European Airlines: Hormuz flares up again. How H2 shapes up, if this worsens further

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European Airlines: Hormuz flares up again. How H2 shapes up, if this worsens further

the fundamentals in long-haul are better: a tighter supply-demand balance on key markets,

and premium cabin continuing to boom. However, the differential performance in our view creates an opportunity in

Ryanair today. In a worse fuel price environment, it is likely to invest counter-cyclically and take share. In a better fuel price

environment, costs fall. Finally, the potential take-private of easyJet, which could in our view lead to tighter medium-long term

industry capacity, would further support other point to point competitors.

• Ryanair’s share price suggests severe compression of unit economics: we disagree. Ryanair shares currently suggest

earnings power of €9-€10 net income per passenger: abnormally low by historic standards, and almost as bad as when

Ryanair broke away from OTAs in FY2025, pushing average fares down 7% YoY. The market is, in our assessment, failing to

appreciate the link between fuel prices, capacity and fares. While it is possible that unit fuel costs increase meaningfully, and

it is separately possible that fares are flattish, these two are unlikely to happen together. Fuel prices and prevailing fares are

interdependent: higher fuel leads to lower industry capacity, and lower industry capacity leads to higher fares. Consequently

we see shares as pricing in a far too pessimistic assessment of Ryanair’s earnings power. Within a couple of years, we are

comfortable that this can instead rise to €12+ net income per passenger.

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Ryanair Rising, Part V. Deep dives on unit cost, locked down for years to come