Ryanair’s O’Leary promises growth by stealing European market share

Ryanair chief executive Michael O’Leary has vowed to push for rapid growth and take more market share from rivals in Europe as he aims to double passenger numbers over the next decade.

The airline’s ambitious new target of flying 300 million passengers a year by 2034 would be more than any airline has achieved so far.

“I think the thesis is that there is no more growth in Europe, [and that] Europe is completely screwed, it’s wrong,” he told the Financial Times.

The company bought 300 short-haul planes earlier this month as part of a $40 billion deal with Boeing. But some investors and analysts question whether there are enough passengers to carry in Europe, especially at a time of heightened climate concerns as policymakers raise carbon taxes on aviation.

O’Leary agreed that the airline’s growth rate will moderate to around 4 to 5 percent a year, but he said that would be enough to meet his forecasts. He said there was still plenty of room to steal market share from Western European rivals and stimulate demand in new markets in Central and Eastern Europe.

“Until we do something stupid – which is a daily challenge in this industry – we will continue to wipe the floor of every other European airline,” he said.

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Ryanair has won European air travel after the pandemic, entering new markets while financially weaker rivals have been pushed back. The carrier is already the largest in terms of passenger numbers in Europe; expects to transport a record 168 million passengers in the year to the end of March, 13 percent more than before Covid.

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According to Bernstein analyst Alex Irving, airline growth will inevitably slow as the industry stabilizes following the pandemic. Its home market of Western Europe is “essentially fully penetrated,” he said.

“Double-digit and even high-single-digit growth rates were sustainable while it was smaller, but as an airline of nearly 600 aircraft, you can’t sustain those rates without hurting returns,” he said.

Irving instead expects Ryanair to shift from high growth to returning cash to shareholders, estimating payouts at €2 billion a year in the near term.

However, O’Leary is not moved by doubts. In a speech at Ryanair’s offices near Dublin Airport, he broke the business model down to three words: “lowest cost wins”.

Analysts agree that, apart from Hungarian Wizz Air, no European airline is worth Ryanair’s cost base; the Irish airline has spent decades cutting costs and passing the savings on to consumers through lower fares.

It uses a single fleet of aircraft to keep maintenance costs low and provides a regular flow of new and more efficient aircraft to reduce fuel consumption. It targets fast turns at usually cheap airports to make your assets sweat to the max.

An obsessive focus on low costs and the subsequent ‘no frills’ experience has earned Ryanair a reputation. UK consumer group Which? said that Ryanair “regularly ranks last” in the UK airline rankings and only “escaped from last place this year through terrible experiences. [fellow ultra-low cost airline] Wizz Air.”

But passengers kept coming, attracted by the low fares and recent reliability. Ryanair did not lay off employees during the outbreak, instead taking temporary pay cuts, and did not suffer the disruption that hit the rest of the industry last summer.

Its shares of around €16 have returned to pre-pandemic levels, but have easily outperformed rivals since the crisis began in 2020.

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Chris Davies, investment manager at Baillie Gifford, which is Ryanair’s third-largest investor and has owned the stock for more than a decade, said it was “highly consistent from a strategic perspective”.

“They really haven’t deviated much from the basic premise of reducing unit costs, reducing airfares and gaining market share,” he added.

Rebased line chart of share price and index (1 February 2020 = 100) showing Ryanair's recovery from the pandemic is stronger than its peers

Many within the industry agree, with airlines rising due to a surge in travel demand.

“It was predicted many years ago that Ryanair would soon run out of growth opportunities in Europe and that has not happened yet,” said one industry consultant.

Olivier Jankovec, head of airport industry body ACI Europe, said the shape of the pandemic recovery suited short-haul airlines such as Ryanair as leisure travelers returned in greater numbers than business travelers.

He said Ryanair had “huge market power”, including high-end airports offering significant discounts on landing fees, as it rebuilt its routes.

“The effect is that it makes airports compete with each other like never before. . . I don’t think that’s good for the market or good for the consumer,” he said.

However, there are questions about whether the recovery in travel demand can be sustained, especially if airfares remain high.

Prices have risen sharply over the past year, outpacing inflation, and O’Leary himself is among the top industry executives predicting the end of super-cheap flights.

One senior airline executive said industry forecasts for passenger numbers were based on old models that assumed ever-cheaper fares would drive growth. Instead, they said structurally higher airfares could reduce demand for flying.

A Ryanair plane is waiting at London Stansted Airport
Ryanair now has “significant market power” including high-end airports that offer significant discounts on landing fees © Chris Ratcliffe/Bloomberg

“The truth is, nobody knows right now. We live in a completely different world where air ticket prices are rising. No one knows what that means in terms of demand,” they said.

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The industry also faces growing climate concerns, including paying higher carbon taxes as the system of free allowances is phased out by the EU’s emissions trading system, which analysts say will further raise fares.

Analysts at Barclays said “Ryanair’s business could be challenged by environmental legislation”, which would potentially limit routes and impose minimum fares.

Sébastien Thévoux-Chabuel, portfolio manager at French asset manager Comgest, Ryanair’s 15 largest shareholder, said it was “the best operator in the sector. We see that they can gain a large market share. . . The only two questions left are how long we are on the road to conquering new countries and what the impact will be on the cost of carbon dioxide emissions.”

Ryanair’s long-term passenger forecasts look back into the next decade and predict a future that may not include O’Leary, 62, who almost single-handedly took Ryanair from a small regional airline to a global one. aviation power plant. Few European companies are so closely linked to their CEO.

“Ryanair is inhaling MOL,” said a former executive of the airline, referring to O’Leary’s initials. “It’s one of those brands that has clearly stamped its CEO’s personality.”

O’Leary’s current contract expires in 2028 and there are signs of succession planning as the company has put in place a group structure with the Irishman at the helm of a senior management team.

He said he stepped back from managing all aspects of the business and now works largely on fleet development and financing. He no longer deals so much with union negotiations, negotiations with airports or route planning, he said.

“I think in the early days when we turned this thing around. . . I was the key person, it depended on me. I made all this decision. it’s too big now, he said.

Source: https://www.ft.com/content/23a6430b-787e-41c2-a610-0427f751bcd2