Coronavirus: Ryanair’s Unconventional “No Shows” Accounting

Matthias MeitnerManaging Partner, VALUESQUE

It is not a big secret that coronavirus has hit the airline industry massively. Flight traffic down to super-lows and even for those planes that fly load factors are at levels never seen in the past decades. Today we want to have a look at a special effect of coronavirus on the airline industry (and on the accounting of Ryanair): The „now-show“ effect!

„No shows“ is the general term for passengers that are not taking a booked flight but rather let the fare ticket expire without using it. In normal times no-show rates stand on average at about 1-1,5%, so not really a meaningful revenue driver (but an important factor for overbooking strategies of airlines, but this not the topic of today….)

Coronavirus, however, served as a catalyst for gigantic no-show rates in the airline industry. No-show rates rose to a record high of about 70% in March 2020 – here bookings took place before passengers were aware of the full severity of coronavirus – and still stand at about 15-20% today (i.e. at times where passengers know about the severity and impact of coronavirus). So now we are in the territory of materiality…

While we do understand that there are some challenges to correctly map no-show cases in management reporting systems in general (e.g. often questions about intentional no-showing in order to benefit from a cheap combination-ticket arise), most airlines have no problems of properly dealing with this in a very timely manner. Most, but not all airlines… let’s have a look at how Ryanair handles this topic.

For the first quarter of Ryanair’s FY 2021 (Q1/2021), which ended in June 2020 (Ryanair has a FYE in March), analysts expected horrible numbers. In fact, in this quarter Ryanair’s general airline traffic was down ca. 99% year-on-year, and even if Ryanair engaged in some rescue and repatriation flights for different country governments during these months, consensus revenue estimates from analysts stood at only 56 mio Euros just before the quarterly earnings announcement date (as compared to an actual revenue of 2.312 bn Euros in Q1/2020). But when the actual numbers were reported at 27 July 2020, analysts and investors were quite surprised: revenues came in at 125 mio Euros – more than double the expected amount – and on a net basis Ryanair also outperformed analysts estimates clearly with an actual quarterly loss of 185 mio Euros as compared to 270 mio Euros expected.

Moreover, the unit economics also surprised positively: Revenues per passenger skyrocketed in this quarter – out of the normal 50-80 Euro range up to more than 200 Euros. This was also totally different from number of competitors.