As a customer, Ryanair (LSE: RYA) is possibly my least favourite airline. And I only say “possibly” because I’ve flown with some pretty ratty ones in various parts of the world. And the Ryanair share price has slumped in the Covid-19 crash. So why would I be bullish about the company’s future?
Ryanair shares have lost significantly less than the shares of its fellow airlines. And they’re recovering better too. At the time of writing, Ryanair is down 18%, which is better than the FTSE 100‘s 22% drop. Meanwhile, easyJet is down a much bigger 55%, and International Consolidated Airlines has dropped a whopping 64%. The market is clearly a lot more positive towards Ryanair than it is to the other two.
The Ryanair share price gained 4% Friday morning, after the airline announced the success of its share placing. Details of the proposal had been released a day earlier. The company has issued 35.2m new shares, raising approximately €400m. The new shares amount to about 3.2% of the airline’s share capital, so the dilutive effect on existing shareholders is minimal.
Opportunities ahead
Most new equity issues at this time are aimed at saving companies from disaster. The crash has seriously harmed their balance sheets, and they’d be struggling to make it through without fresh capital. That’s where the latest move by Ryanair is refreshingly different, and why I think it’s boosted the Ryanair share price.
Ryanair doesn’t have the same levels of debt as other airlines. Also, it hasn’t been hurt by the collapse of the long-haul and business markets that’s added further woes to rivals. Sure, the new cash “should significantly de-risk the group’s debt repayments over the next 12 months,” in the company’s words.
But the board says it expects the damage caused by the coronavirus lockdown to “create opportunities for Ryanair to grow its network, and expand its fleet, to take advantage of lower airport and aircraft cost opportunities that are likely to arise.” And to help exploit those is the main target for the new cash.
The company does have around €1.9bn in debt maturing next year, but that doesn’t look like a problem. At 30 June, at the end of the first quarter, Ryanair had €3.9bn in cash. The airline has been prioritising cash preservation, and that focus is paying off.
Ryanair share price support
Some might disagree with me now. But I reckon Ryanair has just the right management in place to get it through the crisis. And to aggressively exploit whatever opportunities might arise in the coming months and years.
Michaeal O’Leary might be best known for his somewhat brash personality and penny-pinching style. But at the same time, his management approach does seem to have been just what the balance sheet needed. And his keen business eye should give the company an edge in any rush to mop up the spoils as we emerge from pandemic restrictions. Those are two good reasons shareholders should be happy to have him in charge.
I won’t pretend I’ve suddenly abandoned my aversion to the airline industry. But if you invest in it, I now think the Ryanair share price is the most tempting.