Ryan Air: Flight Risk

| About: Ryanair Holdings (RYAAY)

Ryan Air (NASDAQ:RYAAY) was down 25% yesterday on a quarterly loss. In a nutshell, its profits fell 85% and it missed forecasts by a mile. It also guided down for the year. One of the things that I thought was interesting was that the company hedged oil at $129 and $125 for the next few months. I believe it could have held out for a lower price as the near term trend for oil looks to be lower.

The reason for this post on Ryan Air is two-fold. The first reason is obviously the stock. I recommend avoiding Ryan Air simply because Europe is 6-12 months behind the US in terms of a recession. The slow-down in the US does affect Europe and I saw this first hand during a recent visit. They talk about our credit crisis like it was their own. They have transportation strikes in Spain and Portugal to protest prices at the pump. In short, Europe is not a good place to invest today and Ryan Air is a victim of its environment.

The second reason, and perhaps a more personal reason is that I did have the misfortune of being on Ryan Air during my travels through Europe and I can safely say that it is the worst airline I have ever been on. As Americans, we expect good customer service, fair and upfront pricing with no surprises and some degree of comfort. None of these are part of Ryan Air’s flight plan. Before you ask why this is relevant to the stock, one has to understand and appreciate that companies like Jet Blue (NASDAQ:JBLU), Starbucks (NASDAQ:SBUX), Priceline (NASDAQ:PCLN) and Dell (NASDAQ:DELL) – brands that came into being over the last 10-20 years, have all one thing in common – loyalty. Over time, these companies have built loyalty product differentiation and through customer service, albeit, they have lost some loyal fans in recent times due to missteps. With Ryan Air, loyalty seems to be non-existent. They are not concerned with loyalty nor do they care. In fact, it was not until I flew Ryan Air that I realized how much I appreciate Continental (NYSE:CAL) and American (AMR).

For starters, the folks at Ryan Air nickel and dime you. They advertise fares as low as €0, but then add taxes up to €50 each way. If you don’t check-in online (which you can’t unless you carry a European passport), they charge you €5 per segment for check-in. For each bag you check-in, you pay an additional fee (although Ryan’s American counterparts are starting to do the same) and they restrict your luggage to 15 kg per person (NOT per bag). A small suitcase itself weighs 2-5kg before you load it up, so if you plan to travel for over a week, be prepared to pay up. Incidentally, there is no cap on how much you pay once you go over your baggage limit (it is typically €15 per kg). I was on vacation in Europe for a while and had some gifts for family and friends as well. So while my flight from Paris to Rome cost me €230 per person, my extra luggage cost me another €470 (equal to the price of my ticket from Los Angeles to London). Moreover, Ryan Air has a weak presence at any airport. So boarding is the old fashioned ride-the-shuttle-to-the-plane-and-climb-up-the-narrow-steps experience.

As for the flight itself – forget peanuts, you won’t even get free water on Ryan Air. The company took out the seat-back trays so you can’t eat on the flight unless you want to put your food on your lap. It also has advertisements on the overhead compartments, making the plane look like a billboard on the inside. If you decide to nap, be ready to be awakened by the pilot’s constant marketing messages over the speaker. The company sells anything from bus tickets to perfumes on the flight and each time the flight attendant comes out with the cart, the pilot announces what is being sold. Flying Ryan Air was one of my worst experiences in public transportation right up there with riding the bus in a third-world country.

When investing in Ryan Air, I would ask myself if I really want to invest in a company that charges you extra if you need wheelchair assistance. And if despite its greedy nickel and dime initiatives, it fails to generate a decent earnings report, I shudder to think where it would be if it was actually a decent airline.

The airline sector is a tough sector to invest in. It behaves inversely with oil prices, but with oil moving downward, it may be worth a speculative bet to buy an airline for a quick trade. Just don’t buy Ryan Air – I prefer Continental, which is best of breed.

Full Disclosure: I do not own RYAAY, CAL or AMR but my position can change anytime without notice.