Ryanair (RYAAY) Grapples With Labor Unrest: Time to Dump?

We initiated coverage on Ryanair Holdings plc RYAAY on Jul 16, 2018. The stock has shed more than 2% of its value in the past six months mainly due to the ongoing labor unrest.

Six-Month Price Performance

 

On Jul 12, Ryanair’s pilots, based in Ireland, went on a 24-hour strike in protest against management’s approach toward transfers between the carrier’s European and African bases. The strike resulted in multiple flight cancellations and hampered travel plans of many passengers as Jul 12 marks the beginning of the traditional holiday fortnight in Northern Ireland. Notably, this was the first-ever pilot strike at Ryanair. Adding to its woes, the company’s cabin staffs in Belgium, Italy, Portugal and Spain will go on strike on Jul 25 and 26 against management’s inaction as far as their demands pertaining to higher pay and better working conditions are concerned. What is worse is that more strikes may follow if the labor unrest is not resolved.

Moreover, Ryanair remains concerned about a Brexit-related impact with leisure and business travel demand taking a hit. The carrier fears that its UK shareholders will be treated as non-EU. We note that Mar 29, 2019 is the date for the UK to leave the EU. In the event of the scenario materializing, Ryanair’s licencing and flight rights might be hurt. Under the current ownership rules an EU airline must have more than 50% EU ownership. However, Ryanair would fall short of the requisite numbers if the UK indeed exits the EU. Ryanair also fears that the Open Skies agreement might not be operational after 2020.

In addition, rising fuel costs are anticipated to limit bottom-line growth. Ryanair expects its fuel bill to rise by more than €400m in fiscal 2019 (ending Mar 31, 2019). This significant increase is expected to be a major drag on the company’s earnings. As the carrier is in talks with various labor groups regarding their pay and other factors, labor costs are also anticipated to increase and weigh on the bottom line further. Investments on its fleet are also driving up costs. In fiscal 2018, capital expenditures totaled €1,470.6 million mainly owing to expenses on fleet upgrade.  In fact, unit costs are projected to increase by 9% in fiscal 2019 at Ryanair.

Other Metrics

The Zacks Consensus Estimate for fiscal 2019 and 2020 earnings moved south 5.1% and 6.5%, respectively, in the last 30 days. This reflects investor’s pessimism surrounding the stock.  

Furthermore, the stock has a VGM Score of C, which highlights its unattractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.

Such a score allows investors to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

Undoubtedly, the above negatives substantiate the company’s Zacks Rank #5 (Strong Sell). In view of the above challenges confronting Ryanair, which have led to the unfavorable readings and the bearish Zacks Rank, we believe investors would do well to get rid of the stock currently.

Stocks to Consider

Some better-ranked stocks in the broader Transportation sector are Ryder System R, Expeditors International of Washington, Inc. EXPD and Norfolk Southern Corporation NSC. All these three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Ryder, Expeditors and Norfolk Southern have gained more than 7%, 44% and 69%, respectively, over the past two years.

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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
 
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