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Why Ryanair has more gas in the tank
Ryanair (RYA) €13.55
Gain to date: 35.7%
Original entry point: Buy at €12.09, 25 August
Low cost airline Ryanair (RYA) continues to fly higher following a successful buyback programme and strong results in the three
months to 30 June 2017.
Since we flagged Ryanair’s potential, shares in the airline have rallied 35.7% to €18.55 (14 August), but its performance has been mixed through the summer due to Brexit and pricing competition concerns.
Last month, the airline reported a 55% increase in pre-tax profit to €397m thanks to a later Easter and a 1% rise in both average fares and ancillary revenues.
However, Ryanair reiterated that average fares are likely be cut by 8% in the six months to 31 March 2018 as competitive pricing starts to bite.
Further volatility was prompted by warnings of flight disruption between the UK and Europe if Britain does not remain in the European Union’s (EU) Open Skies deal. This facilitates freedom of travel throughout the EU.
Despite these headwinds, we remain confident that Ryanair has more to offer thanks to its ancillary sales, which deliver 75% of the group’s profitability according to Deutsche Bank’s Anand Date.
Ancillary sales are generated from non-ticket sources such as baggage fees and on-board food and theoretically could support future profitability even if ticket prices continue to fall.