Ryanair Holdings PLC
Primary Credit Analyst:
Olli Rouhiainen, London (44) 20-7176-3769; olli.rouhiainen@standardandpoors.com
Table Of Contents
Initial Analytical Outcome ("Anchor") And Rating Result
Rationale
Outlook
Standard & Poor's Base-Case Scenario
Business Risk
Financial Risk
Liquidity
Other Modifiers
Ratings Score Snapshot
Reconciliation
Related Criteria And Research
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Ryanair Holdings PLC
BBB+/Stable/--
Corporate Credit Rating
Profile Assessments
BUSINESS RISK
SATISFACTORY
Vulnerable
FINANCIAL RISK
Excellent
MINIMAL
Highly leveraged
Minimal
Initial Analytical Outcome ("Anchor") And Rating Result
Our 'BBB+' rating on European low-cost airline Ryanair Holdings PLC is derived from:
• Our anchor of 'a-', based on our "satisfactory" business risk and "minimal" financial risk profile assessments for the
company.
• A one-notch downward adjustment from Ryanair's anchor of 'a-' to the 'BBB+' rating, reflecting our view that the
company could undertake capital expenditure or shareholder returns ahead of our current base-case scenario.
Rationale
Business Risk: Satisfactory
Financial Risk: Minimal
•
•
•
•
• Very strong credit metrics.
• Standard & Poor's-adjusted funds from operations
(FFO) to debt of above 60%, in our base case,
despite the company's pipeline, which involves
receiving significant numbers of new aircraft over
the next two years.
Industry leading profitability.
High operating efficiency.
Strong market position.
Exposure to the highly cyclical airline industry.
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Outlook: Stable
The stable outlook on Ryanair reflects our view that it will be able to maintain adjusted FFO to debt of well above
50% and maintain its current competitive position over the next two years.
Downside scenario
We could downgrade Ryanair if its weighted-average ratio of adjusted FFO to debt declines to below 50%. In our
view, this could happen in financial 2015 if revenues do not grow and the EBITDA margin decreases by two
percentage points. This would require, for example, oil prices to increase by more than 30%, or a mix of oil price
and operating cost increases if management was not able to take offsetting actions. We could also lower our rating
on Ryanair if its business risk profile weakens. This could happen, for example, if Ryanair's profitability declined to
average levels, or if it became more volatile, for instance due to strong competition.
Upside scenario
An upgrade is currently unlikely due to Ryanair's financial policies regarding capital expenditure (capex), share
buybacks, and extraordinary dividends. We could upgrade Ryanair if its weighted-average adjusted FFO to debt
increases to above 90% on a sustainable basis and management becomes committed to maintaining an 'A-' rating.
Standard & Poor's Base-Case Scenario
Our base-case scenario for Ryanair reflects our economic forecast for GDP growth in the eurozone (European
Economic and Monetary Union) of 1.0% in 2014 and 1.4% in 2015, and in Ryanair's other major market of the U.K. of
2.7% in 2014 and 2.4% in 2015. For more information, refer to "European Economic Outlook: Out Of Recession, Back
In The Slow Lane", published March 21, 2014, on RatingsDirect.
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Assumptions
• Passenger numbers will grow by 2%-3% in financial
2014 and 1%-2% in financial 2015.
• Average ticket prices will decrease by 1%-2% in
financial 2014 and be flat in financial 2015.
• Oil prices will be about $100 per barrel in 2014 and
$95 per barrel in 2015 in line with our assumptions
(see "Standard & Poor's Revises Its Crude Oil And
Natural Gas Price Assumptions" published Nov. 20,
2013).
• Non-fuel costs per passenger to increase by about
0.5%-1.5% in financial 2014 and by about 1%-2% in
financial 2015.
• Capex of about €400 million in 2014 and €500
million-€600 million in 2015.
• Shareholder returns over 2014-2015 to equal about
€1 billion.
