Ryanair: Low Costs, High Ambition

Ryanair is Europe’s largest airline by passenger numbers and the continent’s leading low cost airline. Known for offering some of the lowest fares in Europe, the company has built a business around keeping costs low while flying millions of passengers across an extensive route network. With a modern fleet, disciplined expansion, and a relentless focus on efficiency, Ryanair aims to continue growing its market share and passenger numbers. The question remains: Does this low cost airline leader deserve a spot in your portfolio?

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The Business

Ryanair Holdings was founded in 1984 and has grown into Europe’s largest low-cost airline group. Headquartered in Dublin, the company operates a short-haul, point-to-point airline network across Europe and parts of North Africa. Ryanair pioneered the low-fare airline model in Europe in the early 1990s and has since become one of the most dominant players in the European aviation market. The group consists of five wholly owned airlines, Ryanair DAC, Ryanair UK, Malta Air, Buzz, and Lauda, which together give the company flexibility across different European markets. Ryanair’s business model is built around offering very low fares on direct routes with frequent departures. The company sells tickets on a one-way basis without minimum stay requirements and uses dynamic pricing, meaning fares change based on demand, seat availability, and how close the booking is to the departure date. This allows Ryanair to stimulate demand with low prices while still capturing higher fares when flights are closer to full. The core product is a simple, unbundled airline seat, where passengers pay a low base fare and can choose whether to add extras such as checked baggage, priority boarding, reserved seating, fast track, food and drinks, car rentals, hotels, and travel insurance. This model appeals strongly to price-conscious leisure travelers and increasingly also to cost-conscious business travelers on selected routes. Ancillary revenue is an important part of Ryanair’s business model, as these optional add-ons increase revenue per passenger without making the basic fare more expensive. Ryanair operates more than 3.600 short-haul flights per day and serves approximately 235 airports from 95 bases. Its large network allows the company to offer high-frequency service on popular routes while opening new routes where low fares can stimulate demand. This is often referred to as the Ryanair Effect, where passenger traffic grows significantly after Ryanair enters a market because lower fares encourage more people to travel. The company’s strategy is based on high aircraft utilization, high load factors, and strict cost control. In practice, this means keeping planes flying as much as possible, filling as many seats as possible, and avoiding unnecessary costs. Ryanair’s point-to-point model also supports this strategy because it avoids the complexity and cost of handling connecting passengers, transferring baggage, and managing hub operations. By focusing on direct short-haul flights, Ryanair can keep its operations simple, efficient, and reliable. Customer service has also become a larger part of the company’s strategy. Through initiatives such as Always Getting Better, Ryanair has improved areas such as its website, mobile app, allocated seating, boarding process, on-time performance, and communication during delays. These improvements are designed to make the travel experience smoother without adding expensive extras that would weaken the low-cost model. The company’s digital platform is also central to the business. Most customers book directly through Ryanair’s website and app, which lowers distribution costs and gives Ryanair better control over the customer relationship. It also makes it easier to sell ancillary services before and during the trip. Ryanair’s competitive moat is primarily built on its cost advantage, scale, efficient operating model, airport relationships, and direct digital distribution. The most important advantage is its ability to operate at a lower cost than most other airlines in Europe. This allows Ryanair to offer lower fares while still remaining profitable, even when competitors struggle to match its prices. A key part of this cost advantage comes from its mostly standardized Boeing 737 fleet. Operating mainly one aircraft type reduces training, maintenance, spare parts, and scheduling complexity. Newer Boeing 737-8200 Gamechanger aircraft also provide more seats and better fuel efficiency per passenger, which further lowers unit costs. Ryanair’s large fleet and strong balance sheet also give it purchasing power with aircraft manufacturers and financing partners. Another important part of the moat is scale. With more than 200 million passengers per year, 95 bases, and one of the densest route networks in Europe, Ryanair benefits from operating leverage and strong bargaining power. Airports value the traffic Ryanair brings, especially secondary and regional airports that depend on passenger growth. This allows Ryanair to negotiate attractive airport fees and long-term growth agreements in many markets. Secondary airports also tend to be less congested than major city airports, which helps Ryanair reduce delays, lower handling costs, and turn aircraft around faster. The company’s point-to-point model further strengthens its cost advantage by keeping operations simpler than traditional hub-and-spoke airlines. Ryanair does not need to coordinate connecting flights, transfer baggage between aircraft, or provide complex passenger assistance for missed connections. This reduces costs and helps improve punctuality. The company also keeps staff costs under control by linking part of employee pay to productivity and by outsourcing certain services when third parties can provide them more efficiently. At the same time, Ryanair does not extend its low-cost approach to safety, maintenance, or training, which remain central priorities for the business. Direct distribution is another important competitive advantage. By encouraging customers to book through its own website and app, Ryanair avoids many of the costs associated with travel agents and third-party booking platforms. This direct customer relationship also gives Ryanair better control over pricing, communication, and the sale of add-on services. The more customers use Ryanair’s own digital ecosystem, the easier it becomes for the company to sell optional products such as luggage, seat selection, priority boarding, and travel services. This helps increase revenue without adding much operational complexity. Ryanair’s moat is also reinforced by its reputation for low fares. In many European markets, consumers know Ryanair as the cheapest or one of the cheapest ways to travel. This price leadership creates a strong customer proposition, especially for leisure travelers who are willing to accept fewer included services in exchange for much lower fares. The company’s ability to consistently stimulate new demand when entering routes shows the strength of this proposition. While the airline industry remains competitive and exposed to risks such as fuel prices, labor costs, regulation, aircraft delays, and economic cycles, Ryanair’s combination of low costs, scale, aircraft efficiency, airport relationships, and direct distribution gives it a structural advantage that few European airlines can match.

