Fitch Ratings has affirmed Ryanair Holdings Long-term Issuer Default Ratings (IDR) and Ryanair Limited's senior unsecured rating at 'BBB+'. The Outlook on the IDR is Stable.
Fitch commented on Ryanair’s low cost advantage and substantial liquidity as key drivers of its rating. The company's high margins, significant cash generation, financial flexibility, and access to the unsecured debt markets further differentiate the carrier from many its peers. Ryanair’s solid capacity for meeting its financial commitments is also supported by the company's fairly flexible cost structure, low break-even load factor, and robust hedging programs for fuel and currencies, Fitch said.
Key rating risks include significant cash distributions to shareholders and potential yield weakness if competitors use lower fuel costs to fund fare cuts. Ryanair’s revenue profile is also more seasonal than most of the airlines in Fitch's portfolio, although some business model changes, such as more focus on business travelers, could mitigate this. Competitive pressures are a persistent challenge, including expansion plans of various low-cost/hybrid airlines, such as easyJet plc and Norwegian Air Shuttle ASA and a gradual unbundling trend at the legacy carriers. The company's growth plan and related capital expenditures over the next five years is an item to watch, as is potential longer-term exposure to fuel price levels and currency exchange rates.
The unsecured rating covers €1.7bn of debt, and it is aligned with Ryanair’s IDR of 'BBB+' despite potential subordination to its €2.7bn of secured debt. Since mid-2014, Ryanair has been shifting to unsecured debt from secured debt and Fitch expects this trend to continue. Secured debt to EBITDA decreased to below 2x as of FYE15, a level that Fitch associates as linked with high likelihood of subordination. In addition, its estimate of unencumbered assets to unsecured debt ratio supports the alignment of the unsecured rating with the IDR.