Ryanair's ticket prices are starting to climb again after a weak start to its fiscal year, but one European research firm argues the recovery may not be strong enough to offset a looming jump in fuel costs.
In a note published Tuesday, AlphaValue/Baader Europe said the budget airline's fares fell 6% in the first quarter and 2% in the second quarter of fiscal 2027, before turning positive in early August. The analysts now expect mid-single-digit fare growth in the third quarter and a double-digit increase in the fourth, as European flight capacity stays tight and some competitors pull back.
Looking further ahead, the firm models another double-digit lift in average fares in fiscal 2028. Even with that tailwind, however, it argues that higher fuel costs in fiscal 2028 could still squeeze profit margins unless pricing power proves stronger than expected.
Why fuel costs matter for an airline like Ryanair
Fuel is typically one of the largest single expenses for any airline, often accounting for a quarter or more of operating costs. When oil prices rise, carriers have limited options: they can try to pass the increase on to passengers through higher fares, or they can absorb it and watch margins shrink.
Ryanair, known for its ultra-low-cost model, has historically been aggressive in managing costs, but fuel is largely outside its control. The company does hedge some of its fuel purchases, which can smooth out price swings, but hedges eventually expire and expose the airline to current market prices.
AlphaValue/Baader Europe's concern is that even with fares rebounding, the increase may not be enough to fully cover the expected fuel bill in fiscal 2028. That is why the firm cut its earnings per share estimate for fiscal 2027 to €1.53 from €1.80, even as it nudged its price target up to €26.9 from €25.9. It kept a “reduce” rating on the stock.
Buybacks can help, but they don't fix an operating cost shock
The analysts also flagged Ryanair's planned share buybacks: €800 million through the first half of fiscal 2028, followed by €850 million after that. Buybacks reduce the number of shares outstanding, which mechanically boosts earnings per share even if total profit stays flat. That can cushion a downgrade in forecasts and support the share price.
But buybacks do nothing to lower operating costs. If fuel prices rise faster than fares and ancillary revenues can keep up, the pressure shows up in margins. And when margins come under pressure, investors often reassess the multiple they are willing to pay for each euro of profit.
Put the two headline figures together and you get the tension: a €26.9 price target on €1.53 of 2027 EPS implies a price-to-earnings ratio of about 18. In other words, the higher target depends heavily on investors paying more for each euro of profit, not on profits growing faster.
What it means for everyday investors
For investors holding Ryanair shares, the key question is whether the airline's pricing power will prove strong enough to outpace fuel inflation. If fares keep climbing and demand stays robust, the company could beat those cautious estimates. If fuel costs surge and fare growth stalls, margins could compress and the stock could struggle.
The analyst's “reduce” rating is a signal that the risk-reward balance looks unattractive at current levels. But it's worth remembering that analyst ratings are just one opinion, and Ryanair has a long history of beating expectations.
For those watching the broader airline sector, this note is a reminder that fuel prices are a wildcard for every carrier. When oil climbs, airlines with strong pricing power and efficient fleets tend to weather the storm better than weaker rivals. Investors should keep an eye on fuel price trends and how airlines respond with fare adjustments.
Ryanair's situation also highlights a broader market theme: the difference between earnings growth driven by operational improvements and earnings growth driven by financial engineering like buybacks. Buybacks can flatter per-share numbers, but they don't change the underlying economics of the business.
As always, no single analyst note should drive an investment decision. But this one offers a useful framework for thinking about airline stocks: watch the fare trends, watch the fuel curve, and remember that a rising price target doesn't always mean rising profits.