Management

Michael O’Leary serves as the CEO of Ryanair, a position he has held since 1994 after initially joining the company as CFO in 1988. He has played a central role in transforming Ryanair from a small Irish airline into Europe’s largest low-cost airline group. Michael O’Leary studied business and economics at Trinity College Dublin and began his career at the accounting firm Stokes Kennedy Crowley, now known as KPMG, where he specialized in tax. During his time there, he met Tony Ryan, the founder of Ryanair, and later became his personal financial advisor before joining Ryanair’s leadership team. Under the leadership of Michael O’Leary, Ryanair adopted and expanded the low-cost airline model in Europe, focusing on very low fares, high aircraft utilization, direct distribution, and strict cost discipline. He also helped build Ryanair’s ancillary revenue model, where passengers pay separately for optional services such as checked luggage, seat selection, priority boarding, car rentals, hotels, and onboard sales. This has allowed Ryanair to keep base fares low while increasing revenue per passenger. Michael O’Leary has also been central to Ryanair’s airport strategy, negotiating directly with smaller regional airports and using the company’s growing scale to secure attractive airport agreements. His focus on efficiency, simplicity, and cost control has helped Ryanair become one of the most profitable airlines in Europe despite operating in a difficult and highly competitive industry. Michael O’Leary is often seen as a controversial figure in the aviation industry. He is widely known for his outspoken personality, provocative remarks, and confrontational approach toward regulators, unions, competitors, and the media. Some of his comments have created backlash and led to public criticism or apologies. Despite this, his direct communication style has also become part of Ryanair’s identity. In an industry often shaped by regulation, bureaucracy, and high costs, Michael O’Leary’s willingness to challenge conventions has been an important part of the company’s culture and strategy. Another important point is that Michael O’Leary’s interests appear closely aligned with shareholders. Ryanair recently extended his leadership of the group until April 2032, providing continuity for the next phase of the company’s growth. The contract includes purchase options over 10 million shares, but these only vest if Ryanair achieves very ambitious profit after tax and share price growth targets before 2030. Michael O’Leary has emphasized that his remuneration should be tied to ambitious profit and share price targets, while noting that he receives a modest basic salary and bonus, with no pension. This performance-based structure fits well with his long-standing focus on shareholder value and disciplined execution. While his leadership style is not without criticism, Michael O’Leary has undeniably shaped the European airline industry. By making flying more affordable and accessible, he has changed how millions of people travel across Europe. His ability to combine sharp strategic thinking, relentless cost control, operational discipline, and strong shareholder alignment has made Ryanair a dominant force in short-haul aviation and cemented Michael O’Leary’s status as one of Europe’s most influential business leaders.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Ryanair has historically generated strong returns on invested capital. While the pandemic caused ROIC to fall sharply as travel restrictions severely reduced passenger traffic, the company has quickly returned to generating attractive returns, reaching 18,5% in fiscal year 2026. Considering that airlines are generally viewed as capital-intensive businesses with low returns on capital, Ryanair's long-term track record is particularly impressive. Several structural characteristics of the business explain why the company has consistently outperformed most competitors. First, Ryanair operates with the lowest cost base in the European airline industry. The company flies primarily a single aircraft type, which simplifies pilot training, maintenance, spare parts inventory, and scheduling. Its large scale also gives it significant purchasing power when negotiating aircraft orders, airport agreements, and supplier contracts. These structural cost advantages allow Ryanair to remain profitable while offering lower fares than competitors. Second, Ryanair makes exceptionally efficient use of its assets. Aircraft spend more time generating revenue and less time sitting on the ground thanks to quick turnarounds, frequent daily departures, and a point-to-point route network that avoids the complexity of connecting passengers. High aircraft utilization means the company generates more revenue from each aircraft than many traditional airlines, allowing invested capital to produce higher returns. Third, Ryanair consistently