Head-to-Head: easyJet vs. Ryanair
Ryanair is The Ultimate Champion but easyJet is Under-Valued
* easyJet vs. Ryanair — In the latest edition of Citi's Head-to-Head series, we
analyse Europe's two most successful airlines to determine who could be the
ultimate winner and long-term outperformer. We assess them on the basis of market
share potential and growth prospects, relative unit cost upside, relative unit revenue
upside, long-term earnings potential, cash returns to shareholders and valuation.
* Ryanair the ultimate champion of Europe — We conclude that Ryanair is the ultimate
winner and is likely to retain its number one market share leadership position over the
next 10 years, driven by its higher growth strategy, lowest unit cost, substantial revenue
upside from its ‘Always Getting Better’ strategy, higher free cash flow generation
potential and substantial cash returns to shareholders beyond its current plan to return
€500m p.a. by alternate special dividends and share buybacks. We believe that Ryanair
is narrowing its ‘revenue gap’ with easyJet and offers more earnings and margin growth
than easyJet, which is narrowing its ‘cost gap’ with Ryanair.
* easyJet offers better value but Ryanair deserves a small premium — easyJet is
a close second on most metrics, however, and is the industry leader among LCCs in
terms of its revenue and digital initiatives. It also offers more value upside due to its
20-30% discount to Ryanair on P/E and EV/EBITDAR multiples, resulting in a
higher total absolute return over the next year (23.5% vs. 15.3%). We also expect
eayJet to be able to return more cash to shareholders than its current 40% ordinary
dividend payout in the form of further special dividends.