased their cumulative holdings of the stock by 175,800 shares in the last quarter.
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