achieves very high load factors by focusing on filling seats rather than maximizing ticket prices. Its strategy is to stimulate demand through low fares while maintaining high aircraft occupancy. Because most of the cost of operating a flight is fixed regardless of how many seats are filled, carrying more passengers significantly improves profitability and returns on capital. Fourth, ancillary revenue has become an increasingly important driver of returns. Ryanair generates substantial income from optional services such as checked baggage, seat selection, priority boarding, food and beverages, travel insurance, hotel bookings, and car rentals. These products require relatively little additional capital yet contribute meaningfully to profitability, allowing the company to earn more from each passenger without materially increasing its asset base. Fifth, Ryanair benefits from significant economies of scale. As Europe's largest airline by passenger numbers, it has strong bargaining power with airports, suppliers, and aircraft manufacturers. The company often negotiates attractive long-term agreements with regional airports that value the passenger traffic Ryanair brings. This reduces operating costs while supporting continued network expansion and high returns on invested capital. Finally, Ryanair follows a disciplined approach to capital allocation. Management has consistently focused on expanding only where attractive returns can be achieved, while maintaining a strong balance sheet and avoiding unnecessary investments. The company has also been willing to order aircraft during industry downturns when manufacturers have offered more attractive pricing, strengthening its long-term competitive position. Looking ahead, ROIC is likely to remain well above the airline industry average, although some year-to-year volatility should be expected given the cyclical nature of the business. Fuel prices, ticket pricing, economic conditions, and aircraft delivery schedules will continue to influence annual returns. However, the structural drivers behind Ryanair's high ROIC remain firmly in place. The company continues to benefit from the lowest cost base in Europe, industry-leading scale, strong ancillary revenue growth, high aircraft utilization, and a disciplined management team focused on efficiency and shareholder returns. As Ryanair expands its fleet and carries more than 300 million passengers annually over the coming years, these competitive advantages should allow the company to continue generating attractive returns on invested capital.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Ryanair's equity has increased in most years, although there have been periods where it declined. These fluctuations are largely explained by the company's profitability, shareholder returns, and certain accounting adjustments rather than by changes in the strength of the underlying business. The most important driver of equity growth is Ryanair's ability to consistently generate strong profits. As one of Europe's most profitable airlines, the company typically earns more than it distributes to shareholders, allowing retained earnings to accumulate on the balance sheet over time. These retained earnings increase book value and provide additional financial flexibility to invest in fleet expansion, strengthen the balance sheet, or return capital to shareholders. Years with particularly strong profitability, such as fiscal year 2026, naturally lead to significant increases in equity because earnings substantially exceed the amount returned to shareholders. At the same time, Ryanair has a disciplined capital allocation strategy and regularly returns excess cash through dividends and share repurchase programs. When the company repurchases its own shares, the cash used for those purchases reduces shareholders' equity on the balance sheet. As a result, equity can decline even when Ryanair remains highly profitable. This was one of the main reasons equity decreased in fiscal year 2025 despite another profitable year for the company. In addition to capital returns, equity can also be affected by accounting adjustments that do not necessarily reflect changes in the underlying business. Ryanair actively hedges fuel prices and foreign currency exposure to reduce volatility in its operating costs. Changes in the market value of these hedging instruments are recorded directly in equity until the contracts mature, which can temporarily increase or decrease reported book value from one year to the next. These movements are largely accounting effects and often reverse over time as the hedging contracts are settled. Looking ahead, equity is likely to continue growing over the long term, although annual results will probably remain uneven. Ryanair's business model generates strong cash flows, attractive returns on capital, and consistent profitability, all of which support long-term growth in retained earnings. However, management has also demonstrated a clear willingness to return excess capital to shareholders whenever the balance sheet allows. This means equity may occasionally decline despite solid operating performance, particularly during periods of large share repurchase programs. Overall, as long as Ryanair continues to expand passenger traffic, maintain its cost advantage, and generate strong profits, the company should continue creating long-term value for shareholders even if reported equity fluctuates from year to year.