Ryanair Stands Out Among European Rivals for Being Bigger Today Than Before the Pandemic

Photo credit:  Pixabay / Steve001

Europe’s Ryanair delivered another exceptionally strong financial result during the October-to-December quarter, helped by flying with higher capacity than it did in 2019. Its operating margin reached 7 percent, topping the 5 percent it achieved in the same quarter of 2019, prior to the Covid crisis. Last week, rival EasyJet disclosed a negative 8 percent operating margin for the same three months of 2022. Wizz Air’s figure was negative 17 percent.    

The December quarter, keep in mind, is generally a sluggish one for demand within Europe. In the preceding quarter of 2022 (July-September), which includes the busy summer holiday season, Ryanair’s operating margin was 35 percent.

The low-cost airline, based in Dublin, did say it would lose money in the current January-to-March quarter, which does not include the Easter holiday this year. Higher labor costs are a factor as well. But calendar year first quarter losses will likely prove immaterial. More importantly, bookings for the Easter holiday and the summer tourist season appear strong, just as they were during the winter holidays last quarter. Fares are up, competitors are retreating, and Ryanair is gaining market share in key markets like Italy, Poland, Spain, and its home market Ireland.

Ryanair is flying more capacity now than it was prior to Covid, enabled in part by a decision to retain planes and crews during even the depths of the downturn. Its growth has helped keep unit costs roughly where they were before Covid, thanks to economies of scale. Also helping on the cost side are its new Boeing MAX jets. The airline remains concerned that it won’t get as many more of these as it wants before the peak summer, due to Boeing’s production bottlenecks. Ryanair ended 2022 with 84 MAX-8200s, out of a total fleet of 523 planes. Twenty eight of these were Airbus narrowbodies.

Will Ryanair purchase additional MAXs, or more A320-family planes for that matter? CEO Michael O’Leary, in a call with financial analysts, expressed interest in Boeing’s larger MAX 10 but would only buy it if the price reflected the lower yields it would likely need to accept to fill the extra seats. But O’Leary insisted, “We’ve got more than enough aircraft in the order book. And indeed, we’ve extended the A320 leases out to 2028.” His message to Boeing and Airbus though, is that Ryanair is always willing to buy “at the right price.”

Astute aircraft purchasing has long been one of Ryanair’s most powerful competitive advantages, securing significantly lower-than-average prices by ordering during downturns and leveraging its importance to Boeing production backlog. It currently owns nearly all the planes in its fleet, unlike EasyJet and Wizz Air which lease much of what they fly. As O’Leary pointed out, leasing costs are rising in tandem with interest rates. Ryanair, meanwhile, has one of the strongest balance sheets of any airline worldwide.  

The carrier sees its cost gap with rivals further widening, highlighting especially large advantages in categories like ownership and maintenance, as well as airports and ground handling. It admits to having higher unit labor costs than Wizz, which sources much of its staff in lower-cost areas of eastern Europe.

O’Leary’s optimism about the spring and summer also stem from strong recent performance in ancillary sales, and an expectation that as more tourists visit Europe from Asia and North America, many will fly within the continent on shorthaul flights operated by low-fare airlines. Flybe, by the way, a small competitor in the U.K., stopped flying last week, opening some new market opportunities for Ryanair. Back on the cost side, Ryanair—thanks to aggressive hedging—was well protected from the worst of last year’s fuel spike and euro depreciation. For the remainder of this quarter, the company has 88 percent of its fuel needs locked in at around $71 per barrel. From April through September, it has roughly half its needs hedged at about $90. “We think this gives Ryanair a huge cost advantage over our E.U. competitor airlines, both for the remainder of this winter and into the summer of fiscal year 2024.”

O’Leary, true to form, went out of his way to bad-mouth rivals and other industry stakeholders. He remarked, for example, that he’s “hugely skeptical of easyJet’s holiday operation; I never believe any of the profit figures they declare.” When asked about air traffic control, he said this was “another example where the European Commission is absolutely useless.” Lufthansa, a “national champion” with a “quasi monopoly,” will “constrain capacity… They will increase pricing quite significantly.”  

Less controversially, he said “the strongest performing market for the last 2 weekends was U.K.-outbound and Irish-U.K. provincial flights.”