Key Metrics*
FFO to debt (%)
Debt to EBITDA (x)
Free operating cash flow to debt (%)
113.8 95-105 100-105
0.8
0.8-1.0
0.8-1.0
61.3
55-65
50-60
*Fully Standard & Poor's-adjusted leverage and
coverage ratios include several adjustments. The most
significant adjustments to debt are an operating lease
adjustment adding £428m to debt and a surplus cash
adjustment reducing debt by £3.0 billion. A major
adjustment to EBITDA includes operating leases
adding £112 million to EBITDA.
Business Risk: Satisfactory
The primary positive drivers for our "satisfactory" business risk score include Ryanair's:
• Industry leading profitability with return on capital averaging around 13% over the past six years. We believe that
the company will maintain return on capital at similar levels going forward.
• High operating efficiency, which is driven by the company's keen focus on costs, allowing Ryanair to operate at
significantly lower cost per passenger and cost per available seat mile than its peers, and its relatively young fleet.
• Strong market position with significant scale advantages in Ryanair's key airports as well as the company's route
networks that have limited direct competition.
• Supportive scale, scope and diversity with Ryanair's reach into most of the European markets and lower
concentration of traffic to single airports than most peers.
• Ryanair's diversified-base strategy makes it more flexible than its peers. This is because Ryanair is more able to
relocate aircraft to serve more profitable markets than legacy carriers that rely on transfer traffic to support
long-haul operations.
These positive factors are partly mitigated by Ryanair's:
• Lower exposure to higher-spending and less price-elastic business travelers, which means that Ryanair has
significantly lower average ticket prices than its closes peers.
• Lack of geographic diversification outside Europe, due to its lack of long-haul flights making the airline in our view
less able than its peers to offset weak macroeconomic conditions in Europe.
• Reputation, in our view, of a less-friendly customer service. This can slow down passenger volume growth in our
opinion, especially during good economic conditions when people are willing to spend more money on flights.
Ryanair is taking measures to become more customer-friendly and we will continue to monitor how this will affect
demand in the near future.
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S&P Base-Case Operating Scenario
• Our base-case scenario for Ryanair reflects our economic forecast for GDP growth in the eurozone (European
Economic and Monetary Union) of 1.0% in 2014 and 1.4% in 2015, and in Ryanair's other major market of the
U.K. of 2.7% in 2014 and 2.4% in 2015. For more information, refer to "European Economic Outlook: Out Of
Recession, Back In The Slow Lane," published March 21, 2014, on RatingsDirect.
• In our view, Ryanair's increasing route offering and improving economic conditions will lead to growing
passenger numbers. In our base case, passenger numbers will grow by 2%-3% in financial 2014 and 1%-2% in
financial 2015.
• However, we believe that Ryanair will have to continue offering cheaper tickets than it peers in the short term
to attract passengers in volumes. Also, we believe that average ticket prices will remain lower than peers unless
Ryanair's recent attempts to improve its customer service image are successful. Therefore, average ticket prices
will decrease by 1%-2% in financial 2014 and be flat in financial 2015 in our base case.
• Oil prices will be about $100 per barrel in 2014 and $95 per barrel in 2015, in line with our revised assumptions
(see "Standard & Poor's Revises Its Crude Oil And Natural Gas Price Assumptions," published on Nov. 20,
2013). This will lead to about a 6%-7% increase in the total fuel bill in financial 2014 and a slight decrease in
overall fuel costs in financial 2015, under our base case.
• Non-fuel costs per passenger will increase by about 0.5%-1.5% in financial 2014, and by about 1%-2% in
financial 2015. The increase in non-fuel costs is a combination of slower passenger growth, inflation and
increased marketing costs.
• Capex of about €400 million in 2014 and €500 million-€600 million in 2015, mainly related to planned aircraft
deliveries.
• Shareholder returns over 2014-2015 to equal about €1 billion, as stated by Ryanair.
Peer comparison
Table 1
Ryanair Holdings PLC -- Peer Comparison
Rating as of March 20, 2014
(Mil. €)
Ryanair Holdings PLC
Southwest Airlines
Co.
Deutsche Lufthansa
AG
BBB+/Stable/--
BBB-/Stable/--
BBB-/Stable/A-3
--Fiscal year ended March
31, 2013--
--Fiscal year ended Dec. 31, 2013--
British Airways PLC
BB/Stable/---Fiscal year ended Dec.
