The number of Covid-19 infections appears to be improving as cases of serious illness and death are falling drastically, making investors much more optimistic about the future.
Travelers and vacationers are certainly optimistic because they show more confidence in traveling by plane without the risk of infection or because they started planning their vacation very early this year. At the same time, operators in the tourism and travel industry are refining their operational strategies in anticipation of the next high season to take full advantage of this new positive wave.
Among the travel industry, Irish airline Ryanair Holdings PLC (RYAAY, Financial), a provider of low-cost flights in the United Kingdom and Europe, caught the attention of investors on Wednesday. Ryanair announced the creation of new routes from Italy's two main hubs in Milan and Rome to various destinations elsewhere in Europe as part of its operational program for the 2022 summer season.
Specifically, with an investment of over $9 billion, the Irish airline company aims to make the Italian market its first market in Europe, expanding its fleet from 67 passenger aircraft to 92 passenger aircraft. Additionally, Ryanair will offer support to 43,000 flights and ground crew jobs, surpassing Spain and Great Britain in the process. The fleet will have approximately 480 aircraft, enabling Ryanair to break through the 2,100 scheduled short-haul flights offered daily, serving 210 airports.
As Italy is a very popular destination for tourists from all over the world, the investment could have a significant impact on the company's future revenue and profits, potentially boosting the share price significantly.
After an 18% year-over-year increase, the stock closed at $122 on Wednesday, which translates to a market cap of $27.65 billion and falls within the 52-week range of $95.06 to $127.25.
The portfolio is recovering well from the crisis due to the Covid-19 virus pandemic. Thanks to a strong demand, coupled with a solid performance of specific ancillary services (boarding priority and reserved seating), total revenue rose 330% year over year to nearly 1.5 billion euros ($1.7 billion) in the December 2021 quarter. It was a significant growth despite a non-full load factor (84%) and a lower average fare of 25 euros (down 24% year over year). The air travel guests were 8.1 million in December 2020 quarter versus 31.1 million guests in the December 2021 quarter.
Traffic has thus increased, but not the operational costs, which have decreased, mainly due to lower variable costs. But this wasn't enough to prevent a GAAP net loss of 0.085 euros per share.
The balance sheet is one of the strongest compared to the peer group, the company said in its earnings report for the fourth quarter. It had nearly 3 billion euros in cash, 90% of the Boeing fleet unencumbered and 2 billion euros in net debt that Ryanair wants to repay completely in two years’ time.
Ryanair believes its financial condition is such that it can quickly capitalize on the many growth opportunities that the post-Covid-19 recovery will create in Europe this year and in 2023.
The stock does not appear cheap as it is trading above the 50-day moving average of $107.71 and above the 200-day moving average of $110.53.
The company's huge allocation to the Italian market could point to strong upside potential in travel between April and September, which could be incredibly positive for the share price. If so, this stock is worth considering.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $133.04 per share. The company doesn’t pay dividends.
