Ryanair is cementing its leading European position as it emerges stronger from Covid, outstripping rivals for growth and profitability. Mark Pilling reports
Michael O’Leary is his usual ebullient self. In fact, I don’t think I’ve ever seen him downbeat at any of the various press events or occasional conferences where I’ve seen him appear.
It is mid-January and the Chief Executive of Ryanair is announcing a batch of six new routes from London Stansted Airport at the lavish Pan Pacific Houndsditch Hotel in central London. He’s 10 minutes late for the assembled pack of journalists but marches in, apologises and immediately sets off into his remarks accompanied by a few PowerPoint slides. The first is titled ’Europe’s lowest cost airline group‘ – more on that later.
Of course, O’Leary can be grumpy and abrasive; that goes with the territory and depends which entity is in his crosshairs. Pick any target from governments, airports, suppliers, regulators, or other airlines. All have been on the receiving end of an F-bomb at one time or another.
However, his unwavering blunt criticism of anything he and his airline do not like mean this 64-year-old Irish businessman, one of that island’s most successful, who has led Ryanair since 1994, is reliable. And frankly, for a journalist, who doesn’t have to negotiate with him as some of you do, he is 100% great value.
His airline, too is reliable – for the important things that shareholders value: growth and profits (Covid notwithstanding of course); and for what customers value: low fares.
Ryanair is striding out of the dark days of Covid in aggressive expansion mode, seeking to capitalise on a market where few have returned capacity at anything like the same pace. Only fellow low-cost players Wizz Air and Turkey’s Pegasus Airlines have matched the return to business beat that Ryanair has marched to.
Opportunity knocks
At the London press conference, I ask O’Leary if, of the several industry crises he has experienced, the exit from this, the deepest ever one, presents the greatest opportunity. “There are two answers to that question. One is yes, this is the biggest growth opportunity I have seen for the last 20 years,” he replies.
However, O’Leary has been around long enough not to take anything for granted. This leads to his second answer. “But every time you see a very large growth opportunity in Europe, some curveball gets sent to you whether it’s Covid, Ukraine, or something else. Shit always happens in this industry,” he says.
Warming to the theme, O’Leary believes that Covid may be the tipping point that delivers fundamental change to the airline environment in Europe. “I think Covid has seen and will be seen to have delivered a huge inflection point in European aviation… Prior to Covid there were lots of new entries, new airlines, and low-fare carriers etc. Covid has dramatically accelerated the consolidation process in Europe.”
O’Leary envisages an amalgamated European airline industry with four main players in a structure that mirrors the USA.
Today there are six large carrier groups in Europe: Lufthansa, British Airways/IAG, Air France-KLM, Ryanair, easyJet and Wizz Air. O’Leary believes ‘Alitalia’ – which is what he calls its reincarnation ITA Airways – will be taken over by Lufthansa in the coming three to four months, TAP Air Portugal will finish up in IAG’s hands, easyJet will be bought by IAG or Air France-KLM or “both jointly”, and then “Lufthansa will buy Wizz”.
Only Ryanair will remain as an independent LCC if this scenario plays out. “We are morphing into a marketplace where there’s going to be four very large carriers not unlike North America, where there’s three large connecting carriers – Delta, United, American – and Southwest, which is the large but not so low-cost airline anymore,” says O’Leary.
His comparison sees Ryanair as the equivalent of Southwest and the only LCC of scale to survive his predicted consolidation process in Europe.
Lowest cost wins
O’Leary’s confidence in his prediction is founded in the fact that Ryanair is, has been and probably always will be, obsessed with being the lowest cost player, hence his assertion that it is “Europe’s lowest cost airline group”. There are few who dispute this claim.
Ryanair is also Europe’s largest airline. O’Leary forecasts it will carry 168 million passengers in its 2023 fiscal year (which ends on 31 March), well above its pre-Covid high point in 2020 of 149 million, rising to 185 million in 2024 and reaching 225 million by 2026.
He rattles off more facts. Ryanair is number one for customer service with an on-time performance of 90%, has an upgraded environmental rating of B from CDP, the global disclosure system for firms to manage their environmental impacts, and has a strong BBB score from rating agencies Fitch and S&P.
O’Leary’s conclusion? Financial strength plus lowest cost equals long-term winner.
“We have 90 bases this summer to over 235 airports in 37 countries and what’s important is that we’re rebounding very strongly post Covid,” he says. The carrier operates 517 aircraft on over 2,400 routes. “We have returned [to growth] incredibly strongly despite the impact of the Russian invasion of Ukraine in February of last year,” he adds.
Outlook for 2023
“There is very strong growth ahead of us this year as long as there is no Covid or no adverse news flow coming from Ukraine,” he says, with other risks being inflation and recession. Another major issue is the cost of fuel. Ryanair’s fuel costs are rising, with the airline facing “about a 30% increase in our oil bill this year,” admits O’Leary.
He highlights a 10% capacity boost at London Gatwick, Stansted and Luton this summer, compared to last year. From these airports Ryanair will operate on 180 routes, with 57 aircraft based there. The six new routes are to Asturias, Belfast, Cornwall Newquay, Edinburgh, Klagenfurt and Leipzig.
O’Leary says the three domestic UK routes are a response to the UK government cutting Air Passenger Duty (APD) by 50% from April 2023. He repeats the call for the government to fully abolish APD for all travel immediately, which would not only promote tourism, but support much needed connectivity to the UK, which Ryanair describes as “an island-based economy on the edge of Europe”.