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Ryanair has historically generated strong free cash flow, with the exception of fiscal year 2021, when the COVID pandemic brought much of global air travel to a standstill. Since then, cash generation has recovered rapidly, and the company has produced some of the strongest free cash flow in its history. This reflects the strength of Ryanair's business model and its ability to convert a large portion of its earnings into cash. One of the main reasons Ryanair generates strong free cash flow is its high profitability. The company has built the lowest-cost operating model in the European airline industry, allowing it to remain highly profitable while offering the lowest fares in many of the markets it serves. Strict cost control, efficient operations, and industry-leading load factors enable a large share of revenue to flow through to operating cash generation. Another important driver is Ryanair's efficient use of its assets. Aircraft spend more time in the air and less time sitting on the ground thanks to quick turnarounds, a point-to-point route network, and high daily aircraft utilization. This allows Ryanair to generate substantial revenue from each aircraft while spreading fixed costs across a larger number of flights and passengers. The result is strong cash generation despite operating in a capital-intensive industry. Ancillary revenue also plays an important role. Ryanair earns significant income from optional services such as checked baggage, seat selection, priority boarding, food and beverages, travel insurance, car rentals, and hotel bookings. These products require relatively little additional investment but generate attractive margins, allowing the company to increase cash flow without significantly increasing its capital requirements. Free cash flow can fluctuate from year to year because aircraft investments are not evenly distributed. Ryanair periodically takes delivery of large numbers of new aircraft, which increases capital expenditures in some years while other years require much lower investment. As a result, annual free cash flow is influenced not only by profitability but also by the timing of aircraft deliveries and other fleet investments. Despite these fluctuations, the underlying cash-generating ability of the business has remained very strong. Looking ahead, Ryanair is expected to remain an excellent generator of free cash flow. Passenger traffic is expected to continue growing over the long term, supported by the company's cost advantage, expanding route network, and continued demand for low-cost travel. Although capital expenditures will remain elevated over the next couple of years as Ryanair takes delivery of additional Boeing aircraft and invests in engine maintenance facilities, management expects cash generation to remain strong. Once the current investment cycle moderates, capital expenditures are expected to decline temporarily while profitability continues to grow, which should provide another boost to free cash flow. Ryanair has a very disciplined approach to capital allocation. The first priority is investing in the business by expanding the fleet and supporting future growth. The company has also used its strong cash generation to significantly reduce the debt taken on during the pandemic, repaying approximately €4 billion of bond debt over the past five years while simultaneously investing in new aircraft, paying dividends, and repurchasing shares. Management has stated that maintaining a strong balance sheet remains a priority and aims to hold approximately €4 billion of gross cash to protect the business against unexpected external shocks, which are common in the airline industry. Cash above this level is intended to be returned to shareholders. Ryanair has already retired approximately 38% of its outstanding shares since 2008 through share repurchase programs and continues to pay regular dividends. Management has indicated that once the remaining bond debt has been repaid and the current period of elevated aircraft investment passes, excess free cash flow will increasingly be returned to shareholders through a combination of dividends and renewed share buyback programs. The free cash flow yield suggests that the shares are trading at an attractive valuation, but we will revisit valuation later in the analysis.

