Shares in budget airline Ryanair (RYA) were steady at €8.56 on Friday as the company said it still expected to report profit after taxes of close to €1bn for the year to March 2020, but pulled its 2021 guidance due to a hit from fuel hedging.

Despite passenger numbers falling almost 50% in March and most of its fleet being grounded as a result of the coronavirus pandemic, the firm said in an update it expected after-tax profits for the year to 31 March 2020 to be at the lower end of its previously stated guidance range, between €950m-€1bn.

HEFTY FUEL HIT

The airline gave no guidance for 2021 but said it expects to carry few if any passengers during April and May and will take a €300m hit to its 2021 accounts due to the ineffectiveness of its fuel hedges.

Airlines are major consumers of oil due to their jet fuel needs, and most will have agreed fixed price contracts for most of their fuel for the next year or two, a move which looked shrewd at the time but now feels like a painful mistake with oil trading around the $27 mark.

According to Bloomberg, Ryanair will be the worst hit by this of the major global airlines as it hedged 90% of its fuel requirements this year.

German airline Lufthansa hedged the second most at 73% of its fuel requirements, followed by low-cost rival EasyJet (EZJ) at 71%, while Wizz Air (WIZZ) hedged 63% of its fuel needs.

STRONG BALANCE SHEET

Despite the hedging hit, Ryanair would appear better placed than some other airlines to withstand the storm.

Analysts at Davy Research said Ryanair had ‘one of the strongest balance sheets in the industry’, pointing to its year-end cash position of €3.8bn and 327 (77%) of the group’s owned fleet being unencumbered and debt-free.

The airline has already implemented a series of measures to cut operating costs, improve liquidity and cash flows.

These include grounding craft, deferring capital expenditure, suspending share buybacks, freezing recruitment and discretionary spending, and cutting all pay, including for senior management, by 50% for April and May.

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Issue Date: 03 Apr 2020