Ryanair (RYA) may have struck an uncharacteristically cautious tone in its Q1 results statement this morning but it has nonetheless been rewarded with share price gains of 5-6%. This is also in spite of more weekend attacks in Germany that add to an already troubled environment for European travel, made worse for UK flyers via a weak Pound Sterling since June’s Brexit vote. So why are the shares up?

Firstly, The airline’s ability to maintain 2017 guidance for profits is a strong message about cost cutting in the face of a drop in demand for air travel. Investors see little reason to doubt management’s ability after so many years of aggressive penny-pinching that have helped it easily outperform both flagship European carriers as well as peer budget carriers.

Secondly, the fallout and uncertainty from the UK’s referendum may be weighing on both the UK and Europe, but Brexit might not prove so bad for RYA as it could for rival EZJ, hence divergent share price performance today. Headquartered in Dublin Ireland, RYA will stay in the EU whatever happens. And although its main hub for its an extensive European operation is currently at London Stansted, plans are already in place to pivot growth away from here over the next two years beginning with capacity/frequency cuts this Winter in favour of cheaper bases in Eastern Europe. Think of this as a test of contingency plans in the case of UK losing its free access to the EU. With competitor EZJ based only down the road at Luton, however, Brexit is a real headache in terms of uncertainty for mid-term outlook, especially while it already struggles to keep up with an Irish competitor that seems to go from strength to strength.

Note Budapest based Wizz Air also in the green today for very much the same reason while IAG, AF and LHA all nurse small losses.

Mike van Dulken, Head of Research, 25 Jul