Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) fell by nearly 6% after reporting earnings for its third quarter. Despite double-digit profit growth, labor turmoil and fears of canceled flights have sent RYAAY stock moving down.
However, despite the complaints from workers and customers, passengers flock to the low-cost airlines such as RYAAY over carriers such as Aer Lingus, EasyJet (OTCMKTS:EJTTF) or British Airways plc (ADR) (OTCMKTS:BAIRY).
With its growing profits and popularity, those wanting to purchase Ryanair stock should treat the labor dispute as a great time to buy.
RYAAY Stock Earnings
The Dublin, Ireland-based discount air carrier had earnings of 8.9 euro cents (11 cents) per share for the quarter ending in December, a 12% increase from last year. Revenue came in €1.41 billion ($1.751 billion), a 4.4% increase from year-ago levels.
However, despite the growth, the stock fell by about 6% on fears of turmoil within the company. With rising profits comes rising demand from pilots as they push for a pay increase. CEO Michael O’Leary brushed off the pilots’ proposal as “laughable demands.”
Still, management has had to make concessions to maintain operations, and it may have to make further compromises still. Ryanair recognized unions for the first time in its history during the Christmas season under the threat of service disruptions.
The job market in Europe also faces a relative shortage of pilots. This dearth of available personnel will likely force RYAAY to spend more on pilot salaries.
Low Costs and Fares buoys RYAAY
Fortunately, RYAAY can probably afford to pay pilots more as they have always made saving money a priority. Like Southwest Airlines Co (NYSE:LUV), Ryanair utilizes only Boeing 737 planes in its fleet.
However, unlike Southwest, Ryanair orders its planes with non-reclining seats, no seat-back pockets and life jackets stored overhead. The airline believes this lowers aircraft costs and enables faster cleaning. Low costs are great for RYAAY stock.
Ryanair competes in what’s called the “ultra-low-fare” segment, equivalent to Spirit Airlines Incorporated (NASDAQ:SAVE) in the U.S. And like Spirit, it charges low fares but Ryanair adds fees for services such as printing boarding passes at the airport, “unusual” luggage sizes, name change fees and “expensive” in-flight food and drinks.
The airline has also considered ideas such as removing two toilets to add seats, “vertical seats” for standing passengers, and charging more for passengers above a certain weight.
While these conditions will likely not make Ryanair one’s favorite airline, this ultra-low-cost strategy has been a boon to RYAAY stock investors. Over the last five years, annual revenue growth has averaged over 8.6%, while annual profit growth has averaged 18.6% over the same period.
Analysts expect double-digit profit growth to continue through at least the end of the decade.
Regarding valuation, RYAAYstock trades at a price-to-earnings (PE) ratio of 16.3. That figure remains above the average PE of just over 12 in the airline industry. However, save for Spirit or JetBlue Airways Corporation (NASDAQ:JBLU), few airlines have seen such profit growth in recent years.
Final thoughts on RYAAY Stock
Given the nearly constant price and profit growth of RYAAY stock, investors should treat the labor dispute as a time to buy. The company will likely have to use some of their profits to increase pilot pay. However, with high earnings growth in both its past and predicted future, the company can afford higher salaries.
Also, consumers in its market have shown they prefer RYAAY’s no-frills approach. This has allowed the airline to expand to 34 countries and enjoy a presence across Europe. With the firm’s profit growth and the likelihood of continued expansion, investors should use RYAAY’s labor troubles as a chance to buy Ryanair stock at a discount.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
