Future Capacity Constraints And Fleet Upgrades Will Support Long-Term Earnings Durability

Catalysts

About Ryanair Holdings

Ryanair Holdings operates a leading low cost European airline group focused on high frequency, short haul travel.

What are the underlying business or industry changes driving this perspective?

• Completion of the 210 Gamechanger program by early 2026 and the phased introduction of MAX 10 aircraft from 2027 will increase seats per flight while cutting fuel burn per flight. This supports both traffic growth towards 300 million passengers and structurally higher operating margins and earnings per passenger.
• Persistent capacity constraints across European aviation due to manufacturer delays and engine repair backlogs are limiting industry wide seat growth to low single digits. This supports firmer pricing and may help Ryanair convert its low unit cost advantage into sustained revenue per passenger and profit per passenger expansion.
• Regulatory and tax shifts at national level, with countries such as Sweden, Italy, Hungary and Slovakia abolishing or cutting aviation taxes, are driving capacity reallocation away from high tax markets and towards more supportive jurisdictions. This may underpin higher load factors, route profitability and group net margins.
• Fuel and currency hedging out to FY 2027 at materially better rates, alongside a transition to a debt free balance sheet with over 600 unencumbered aircraft, gives Ryanair a high degree of cost and financing visibility. This can be used to selectively stimulate fares while still widening the cost gap to competitors, potentially supporting resilient earnings through the cycle.
• Ongoing investment in in house capabilities such as pilot pipelines, training centers and planned engine maintenance shops, combined with airport partnerships in growth regions like Italy, Poland, Albania and broader Central and Eastern Europe, may support reliable capacity deployment and ancillary growth, reinforcing revenue scale and stabilizing long term net margins.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ryanair Holdings's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.7% today to 14.7% in 3 years time.
• Analysts expect earnings to reach €2.6 billion (and earnings per share of €2.5) by about December 2028, up from €2.4 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €3.3 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, up from 12.5x today. This future PE is greater than the current PE for the US Airlines industry at 12.5x.
• Analysts expect the number of shares outstanding to decline by 2.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.32%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural capacity constraints in European aviation out to at least 2030, combined with Ryanair's plan to grow traffic from 207 million passengers today to over 300 million passengers by 2034, could sustain higher fares and load factors for longer than expected. This could lift revenue and profit per passenger and support a higher share price over time, particularly if profit per passenger does rise from about EUR 10 towards EUR 12 to EUR 14.
• Ryanair's transition to a debt free balance sheet with over 600 unencumbered aircraft, strong investment grade credit metrics, and material fuel and FX hedging savings through FY 2027 improves resilience and financial flexibility versus peers. This could allow it to gain share and protect earnings in downturns, supporting a higher long term valuation multiple and upward pressure on the share price.
• Planned in house investments in pilot training pipelines, crew bases, simulators, and engine maintenance shops, alongside airport growth deals in markets such as Italy, Poland, Albania, and broader Central and Eastern Europe, may entrench Ryanair's unit cost advantage. This may enable it to expand ancillary revenues and maintain or grow net margins over the next decade, which could drive earnings growth above market expectations and lead investors to reassess the equity.
• Policy shifts at national level, including the abolition or reduction of aviation and environmental taxes in countries such as Sweden, Hungary, Italy, and Slovakia, are encouraging Ryanair to reallocate aircraft into these jurisdictions. If this trend broadens across Europe it could meaningfully lower effective taxation on intra EU flying and support sustained fare growth and higher net profit margins, which could be reflected in a higher share price over the long term.
• If Ryanair successfully takes delivery of all 210 Gamechanger aircraft by early 2026 and then starts its eight to ten year MAX 10 program from 2027, the resulting 20% more seats and 20% less fuel burn per flight should structurally reduce unit costs and emissions. This may improve competitiveness, expand operating margins, and support compounding earnings growth that contradicts the idea that the share price will merely remain flat.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €30.02 for Ryanair Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €36.0, and the most bearish reporting a price target of just €23.5.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €17.6 billion, earnings will come to €2.6 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of €28.13, the analyst price target of €30.02 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.