European airlines: mature Ryanair is the boldest winger in town

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During the past decade Ryanair boss Michael O’Leary underwent an image change. The European budget airline boss stopped insulting passengers and adopted a more conciliatory tone in his public appearances.

Now Ryanair is maturing financially as well. It will pay a regular dividend for the first time from next year. Ryanair is no longer a mouthy upstart but a cash-generative incumbent with relatively low debt. But do not expect Ryanair to give up its position as the industry’s disrupter-in-chief entirely.

Ryanair’s coming of age should not come as a shock. The business weathered the pandemic years better than rivals. A strong recovery in European air travel since then has meant free cash flow, negative in 2021, rebounded to €2bn last year.

Consumers have prioritised holidays despite tightening household budgets. This allowed Ryanair to increase average fares 24 per cent in the first half to offset higher fuel costs, and freed it up to prioritise debt repayment. Previously, Ryanair preferred to return excess cash via buybacks and special dividends. But that ad hoc approach makes less sense now M&A is less likely.

Ryanair will pay an ordinary dividend of €400mn in two instalments next year. Thereafter it has committed to pay 25 per cent of the previous year’s profit after tax, a payout worth just under €500mn for 2025.

Cash flow this year will be crimped by paying for the remaining 737-8200 “game-changer” aircraft Ryanair ordered from Boeing. Delivery commenced in 2021. Capital expenditure should then dip in 2025 before Ryanair starts paying towards its most recent order for fuel-efficient Max-10 aircraft. These should be delivered from 2027 onwards. The intervening capex holiday could inspire further buybacks.

Ryanair’s shares have outperformed European rivals this year yet still trade on a forward price earnings multiple of about nine times compared with around 14 times pre-pandemic.

Airlines are always vulnerable to geopolitical shocks and consumer downturns. But with a strong balance sheet and cost base at least 50 per cent lower than rivals, middle-aged Ryanair should still demonstrate the vigour of a much younger airline.