We haven't been able to take payment
You must update your payment details via My Account or by clicking update payment details to keep your subscription.
Act now to keep your subscription
We've tried to contact you several times as we haven't been able to take payment. You must update your payment details via My Account or by clicking update payment details to keep your subscription.
Your subscription is due to terminate
We've tried to contact you several times as we haven't been able to take payment. You must update your payment details via My Account, otherwise your subscription will terminate.
author-image
TEMPUS

Michael O’Leary will still have the last laugh with Ryanair

The Times

The world’s become a less cheery place since Michael O’Leary stopped dressing up. Back in the day he’d happily tog up as an archbishop or Father Christmas or in women’s swimwear. Or, if he was in normal daywear and there was a camera near by, he’d pick up a model of a Ryanair plane and thrust the fuselage between his legs for some fourth-form chortles. Now he’s more likely to be seen in waxed jacket and felt fedora as he goes all nouveau county Irish at weekends, flaunting the fortune spent on his Gigginstown horse racing empire.

Mr O’Leary hasn’t lost his sense of humour — why would he when he is a euro billionaire? — but even he didn’t have the balls to turn up at his company’s annual meeting last week dressed as a jester, even though he admitted that Ryanair’s pilot shortage crisis was the result of his acting like a clown. This, like his nun outfit, has become a bit of a habit. Mr O’Leary apologising for Ryanair’s (lack of) service used to be as likely as the presenter of The Apprentice getting elected to the White House or a bearded Islington leftie leading the Labour Party either side of a general election. He blames the regularity of his apologies on the airline’s Always Getting Better slogan, a marketing device that isn’t true if you cancel 2,100 flights affecting 315,000 passengers.

The fiasco over pilot staffing and rostering has become for some an investment issue, with the percentage share price fall now in double figures. Respected analysts are having to ask the reputational damage question out loud even if they know what the real answer is.

Is this a watershed Ryanair foul-up in which the airline finally loses the air-travelling public? Of course not. Ryanair used to happily “piss off” — to use the words of the chief executive — all of its customers all of the time. Doing that has got it to 120 million passengers a year, more than any other European airline.

Is there an irredeemable breakdown of trust with its pilots? Nope. Loggerheads is the natural state of relations between Ryanair pilots and their employer and it hasn’t previously affected recruitment. The affair will cost Ryanair several tens of millions of euros (against annual revenues of €6.6 billion), but the crucial question is whether this is more fundamental than an end-of-summer-season foul-up. Is it the first act of a trading empire led by a corporate emperor beginning to unravel?

Advertisement

Before he became famous, Mr O’Leary used to say that only two things could stop him: one of his aircraft crashing; or him beginning “to believe his own bullshit”.

At Ryanair’s last City presentations, Mr O’Leary was wafting around the whiff. Passenger numbers, he said, would hit 200 million in 2024 through a mixture of lower fares, new aircraft, connecting his flights to long-haul airlines and finally cracking the German market.

On fares, everyone is getting cheaper. On new aircraft, everyone is getting them. The long-haul connection gambit is unproven territory. And in Germany, after 25 years, Ryanair still has only 8 per cent of the market.

The perennial question is: does Mr O’Leary still have it and does he still want it? The assumption has to be yes and yes. Yet Ryanair would now be as successful without him, anyway. It is the market leader for a reason. It is best in class. The recent share price fall has simply put its forecast €1.4 billion of earnings on an even less demanding 13.5 times price multiple. Ryanair will be rocked by turbulence as will the whole over-supplied sector. But it is the airline most likely to come out on top.
My advice Buy
Why Ryanair is Europe’s biggest and most profitable airline. Its flight cancellations have simply served to make a good stock cheaper

HICL Infrastructure
As a guide to what the City might think of John McDonnell’s speech in Brighton, the share price reaction of HICL, the infrastructure fund, is as good as any. HICL is made up a portfolio of infrastructure projects initially developed and managed by Infrared Capital Partners, which in former lives was originally an asset management part of Charterhouse and then later HSBC. It is a typical portfolio of PPP — public-private partnership — investments in roads, schools and hospitals, where there is a long tail of contractual payments for having built them.

Advertisement

Most recently that portfolio has been augmented by two big acquisitions for about a third of each asset in two mature infrastructure plays: Affinity, the Home Countries water supplier, and HS1, the railway formerly known as the Channel tunnel rail link. HICL spent nearly £700 million for the stakes, large exposures for a fund with a market capitalisation of £2.9 billion.

So the commitment of Labour’s shadow chancellor to renationalise a lot of formerly state-owned companies and infrastructure and to unwind the whole PPP marketplace could be construed as a direct attack on the likes of HICL. Yet shares in HICL closed up a tenth of a penny at 162.9p. That suggests the City either believes that a Labour government with Mr McDonnell in charge of the finances government won’t be elected, or if it was he simply would not be able to afford — or indeed execute — such a programme.

HICL, with 80 per cent of its assets in the UK, is one of the more British-focused big infra-funds. That is a nice hedge against further Brexit foreign exchange wobbles while its income is largely index-linked, thus de-risking the dose of Brexit-related inflation that is likely coming. HICL’s promise to shareholders — private investors and pension funds — is a dividend yield of between 4 per cent and 5 per cent.

It is argued that such alternative funds should be part of a diversified investment portfolio. But the present share price puts it at an estimated 11 per cent premium to net asset value. Tempus has previously advised buying the stock. If you are holding, there is no compelling reason to add.
My advice Hold
Why A good portfolio alternative investment

PROMOTED CONTENT