Debt

Another important area to investigate is debt, and we want to see whether a business has a reasonable level of debt that could be paid off within three years. To assess this, we divide total long-term debt by earnings. When applying this measure to Ryanair, the result shows that it would take approximately 0,07 years of earnings to pay off its long-term debt. This is well below the three-year threshold and almost zero. Hence, debt is not a concern when investing in Ryanair. During the COVID pandemic, Ryanair borrowed money to strengthen its financial position while much of the airline industry was shut down. Since then, the company has used its strong cash generation to steadily repay this debt. Shortly after the end of fiscal year 2026, Ryanair repaid its final outstanding bond using cash generated by the business, leaving the company effectively debt free. Management has stated that maintaining a strong balance sheet remains a priority, as the airline industry can be affected by unexpected events such as pandemics, geopolitical conflicts, or economic downturns. With a large cash balance and virtually no debt, Ryanair is well positioned to continue investing in growth while also returning excess cash to shareholders.

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Risks

Macroeconomics and geopolitics is a risk for Ryanair because the airline industry is highly sensitive to economic conditions and global events that are outside the company's control. Air travel is largely a discretionary expense, meaning consumers and businesses can postpone or cancel trips when economic conditions become more challenging. During periods of high inflation, rising interest rates, or weaker economic growth, households often have less disposable income, while companies may reduce business travel. Even though Ryanair offers some of the lowest fares in Europe, weaker demand can make it more difficult to raise ticket prices, putting pressure on profitability. Inflation can also increase Ryanair's operating costs. Higher wages, airport charges, maintenance expenses, and aircraft costs can all reduce margins if the company cannot fully pass these higher costs on to passengers. While Ryanair's industry-leading cost advantage makes it better positioned than many competitors during economic downturns, it cannot completely avoid the impact of weaker consumer spending or rising costs. Geopolitical events represent another important risk. Wars, political instability, terrorist attacks, and diplomatic tensions can reduce demand for travel, force airlines to suspend routes, or increase operating costs. The war in Ukraine closed an important growth market for Ryanair and continues to limit expansion opportunities in Eastern Europe. More recently, the conflict in the Middle East has led Ryanair to suspend flights to Israel while creating uncertainty around future travel demand in the region. Management has repeatedly highlighted that ongoing disruptions make it difficult to plan capacity and reduce visibility into future bookings. Geopolitical conflicts can also affect Ryanair indirectly through energy markets. Jet fuel is one of the company's largest operating expenses, and oil prices can change rapidly when conflicts disrupt global energy supplies. Recent tensions in the Middle East, particularly around the Strait of Hormuz, have increased concerns about oil supply disruptions and caused fuel prices to become more volatile. Although Ryanair protects itself by hedging a large portion of its fuel requirements, not all fuel consumption is hedged. As a result, prolonged periods of elevated oil prices would eventually increase operating costs and reduce profitability. Because Ryanair already offers very low fares, its ability to fully pass higher fuel costs on to passengers is more limited than in some other industries. Broader geopolitical developments can also affect the overall economy. Trade disputes, tariffs, and political uncertainty can weaken economic growth and reduce consumer confidence across Europe. Management has noted that prolonged uncertainty may encourage customers to delay booking holidays and become more price sensitive. Ryanair has already observed that, following the recent escalation in the Middle East, customers have been booking flights closer to departure rather than several months in advance. While this does not necessarily reduce passenger numbers, it makes demand more difficult to predict and can put pressure on ticket prices.

Regulation is a risk for Ryanair because the airline industry is one of the most heavily regulated industries in the world. Airlines must comply with a wide range of environmental, consumer protection, safety, taxation, and competition rules that are largely determined by governments and regulators rather than by the companies themselves. Changes to these rules can increase operating costs, limit commercial flexibility, or reduce demand for air travel. Since Ryanair's business model is built around offering the lowest possible fares through strict cost control and operational efficiency, even relatively small regulatory changes can have a meaningful impact on profitability. One of the biggest regulatory risks is the increasing focus on environmental legislation. Governments across Europe are introducing stricter climate policies designed to reduce emissions from aviation. The European Union has gradually phased out free carbon allowances under its Emissions Trading System, meaning airlines must now purchase virtually all of the carbon credits they need. At the same time, airlines are increasingly required to use sustainable aviation fuel, which is currently significantly more expensive than conventional jet fuel. While Ryanair has one of the youngest and most fuel-efficient fleets in Europe, these regulations still increase operating costs. Management has estimated that environmental taxes alone will cost Ryanair approximately €1,4 billion in fiscal year 2027, adding several euros to the price of every ticket. Government taxes on air travel represent another important risk. Several European countries have introduced or increased passenger taxes in recent years. Because these taxes are generally charged as a fixed amount per passenger rather than as a percentage of the ticket price, they have a proportionally larger impact on low-cost airlines such as Ryanair than on premium carriers charging much higher fares. Higher ticket prices can reduce demand, particularly among price-sensitive leisure travelers who form the core of Ryanair's customer base. Management has also argued that many of these taxes distort competition because transfer passengers are often exempt, benefiting traditional hub airlines while placing point-to-point airlines such as Ryanair at a disadvantage. Regulatory intervention can also affect Ryanair's commercial freedom. Governments and regulators have increasingly attempted to influence airline pricing policies, baggage rules, and route networks. For example, Spanish regulators have challenged Ryanair's policy of charging separately for cabin baggage, while France has restricted certain short domestic flights where rail alternatives exist. Ryanair believes many of these measures conflict with European rules that allow airlines to determine their own pricing and commercial policies. Regardless of the legal outcome, increased government intervention creates uncertainty and could limit the flexibility that has been a key part of Ryanair's low-cost business model. Passenger protection rules also create financial risk. European regulations require airlines to compensate passengers when flights are delayed or cancelled under many circumstances. Over time, courts have gradually narrowed the definition of what qualifies as extraordinary circumstances, meaning airlines must now compensate passengers in more situations than before, including certain technical problems and employee strikes. Given Ryanair's enormous scale and the millions of passengers it carries each year, even relatively small changes to compensation rules can result in meaningful additional costs.

