Ryanair Group CEO Michael O’Leary was his usual confident self on Ryanair’s competitive position in Europe, even as many of the airline’s competitors have become fodder of takeover chatter.
Europe’s largest airline by passengers, Ryanair does plan to actively participate in consolidation, O’Leary said during the carrier’s earnings call Monday for the first half of its fiscal year that ended in September. He added that, with its current fleet and orders for 133 Boeing 737-8200 aircraft, the carrier can meets its growth target of carrying 225 million annual passengers by March 2026 with its own resources. Ryanair forecasts flying 168 million passengers during the year ending in March, or 19 million more than during the year that ended in March 2020.
But that does not mean Ryanair won’t take a passive role in consolidation, or that O’Leary thinks all of his competitors will be around in a few years time. The airline could participate in a deal by one of its competitors as part of “competition remedies,” or where Ryanair could agree to take some airport slots or aircraft as part of another airline’s deal to meet authorities’ antitrust muster, he said.
ITA Airways and TAP Air Portugal are top of O’Leary’s list as disappearing shortly from the ranks of independent European airlines. Air France-KLM, in a bid backed by private equity firm Certares, and the Lufthansa Group are actively courting ITA after the Certares consortium’s exclusivity period expired at the end of October; and Air France-KLM and International Airlines Group have expressed interest in TAP. Neither ITA nor TAP are particularly large European players — 0.8 and 1.6 percent, respectively, of European airline capacity in 2022, Diio by Cirium schedules show — but both serve lucrative geographies that are attractive to the major groups.
“It is inevitable in the next three-to-five years that Europe will consolidate further,” O’Leary said. “[ITA] and TAP will be taken out because they can’t continue with the state aid they have.”
O’Leary said he believes the European airline market will soon look like the U.S.: With three large, network-airline groups, and one large low-cost carrier — the latter being Ryanair, naturally — dominating the market.
EasyJet and Wizz Air, arguably Ryanair’s largest competitors in the budget segment, are “candidates for M&A over the next couple of years,” O’Leary said. It would be easy for him to say as much as the disappearance of both competitors would benefit Ryanair. But O’Leary’s comments are not entirely idle chatter; The Times of London reported in October that IAG was eyeing a bid for EasyJet.
This is not the first time EasyJet is subject to takeover rumors. Last year, the UK-based budget airline responded to a takeover offer from Wizz by raising £1.2 billion ($1.4 billion) from new equity to fund its growth coming out of the pandemic.
O’Leary’s consolidation comments come after a headline summer for Ryanair, and continues to see strong travel demand. The group posted a 35 percent operating margin on a €1.4 billion ($1.4 billion) operating profit. Revenues were up 30 percent compared to 2019 to €4 billion, and fares up 14 percent.
“We have been surprised by bookings and pricing coming out of the peak summer period,” O’Leary said, adding that bookings have exceeded expectations in September, October, and November. While showing some concern for the peak winter months, he said summer 2023 demand is likely to be high again, citing the return of Asian travelers, as well as more Americans traveling on the back of the strong U.S. dollar. Airfares next summer are likely to rise further from 2022 levels owing to capacity constraints at many of Ryanair’s competitors, O’Leary added.
In terms of this winter, O’Leary expressed some of the same caution that defined his outlook coming into the summer. Demand is “fragile,” he said, adding: “If we have an Omicron or an Ukraine, [demand] could fall over real quickly. I think we’re right to be cautious.”
On future growth, Ryanair has resumed talks with Boeing over a potential order for the 737-10, O’Leary confirmed. As such, he backs the U.S. Congress extending a waiver to new safety requirements that would allow the as-yet uncertified Max 10, as well as the Max 7, to have common cockpits with other 737 models. The waiver currently expires at the end of the year.
