Shares in Ireland's ultra-low-cost carrier Ryanair Holdings (RYAAY +5.12%) popped higher by 8.4% in early morning trading as the market digested an excellent set of fourth-quarter earnings. The earnings were all the more impressive as Wall Street analysts have been lowering earnings estimates for airlines across the board due to soaring jet fuel costs.
Ryanair pleases the market
It's no secret that jet fuel prices have risen dramatically in response to a combination of rising crude oil prices and a large increase in the jet fuel crack spread (difference between the price of jet fuel and the cost of crude oil) caused by the closure of the Strait of Hormuz.
NASDAQ: RYAAY
Key Data Points
It's a difficult and uncertain period for airlines, and by way of example, Delta Air Lines recently declined to update its full-year guidance.
If Delta is the best-run network carrier, then Ryanair is the best-run low-cost carrier, and arguably the best-run airline in the world. Those claims are evidenced by its 94% load factor (revenue passenger miles divided by available seat miles) and its 11% revenue increase in the fourth quarter. While adjusted operating costs rose 6%, its profit after tax increased by 40%.
Where next for Ryanair
Still, investors want to know where Ryanair is heading now, and how fuel costs might impact it. Management estimates 4% passenger growth in 2027 and noted that its conservative hedging strategy means it has 80% of its jet fuel needs hedged at $67 a barrel. And according to its CEO, Michael O'Leary, if "unhedged fuel prices remain at current elevated levels, then FY27 unit costs could rise by a mid-single digit percentage."
Image source: Getty Images.
Still, like Delta, Ryanair declined to give full-year earnings guidance in its presentation, stating that "With zero H2 visibility and significant fuel price/potential supply volatility, it is far too early to provide any meaningful FY27 profit guidance at this time."
All told, Ryanair is doing an excellent job under the circumstances, but the circumstances are doing an excellent job of creating uncertainty around costs.