Delivery delays on planes are a risk for Ryanair because the company’s growth plan depends heavily on receiving new aircraft on time. As a low-cost airline, Ryanair needs new planes to open routes, increase flight frequencies, replace older aircraft, lower fuel consumption, and carry more passengers at low fares. When deliveries are delayed, Ryanair cannot grow capacity as quickly as planned, even if demand for low-cost travel remains strong. This has already affected the company, as delays from Boeing have forced Ryanair to reduce traffic growth expectations and adjust its expansion plans. This risk is especially important because Ryanair relies heavily on Boeing aircraft. Operating mostly one aircraft type is a major cost advantage because it makes training, maintenance, spare parts, and scheduling simpler. However, it also creates supplier concentration risk. If Boeing faces production problems, certification delays, quality issues, or supply chain disruptions, Ryanair has limited ability to quickly replace those missing aircraft with planes from another manufacturer. The global aircraft market is very tight, and management has indicated that spare aircraft availability is limited for several years. This means delays cannot easily be solved by buying or leasing similar aircraft elsewhere. The most important aircraft for Ryanair’s next phase of growth is the Boeing 737 MAX 10. Ryanair has ordered up to 300 of these aircraft, and they are central to the company’s long-term plan to reach 300 million passengers by 2034. The MAX 10 is expected to carry more passengers and use less fuel per seat than older aircraft, which should help Ryanair lower unit costs and maintain its price advantage. If certification or deliveries are delayed, Ryanair may lose some of the expected benefits from lower fuel costs, higher seat capacity, and faster network expansion. Delivery delays can also force Ryanair into less efficient decisions. If aircraft arrive later than planned, the company may have to reduce summer schedules, postpone new routes, or keep older aircraft in service for longer. If aircraft arrive earlier than expected during weaker travel periods, Ryanair may accept them at a time when they cannot be used as efficiently. In both cases, the timing mismatch can reduce returns because aircraft are most valuable when they arrive in line with the planned schedule and can be deployed during periods of strong demand. There is also a cost risk. If Ryanair cannot receive new aircraft on time, it may need to extend leases on older planes, keep less efficient aircraft flying for longer, or pay higher prices for temporary capacity. Older aircraft are usually less fuel efficient and may require more maintenance, which can increase operating costs. At the same time, delays in aircraft and engine supply chains can create maintenance bottlenecks, longer aircraft downtime, and higher repair costs. While Boeing’s performance may improve over time, delivery delays remain an important risk because Ryanair’s growth targets, cost advantage, and fleet renewal strategy all depend on timely aircraft deliveries.

Reasons to invest

Traffic growth is a reason to invest in Ryanair because the company has one of the strongest and most consistent records of passenger growth in the global airline industry. Over many years, Ryanair has repeatedly demonstrated its ability to stimulate demand by offering the lowest fares in the markets it serves. Rather than relying on premium services or business travel, the company focuses on making flying affordable for as many people as possible. This strategy has enabled Ryanair to grow from a small Irish airline into Europe's largest airline by passenger numbers, carrying more than 208 million passengers in fiscal year 2026. Management expects passenger numbers to continue increasing in the coming years, with a long-term goal of reaching 300 million passengers annually by 2034. One of the key reasons Ryanair has been able to grow traffic so consistently is its structural cost advantage. Because the company operates at a lower cost than almost every other European airline, it can offer lower fares while still generating attractive profits. Lower fares stimulate demand by encouraging more people to travel and by attracting passengers away from higher-priced competitors. This creates a virtuous cycle where higher passenger volumes strengthen Ryanair's scale advantages, allowing the company to negotiate better terms with airports and suppliers, spread fixed costs across more passengers, and continue offering some of the lowest fares in Europe. Fleet expansion is another important driver of future traffic growth. Ryanair has completed deliveries of its Boeing 737-8200 Gamechanger aircraft and expects to begin receiving the larger Boeing 737 MAX 10 from 2027 onwards. These aircraft can carry more passengers while consuming less fuel per seat than previous generations, allowing Ryanair to further reduce its operating costs. Management expects these aircraft to support a significant acceleration in passenger growth during the second half of this decade, with annual traffic expected to increase by around 15 million passengers in several consecutive years once deliveries ramp up. At the same time, the additional seats should strengthen Ryanair's ability to maintain low fares while expanding profitability. Ryanair also benefits from significant opportunities to expand its route network. Every year the company opens new bases and launches new routes across Europe and North Africa. In fiscal year 2026 alone, Ryanair added more than 160 new routes, bringing competition and lower fares to many markets that were previously underserved or dominated by higher-cost airlines. Management remains disciplined when allocating aircraft, focusing only on routes where long-term profitability is attractive rather than pursuing growth for its own sake. This disciplined approach has allowed Ryanair to combine rapid passenger growth with strong returns on capital. Another factor supporting future traffic growth is the ongoing shift toward low-cost travel. During periods of economic uncertainty, many consumers become more price conscious and choose lower-cost airlines instead of traditional network carriers. Ryanair's management has repeatedly highlighted that the company often gains market share during weaker economic periods because its low fares become even more attractive. At the same time, many competing airlines face higher operating costs, aircraft shortages, or financial constraints, limiting their ability to expand capacity. This creates opportunities for Ryanair to continue increasing its market share.

