Credit Suisse downgrades Ryanair on labour inflation risks

Credit Suisse cut its stance on Ryanair to ‘neutral’ from ‘outperform’ and slashed the price target to €16.18 from €19.32 after the budget airline said on Friday that it will recognise pilot unions for the first time in its history as it looks to avoid strikes over Christmas.

The bank said it was downgrading the stock on concerns that staff costs will rise significantly beyond the company’s guidance of a €100m uplift in FY18/FY19, as it highlighted risks that labour issues continue to dominate the investment case for an extended period.

Credit Suisse cut its 2019 net income estimate by 2% to €1.4bn due to higher fuel prices, and for 2020E by 6% to €1.5bn as it includes 5% staff cost inflation in both 2020-21E following 7.5% and 6% in 2018E and 2019E.

“We continue to see Ryanair as a structural winner, view its cost advantages as diversified, and think higher inflation may prompt another upgrade to the Always Getting Better programme to absorb it this may prove a compelling catalyst once the dust eventually settles.

“Further, should RYA’s model converge with EasyJet’s, prompting a strategic shift to maximise fares, this would likely prove healthy for the pan-European market with each of the top five players (near to 60% of market capacity) focused on price discipline."

At 0915 GMT, the shares were down 3.3% to €14.49.