31, 2012--
Revenues
4,884.0
12,843.0
30,028.0
13,347.5
EBITDA
1,161.8
2,147.0
3,105.0
1,488.6
Funds from operations (FFO)
1,022.3
1,584.1
2,289.2
1,058.9
Net income from cont. oper.
569.3
547.1
313.0
(106.0)
1,103.3
2,090.6
3,535.2
1,383.2
Capital expenditures
310.7
1,032.6
2,490.0
959.1
Free operating cash flow
792.6
1,058.0
1,045.2
424.1
Discretionary cash flow
301.1
1,006.5
1,031.2
424.1
Cash and short-term
investments
488.8
571.8
1,174.0
492.8
Debt
898.0
3,253.0
9,415.7
5,603.9
3,272.6
5,323.3
6,110.0
1,591.6
Cash flow from operations
Equity
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Table 1
Ryanair Holdings PLC -- Peer Comparison (cont.)
Adjusted ratios
Annual revenue growth (%)
11.2
3.6
(0.4)
8.4
EBITDA margin (%)
23.8
16.6
10.3
11.2
Return on capital (%)
16.9
11.1
8.6
5.5
8.8
7.6
4.4
4.0
11.9
16.3
6.8
8.3
0.8
1.5
3.0
3.8
FFO/debt (%)
113.8
48.5
24.3
19.1
Cash flow from
operations/debt (%)
122.9
64.1
37.5
24.9
Free operating cash
flow/debt (%)
88.3
32.3
11.1
7.8
Discretionary cash flow/debt
(%)
33.5
30.7
11.0
7.8
EBITDA interest coverage
(x)
FFO cash int. cov. (X)
Debt/EBITDA (x)
Financial Risk: Minimal
Our assessment of Ryanair's financial risk profile as "minimal" reflects the group's strong cash flow to leverage
measures over the next two years and the company's large cash position. This view is supported by the company's
strong cash flow generation.
In our view, Ryanair has a track record of maintaining a larger cash buffer than required, due to the cyclicality of the
airline industry. Also, based on our analysis, only a minimal amount of cash on the balance sheet is inaccessible, as
described in "Corporate Methodology: Ratios And Adjustments," published Nov. 19, 2013. Therefore, in our surplus
cash adjustment, we have haircut reported cash so that the haircut we apply equals 10% of annual revenues rather
than 25%, which is the standard haircut that we apply to cash balances, outlined in our criteria on ratios and
adjustments.
S&P Base-Case Cash Flow And Capital Structure Scenario
• Adjusted FFO to debt will be above 60% in 2014 and 2015, which we view as commensurate with our
assessment of Ryanair's "minimal" financial risk profile. We use our "standard volatility" table in our "Corporate
Methodology," published Nov. 19, 2013, to analyze cash flow and leverage.
• Ryanair has headroom in its financial risk profile for further opportunistic capex as well as shareholder returns.
• Supplementary ratios support the core ratio outcomes, as most supplementary ratios support the minimal
financial risk profile.
Financial summary
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Table 2
Ryanair Holdings PLC -- Financial Summary
--Fiscal year ended March 31-(Mil. €)
2013
2012
2011
Revenues
4,884.0
4,390.2
3,629.5
EBITDA
1,161.8
1,101.7
858.2
Funds from operations (FFO)
1,022.3
998.9
760.0
Net income from continuing operations
569.3
560.4
374.6
1,103.3
1,095.9
848.2
Capital expenditures
310.7
317.6
897.2
Free operating cash flow
792.6
778.3
(49.0)
Discretionary cash flow
301.1
778.3
(549.0)
Cash and short-term investments
488.8
439.2
363.1
Cash flow from operations
Debt
898.0
1,076.3
1,583.1
3,272.6
3,306.7
2,953.9
Annual revenue growth (%)
11.2
21.0
21.5
EBITDA margin (%)
23.8
25.1
23.6
Return on capital (%)
16.9
16.0
12.0
8.8
7.7
7.1
11.9
10.3
9.2
Equity
Adjusted ratios
EBITDA interest coverage (x)
FFO cash int. cov. (x)
Debt/EBITDA (x)
0.8
1.0
1.8
FFO/debt (%)
113.8
92.8
48.0
Cash flow from operations/debt (%)
122.9
101.8
53.6
Free operating cash flow/debt (%)
88.3
72.3
(3.1)
Discretionary cash flow/debt (%)
33.5
72.3
(34.7)
N.M.--Not meaningful.