Low unit cost is a reason to invest in Ryanair because the company has built one of the largest cost advantages in the global airline industry, and management believes this advantage will continue to widen over the coming decade. While most airlines have struggled with rising inflation, higher airport charges, increased aircraft leasing costs, and growing environmental taxes, Ryanair has consistently managed its costs better than competitors. In fiscal year 2026, unit costs excluding fuel increased only modestly despite the inflationary environment, reflecting the company's relentless focus on operational efficiency and cost discipline. Maintaining the lowest unit cost in the industry allows Ryanair to remain profitable even when competitors face significant pressure on their margins. One of the biggest drivers of Ryanair's cost advantage is its highly standardized fleet. Operating primarily Boeing 737 aircraft reduces training costs, simplifies maintenance, lowers spare parts inventories, and makes scheduling more efficient. The company has also invested heavily in newer aircraft such as the Boeing 737-8200 Gamechanger, which carries more passengers while consuming significantly less fuel per seat than previous generations. Beginning in 2027, Ryanair expects to start receiving the Boeing 737 MAX 10, which should further improve the company's economics by increasing seating capacity by approximately 20% while reducing fuel consumption per flight by around 20%. These improvements should lower the cost of transporting each passenger and strengthen Ryanair's cost leadership for many years. Operational efficiency also plays an important role. Ryanair has built its entire operating model around maximizing productivity. Aircraft spend more time flying and less time on the ground thanks to industry-leading turnaround times, high daily aircraft utilization, and a simple point-to-point network. Employees are also highly productive, supported by performance-based compensation and efficient operating procedures. Because fixed costs are spread across more passengers and more flights, Ryanair is able to keep its cost per passenger well below that of most competitors. Another important advantage comes from Ryanair's relationships with airports. Rather than relying primarily on large hub airports with high fees, the company actively negotiates long-term agreements with airports that are willing to support traffic growth through lower charges and commercial incentives. Ryanair regularly reallocates aircraft away from airports or countries that increase taxes or airport fees and instead expands in regions offering more attractive economics. This disciplined approach allows the company to continuously optimize its network while helping keep airport costs among the lowest in Europe. Technology and digitalization further strengthen Ryanair's cost advantage. Most passengers book directly through the company's website and mobile app, reducing distribution costs and limiting dependence on travel agents. Digital boarding passes, automated check-in, self-service technology, and ongoing investments through Ryanair Labs have streamlined many operational processes while improving the customer experience. At the same time, the company increasingly uses data and technology to optimize pricing, scheduling, and operational planning, allowing it to improve efficiency without significantly increasing costs.

