Ryanair CEO Embraces Booking Record Cautiously as ‘S**t Always Happens in This Industry’
“This is the biggest growth opportunity I have seen for the last 20 years,” Ryanair CEO Michael O’Leary said Tuesday. The airline surpassed 2019 traffic levels in 2022, and predicts robust growth this year as it rapidly pulls out of the devastating Covid years.
Ryanair is capitalizing on its low-cost base to defeat any rival in a price war, the arrival of up to 45 new Boeing 737-8200s by the end of May to boost capacity, and the slow pace of capacity restoration, especially at Europe’s network carriers, O’Leary said. However, the long-time airline executive, who was unveiling the addition of six new routes from London’s Stansted Airport at a press event in the UK capital, has been around long enough not to take anything for granted.
“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 said.
The pandemic, however, could be the crisis that finally delivers fundamental change to the airline market in Europe. “I think Covid has seen and will be seen to have delivered a huge inflection point in European aviation,” O’Leary said. “Prior to Covid there was 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 U.S.
Today, there are six large carriers in Europe: Air France-KLM, EasyJet, International Airlines Group (IAG), Lufthansa Group, Ryanair, 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 3-4 months; TAP Air Portugal finishing in IAG’s hands; EasyJet being bought by IAG or Air France-KLM, or “both jointly,” and then “Lufthansa will buy Wizz.”
Only Ryanair will remain as an independent low-cost carrier 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,” said O’Leary.
Time will tell if Covid speeds Europe towards a structure where there are four majors as O’Leary spies in his crystal ball. For now, the Irishman is intent on executing Ryanair’s ambitious growth plan over the coming 3-4 years. There are risks of course, as he lists the well-known ones: Ukraine, Covid, inflation, and recession.
Fuel costs at Ryanair are rising too, with it facing “about a 30 percent increase in our oil bill this year,” said O’Leary. “But there’s a realistic prospect of very strong passenger volumes through this summer, and rising airfares.”
Ryanair aims to carry 168 million passengers in its 2023 fiscal year, which ends on March 31. That is well above its pre-Covid high of 149 million in 2020, and forecast to continue rising to 185 million in 2024, and reaching 225 million by 2026.
At the turn of the year Ryanair’s management team was unsure how bookings would trend as 2023 began, but “people do seem at least at this point to be booking both their Easter and summer travel,” said 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, January 14-15, he said. 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 as it was not boosted by a seat sale, and 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 ($54) in 2022 to €53-55 this year, he said.
Reflecting this optimistic picture, on January 4 Ryanair lifted its full-year net profit guidance to a range of €1.33-1.43 billion before exceptional items, up from between the guidance of €1-1.2 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,” said O’Leary.
As Ryanair boosts its UK capacity this summer by 10 percent, one of its fastest growing markets is Italy, mainly due to “Alitalia’s” capacity pullback, with Portugal, Spain, Poland, and Romania the other “big growth markets in Europe.”
In Italy, Wizz Air is cutting back in the face of competitive pressure from Ryanair, said O’Leary. He points to Wizz closing several domestic routes and cutting frequency on others in recent days in addition to closing bases in Bari and Palermo. “They are in retreat out of Italy,” he claimed.
“I think Wizz have very cleverly realised, well it’s taken them about five years, that they can’t compete with Ryanair,” said 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 in a market that easily we’re up to 40 percent 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, and that is the Middle East and I think it’s a sensible development from Wizz’s point of view,” he added. Wizz Air has expanded in Abu Dhabi and Saudi Arabia in recent 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,” said 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 can you enter a market where you’re able to compete with us on price and the answer is probably no but that means we have to keep going,” said O’Leary. “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.”
One of Ryanair’s advantages is its stream of Boeing 737 Max deliveries with more arriving this year from its 210-aircraft strong order backlog. However, the airline remains cautious as delivery delays, which did improve “materially” from last autumn, are a risk. The carrier only received 12 of an expected 21 aircraft during the September-to-December period, O’Leary said.
At present, the carrier is selling seats for this summer on 40 of its expected 737 Max deliveries between now and May, said O’Leary. “We don’t think we’re going to get all 51 [planned 737 Max deliveries by the end of May]. We said to Boeing if you don’t deliver by the end of June, we’re not taking deliveries in July and August because we can’t sell it.”Subscribe Now to Airline Weekly
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