London is receiving more aircraft, but regional UK airports are getting their share of Ryanair’s attention. “Where we’re putting most aircraft at the moment this summer in the UK is into Manchester, Edinburgh, Bristol and Belfast,” explains O’Leary. “We’re reopening a base in Belfast at the Aldergrove Airport, so provincial UK is growing faster than London this year – but that’s because London has such a high base.”
The UK is among the fastest growing of Ryanair’s markets across Europe, with the others being Italy, mainly due to “Alitalia’s” capacity pullback, as well as Portugal, Spain, Poland, and Romania.
“The fastest growth we have in Europe this year is still into Italy where ‘Alitalia’ has significantly reduced capacity. Actually, we put 25 aircraft into Italy last year and we’re going to put another 10 aircraft into Italy this year,” says O’Leary, with Ryanair adding capacity as ‘Alitalia‘, Wizz and easyJet cut back. He observes that in Portugal TAP has cut capacity while Ryanair has increased service.
Capacity restoration?
O’Leary does not believe it is a given that pre-Covid levels of traffic will return to all markets and airports, for two main reasons. “One, we have much higher oil prices going forward to Europe. Two, Europe, even this year, will still be operating at less than its pre-Covid capacity. This idea that we’ll all have restored traffic is never going to happen. Some of this capacity is never coming back.”
He describes the situation as he sees it in Germany. “Lufthansa closed Germanwings, and they’ve taken out a lot of their short-haul German [operations]. Germany is the one marketplace where they’re only operating at about 70% of pre-Covid capacity and prices are growing at its highest [rate].
“Lufthansa is making out like a highwayman,” he goes on. “The German champion always does well: it screws Germans. And eventually the German airports will work out they are getting screwed by Lufthansa and they’ll be back talking to us in about 12 or 18 months. But frankly they’re welcome to Lufthansa for the moment.” In March 2022 Ryanair closed its base at Frankfurt Main Airport citing increased charges at the country’s main hub.
Another factor that will drive demand in Europe this summer is inbound transatlantic traffic, boosted by the strong dollar. “All of the airlines report very strong bookings on the transatlantic routes, and I think that’s going to continue through this summer,” says O’Leary.
“Europeans, because of the strength of the dollar, will be discouraged from going long haul to the States. I think they’re far more likely, as they were last year, to holiday in Europe,” he predicts.
The Asian market is going to return too. “We’re beginning to see the reopening of Asia,” says O’Leary. “The Asia recovery will be slow because of issues with Russia. The Chinese can fly directly over Russia and Europe, but the Europeans can’t. But nevertheless, if there’s 20, 30 or 40% of Asian travellers coming back to Europe, that could be 20, 30 or 40% that wasn’t there for the last two or three summers.”
Filling the void
The slow pace of capacity restoration by Europe’s network carriers is giving Ryanair an opportunity to quickly fill the void. O’Leary also sees LCC rivals increasingly reluctant to go head to head with Ryanair.
Wizz Air, for example, is cutting back in the face of competitive pressure from Ryanair in Italy, says O’Leary. He points to Wizz closing several domestic routes and cutting frequency on others in January in addition to closing bases in Bari and Palermo. “They are in retreat out of Italy,” he claims.
“I think Wizz have very cleverly realised – well, it’s taken them about five years – that they can’t compete with Ryanair,” says O’Leary. “If you go head to head with Ryanair, they lose because we have lower costs. We have lower fares, and generally a much bigger market footprint; we’re easily up to 40% market share.
“And I think what they’ve said is, ‘where can we find a market where we don’t have to compete with Ryanair?’ That is the Middle East and I think it’s a sensible development from Wizz’s point of view,” he adds. Wizz Air has been opening routes from Abu Dhabi and Saudi Arabia over the past few years.
“Wherever they keep retreating and pulling capacity, we keep adding aircraft and adding capacity and the real barrier to entry I think for airlines in Europe nowadays is Ryanair,” says O’Leary.
“We are the biggest airline in most European markets with by far the lowest costs and the lowest fares. The challenge [for rivals] is whether they can enter a market where they’re able to compete with us on price and the answer is probably ‘no’, but that means we have to keep going. We have to keep growing and keep the prices down because that’s the only way we can make it difficult for competitors. And we want to make it very difficult for competitors.”
Boom in bookings
Despite worries about recession, and the potential impact on bookings at the turn of the year, Ryanair’s management team has been pleasantly surprised at the strength of the market. “Forward bookings into February, half-term, and Easter, look very strong and fares are rising,” says O’Leary.
Demand has in fact reached record levels, with the carrier taking over 2 million bookings for the first time in a single weekend (14-15 January), he says. The previous weekend record was in early 2019 at 1.6 million bookings when there was a seat sale.
For O’Leary, the strong booking story is significant, especially as it is not boosted by a seat sale. This leads him to believe that “we’re looking at fares rising high single digits for a second year” driven by demand as well as partly being influenced by high oil prices. The airline’s average fare will rise from €50 (US$54) in 2022 to €53-€55 ($58-$60) this year, he said.
Reflecting this optimistic picture, in early January Ryanair lifted its full-year net profit guidance to a range of €1.325 billion ($1.442 billion) to €1.425 billion ($1.551 billion) before exceptional items, up from the guidance of between €1 billion ($1.1 billion) and €1.2 billion ($1.3 billion) issued in November.
“If we had a year of strong demand, slightly higher fares, if oil prices stay stable or fall, and we have no adverse developments in Ukraine we make a bundle of money this year. But if any of those things goes wrong, we will be as usual trying to put out fires left, right and centre,” says O’Leary.