Consolidation in the European airline industry is a reason to invest in Ryanair because the competitive landscape is gradually shifting in favor of a small number of financially strong airlines. The European airline market has historically been highly fragmented, with many national carriers, regional airlines, and low-cost operators competing for passengers. Over time, however, rising costs, stricter environmental regulations, higher interest rates, and increasing capital requirements have made it much more difficult for weaker airlines to remain profitable. As a result, the industry is steadily consolidating around a handful of large players with the financial strength and scale to continue investing and growing. Ryanair is widely expected to be one of the long-term winners from this trend. One reason consolidation benefits Ryanair is that it generally leads to more rational competition. When many financially weak airlines compete for the same passengers, they often lower fares to unsustainable levels simply to fill aircraft and generate cash. This creates pricing pressure across the industry and reduces profitability for everyone. As weaker competitors disappear or are acquired by larger airline groups, the remaining airlines typically become more disciplined about capacity and pricing. Instead of aggressively adding flights regardless of profitability, they tend to focus on earning acceptable returns. This creates a healthier industry structure where airlines are better able to earn attractive profits over time. Consolidation also creates opportunities for Ryanair to expand its network. Airports are increasingly concerned about relying on smaller or financially weaker airlines that may reduce capacity or disappear altogether. Management has explained that many airports now actively approach Ryanair because they want a stable airline capable of delivering long-term passenger growth. This gives Ryanair favorable opportunities to negotiate attractive long-term agreements that include lower airport charges, growth incentives, and additional capacity. In several cases, airports have offered Ryanair additional aircraft positions after competing airlines failed to deliver on their expansion plans or reduced their operations. Because Ryanair has one of the strongest balance sheets in the industry, it can respond quickly when these opportunities arise. Financial strength also gives Ryanair an important advantage during periods of industry stress. While many airlines carry substantial debt, lease obligations, or higher operating costs, Ryanair has one of the strongest balance sheets in European aviation. Management has repeatedly suggested that some competitors may struggle to survive during periods of economic uncertainty or elevated fuel prices. If financially weaker airlines reduce capacity, restructure, or exit the market altogether, Ryanair is well positioned to capture passengers, routes, airport incentives, and market share without needing to acquire those businesses.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 2,36, which is from the fiscal year 2026. I have selected a projected future EPS growth rate of 14%. Finbox expects EPS to grow by 14,2% in the next five years. Additionally, I have selected a projected future P/E ratio of 28, which is double the growth rate. This decision is based on Ryanair's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $60,55. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Ryanair at a price of $30,28 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 4.271, and capital expenditures were 2.187. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 1.531 in our calculations. The tax provision was 289. We have 1.050 outstanding shares. Hence, the calculation will be as follows: (4.271 – 1.531 + 289) / 1.050 x 10 = $28,85 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Ryanair's free cash flow per share at $1,98 and a growth rate of 14%, if you want to recoup your investment in 8 years, the Payback Time price is $29,87.

Conclusion

I believe that Ryanair is an intriguing company with great management. The company has built its moat through its cost advantage, scale, efficient operating model, airport relationships, and direct digital distribution. Ryanair has consistently achieved a high ROIC outside of the pandemic due to its low cost base, efficient use of assets, high load factors, ancillary revenue, and economies of scale. These advantages should allow the company to continue generating a high ROIC in the years ahead. Ryanair also generates strong free cash flow thanks to its efficient business model, and free cash flow is expected to continue growing over time. Macroeconomics and geopolitics is a risk for Ryanair because economic downturns, inflation, and geopolitical conflicts can reduce travel demand, increase operating costs, and make it more difficult for the company to raise fares. In addition, wars and political instability can disrupt routes, increase fuel price volatility, and reduce booking visibility, all of which can negatively affect profitability. Regulation is a risk for Ryanair because stricter environmental rules, higher passenger taxes, and stronger consumer protection laws can increase operating costs, reduce pricing flexibility, and make low cost air travel less competitive. Since Ryanair's business model relies on offering the lowest fares in the market, regulatory changes can have a meaningful impact on demand and profitability. Delivery delays on planes are a risk for Ryanair because the company's long term growth, cost advantage, and fleet renewal strategy depend on receiving new aircraft on time. Delays can slow passenger growth, postpone new routes, increase operating costs, and reduce the efficiency gains expected from newer, more fuel efficient aircraft. Traffic growth is a reason to invest in Ryanair because the company has a long history of consistently increasing passenger numbers by offering the lowest fares in the market. With continued fleet expansion, disciplined route growth, and its structural cost advantage, management believes Ryanair is well positioned to grow from more than 208 million passengers today to 300 million by 2034. Low unit cost is another reason to invest in Ryanair because it allows the company to offer lower fares while remaining highly profitable. Supported by an efficient operating model, a modern fuel efficient fleet, and disciplined cost control, management expects this advantage to widen further over the coming decade. Consolidation in the European airline industry is also a reason to invest in Ryanair because a smaller number of financially strong airlines should lead to more rational competition, stronger pricing, and additional opportunities to gain market share. With one of the industry's strongest balance sheets and lowest cost bases, Ryanair is well positioned to benefit as weaker competitors scale back, merge, or exit the market. Usually, I would not invest in the airline industry, but I believe Ryanair is a unique company with a significant competitive advantage. Therefore, I would buy shares at my margin of safety price of $30.

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