oAfter a weak first-half 2021, intra-European air passenger traffic, especially to leisure destinations, picked up in the summer, and we expect it to continue its recovery, albeit from very low levels in 2020.
oRyanair benefits from these demand trends given its intra-European route network and exposure to leisure travellers, and we expect its EBITDA and operating cash flow will turn positive in fiscal year ending
oIn addition, we foresee much-improved financial results in fiscal 2023, translating into stronger credit ratios, although still well below pre-pandemic levels.
oWe are therefore revising our outlook to stable from negative and affirming our 'BBB' ratings on
oThe stable outlook is based on an expected continued recovery in air traffic, allowing Ryanair to restore its credit ratios in line with the current ratings, and a markedly lower likelihood of a downgrade.
Short-haul leisure travel is leading the traffic and revenue recovery and should accelerate in 2022.
After a sluggish first-half 2021, with air traffic (as measured in revenue passenger kilometers; RPK) in January-June weaker than our projections at a mere 22% of 2019 levels according to IATA data, demand rose in July and increased strongly in August and September, as vacationers again took to the skies. This coincided with a steady rise in vaccination rates and the EU's introduction of digital COVID-19 vaccination certificates, which made crossing borders smoother. Should this trend continue,
Ryanair's operations will likely exceed our European air traffic forecast but at the expense of yields and profitability.
Eased travel restrictions and Ryanair's load factor active/yield passive recovery strategy (which means that it cuts fares as much as necessary to stimulate ticket sales) led to a surge in passenger volumes during July-October and strong customer pre-bookings for the Christmas break. Consequently, the airline now expects to fly more than 100 million passengers in fiscal 2022, compared with close to 150 million in fiscal 2020, thereby raising its previous guidance of 90 million-100 million. In fiscal 2023, passenger numbers will recover to above the pre-pandemic level, reaching 165 million, according to management, underpinned by market-share gains from competitors, which either cut capacities or ceased to fly. While we consider the competitive landscape to be generally supportive for Ryanair's growth, we believe the air traffic recovery ultimately hinges on how vaccination progresses and mobility restrictions evolve, so the way forward is prone to uncertainties. Accordingly, in our base-case scenario, we assume that the airline will fly 95 million-100 million passengers in fiscal 2022, expanding gradually to reach the pre-COVID volume of 150 million only in fiscal 2024.
Ryanair's EBITDA recovery lags our previous base case, but strong cash inflow from ticket sales will help it cut adjusted debt.
After incurring a
Uninterrupted recovery of demand for vacations and visiting friends and relatives will help restore yields and contribute to the airline's financial recovery in fiscal 2023.
We anticipate that Ryanair's reported EBITDA will rebound to up to
Ryanair's large order for new aircraft will reduce its fleet's running cost over time but also delay balance-sheet deleveraging.
On
We continue to view Ryanair as one of the financially strongest airlines in the industry and therefore one of the best placed to recover from the downturn.
This is underpinned by Ryanair's
The stable outlook reflects our expectation that the air passenger traffic recovery will continue. Consequently, we expect Ryanair's EBITDA to stay positive in the second half of fiscal 2022, increasing but remaining below pre-pandemic levels in fiscal 2023. This should translate into supportive credit ratios, with adjusted FFO to debt of at least 25% in fiscal 2022 and improving to more than 35% in fiscal 2023. Furthermore, we consider a sustained solid liquidity position, a critical and stabilizing rating factor.
We would lower the rating if passenger demand falls short of our expectations of uninterrupted recovery in the remainder of 2021 and in 2022, hindering a turnaround in Ryanair's cash flow; and if we expect that adjusted FFO to debt won't recover to at least 35% by fiscal 2023.
This could occur if the resurgence of COVID-19 cases prompts renewed prolonged lockdowns and a deterioration of consumer confidence. In this scenario, we might conclude that the industry's risk profile and fundamentals have structurally weakened, leading us to revise down our assessment of Ryanair's business risk profile.
We could raise ratings if we expect adjusted FFO to debt to improve and be consistently above 50%. This would most likely occur with continued earnings recovery and debt reduction. We would expect this to be further underpinned by a prudent financial policy that prioritizes stronger ratios over shareholder remuneration.
Environmental, social, and governance (ESG) credit factors for this change in credit rating/outlook and/or CreditWatch status:
oHealth and safety
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