Ryanair cancellations: Irish airline won’t suffer lasting damage from thousands of scrapped flights, say analysts

As of Tuesday, shares in Ryanair had fallen more than 4% since the start of September, but they’re still up around 18% for the year

Ryanair is Europe’s largest airline by passenger numbers, in the year to the end of March, it made a profit after tax of €1.3bn

Flight cancellations, potentially affecting tens of thousands of customers, are likely to cost Ryanair up to €25m (£22.2m), but analysts say that the airline should be able to recover from the debacle swiftly - at least financially.

Over the weekend, the Irish carriers scrapped well over 100 flights as a result of what chief executive Michael O’Leary has called “a mess of our own making” in planning pilot holidays.

Hundred more flights are due to be culled between now and the end of October, but analysts have said that Ryanair is unlikely to suffer any permanent damage to its balance sheet.

UBS on Tuesday reiterated its “neutral” rating on the stock, meaning that it would neither recommend selling it nor buying it.

Analyst Jarrod Castle at the Swiss bank pointed out that all passengers will be able to reschedule flights and Ryanair has committed to meeting compensation requirements under EU law.

“The financial implication of cancelled flights over the next six weeks is under €5m on profits and EU261 [compensation] cost[s] are expected to be under €20m, according to the company,” he said.

The cost would be met during the second quarter of the company’s financial year, he said, and would not impact its full-year guidance.

As of Tuesday, shares in Ryanair had fallen more than 4 per cent since the start of September, but they’re still up around 18 per cent for the year.

Neil Wilson, a senior market analyst at ETX Capital, agreed said that the cost of the cancellations would likely be “easily absorbed”. “Clearly the calculation was that cancelling all these flights was worth the cost,” he said.

In the longer term, Mr Wilson said that a recent ruling by the European Court of Justice, under which Ryanair crew can bring proceedings before courts in the place where they perform their duties, could prove to be more of a problem for the airline.

He said that the group’s margins “depend on low costs which they get from paying people less and having more employer-friendly contracts than other EU countries”.

Mr Castle at UBS disagrees, however, saying that the impact of this ruling would also likely be “limited”.

“[It] won't change the fact that the crew fly under Irish law and people still remain free to join unions,” he said.

Last week Mr O‘Leary said that the ruling would give local courts more oversight, but that it would not change their contracts.

Ryanair is Europe’s largest airline by passenger numbers, in the year to the end of March, it made a profit after tax of €1.3bn.