Ryanair’s Strong Results Showed That Free Pretzels Are Seriously Overrated

Ryanair’s Strong Results Showed That Free Pretzels Are Seriously Overrated
Paul Allison, CFA

4 months ago2 mins

What’s going on here?

Low-cost airline Ryanair unveiled plush results on Monday, demonstrating that strong books beat free pretzels every time.

What does this mean?

Ryanair has been coasting in style for the last few years, despite being distinctively frill-free. The budget airline made nearly $2.5 billion in profit in the first half of the year, 60% more than the same time last year. That’s partly because the airline carried roughly 11% more passengers, presumably won over by non-existent window seats and the thrill of bank-busting fees for hand luggage that doesn’t quite fit in the metal measuring box. And now that planes are full, Ryanair’s been able to pull up prices by about 15% this quarter, comfortable with the risk of scaring off a couple of customers. Layer on the announcement of a €430 million dividend payout for shareholders, and you can see why the airline’s stock is up around 7% this year in Europe.

Ryanir profit

Why should I care?

The bigger picture: No free lunches.

Ryanair’s outspoken CEO is known for being something of a maverick, famously snapping up planes on the cheap when economic downturns have drained other airlines, and turning what would be free perks elsewhere into paid-for extras. That’s not only brought plenty of publicity, but has also created a balance sheet that could be mistaken for a US consumer staples firm’s, making it the envy of the industry.

Ryanair stock
Source: Bloomberg

For markets: Confidence talks.

Ryanair’s first-class business model and books would lead you to believe that buying the stock would bleed you dry. But to match the brand’s discount-heavy image, shares actually trade relatively cheaply, at least according to the firm’s price-to-earnings ratio. But this dividend payout might get investors more excited: the airline’s promise to dole out regular payments to shareholders is a sure sign of confidence about the company’s future. And while Ryanair’s not the first airline to pay dividends, it may be the first to stay committed during both rough and smooth skies.

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