Liquidity: Strong
We assess Ryanair's liquidity as "strong" under our criteria, reflecting our calculation that sources of liquidity to uses
will remain above 1.5x over the 24 months to Dec. 31, 2016, and will remain strongly positive, despite a 50% haircut to
our EBITDA forecast . Ryanair's main sources of funding over the next 12 months include:
Principal Liquidity Sources
Principal Liquidity Uses
• Cash and cash equivalents of €2.8 billion;
• FFO of about €800 million; and
• Marginally positive working capital inflows.
• Debt maturities of about €400 million;
• Capex of about €500 million; and
• Extraordinary shareholder returns of about €600
million.
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Other Modifiers
We assess Ryanair's anchor at 'a-'. We adjust our anchor downward by one notch to reflect our view of Ryanair's
financial policies regarding capex, share buybacks, and extraordinary dividends. We believe that the company could
undertake opportunistic capex to acquire aircraft at a competitive price. We also see a possibility of Ryanair
committing to additional shareholder returns over the short-to-medium term, which could lower its ratios to the
"modest" from the "minimal" financial risk profile category.
Ratings Score Snapshot
Corporate Credit Rating: BBB+/Stable/-Business risk: Satisfactory
• Country risk: Low
• Industry risk: High
• Competitive position: Excellent
Financial risk: Minimal
• Cash flow/Leverage: Minimal
Anchor: aModifiers
•
•
•
•
•
•
Diversification/Portfolio effect: Neutral (no impact)
Capital structure: Neutral (no impact)
Liquidity: Strong (no impact)
Financial policy: Negative (-1)
Management and governance: Strong (no impact)
Comparable rating analysis: Neutral (no impact)
Reconciliation
Table 3
Reconciliation Of Ryanair Holdings PLC Reported Amounts With Standard & Poor's Adjusted Amounts (Mil.
€)
Debt
EBITDA
Operating
income
Interest
expense
EBITDA
Cash flow from
operations
3,498.3
1,047.8
718.2
99.3
1,047.8
1,023.5
--
--
--
--
--
--
Ryanair Holdings PLC reported amounts
Reported
Standard & Poor's adjustments
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Table 3
Reconciliation Of Ryanair Holdings PLC Reported Amounts With Standard & Poor's Adjusted Amounts (Mil.
€) (cont.)
Interest expense (reported)
--
--
--
--
- 99.3
--
Interest income (reported)
--
--
--
--
27.4
--
Current tax expense (reported)
--
--
--
--
- 35.4
--
428.2
112.1
31.6
31.6
80.5
80.5
11.8
--
--
0.7
(1)
(1)
(3,046)
--
--
--
--
--
Share-based compensation expense
--
1.9
--
--
1.9
--
Non-operating income (expense)
--
--
27.4
--
--
--
5.2
--
--
--
--
--
(2,600)
114.0
59.0
32.3
- 25.5
79.8
Debt
EBITDA
EBIT
Interest
expense
Funds from
operations
Cash flow from
operations
898.0
1161.8
777.2
131.6
1022.3
1103.3
Operating leases
Postretirement benefit
obligations/deferred compensation
Surplus cash
Debt - Fair value adjustments
Total adjustments
Standard & Poor's adjusted amounts
Adjusted
Related Criteria And Research
Related Criteria
•
•
•
•
•
•
Key Credit Factors For The Transportation Cyclical Industry, Feb. 12, 2014
Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Jan. 2, 2014
Corporate Methodology, Nov. 19, 2013
Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013
Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012
Ratings Detail (As Of April 1, 2014)
Ryanair Holdings PLC
Corporate Credit Rating
BBB+/Stable/--
Corporate Credit Ratings History
20-Mar-2014
BBB+/Stable/--
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable
across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
Additional Contact:
Infrastructure Finance Ratings Europe; InfrastructureEurope@standardandpoors.com
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