“This is the biggest growth opportunity I have seen for the last 20 years,” Ryanair CEO Michael O’Leary said last week. 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 longtime 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.”
— Mark Pilling
In Other News
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- Pilot unions at Delta, Hawaiian, and Southwest all took actions toward new contracts last week. The Air Line Pilots Association (ALPA) master executive committee at Delta moved its tentative agreement with the airline forward to a ratification vote. Pilots will vote from January 31 through March 1. ALPA and Hawaiian reached a tentative agreement with an average 32.9 percent pay jump. Pilots will vote on the accord for two weeks beginning January 27. And at the Southwest Airlines Pilots Association (SWAPA), President Captain Casey Murray called for a strike authorization vote that would begin on May 1. The move is more symbolic than a real threat of a strike, and seen by many as a negotiating tactic in the union’s protracted talks with Southwest management.
- Air Serbia said it returned to profitability in 2022, earning a net €21 million ($23 million). It emphasized that it did so “without a single euro coming from government subsidies.” Like most airlines, Air Serbia saw a strong jump in traffic last spring, when countries around Europe removed travel restrictions, and when the omicron wave of the pandemic subsidized. CEO Jiri Marek said he’s “immensely happy with the good financial result achieved last year … this is the real indicator of our company’s ability to react quickly and recognize opportunities for recovery and growth.” The result, he added, “comes after two extremely difficult years, not only for our company, but for the entire commercial aviation sector globally.” Air Serbia launched in its current form ten years ago, born from the remnants of Jat Airways. The carrier gained critical backing from Etihad Airways, which until recently owned 49 percent of Air Serbia’s shares — the rest was owned by Serbia’s government. After the pandemic, Etihad reduced its stake to 18 percent, where it currently stands.
- Consolidation in Europe and South America took a step forward last week. The Lufthansa Group officially submitted a bid to Italian officials for an initial 40 percent stake in ITA Airways. If accepted, Lufthansa and Italy still need to negotiate the final terms of a deal. Lufthansa’s offer includes the option to take full control of ITA in the future. And in South America, Colombia’s civil aviation authority, Aerocivil, resumed its review of the proposed Avianca–Viva Air merger after finding a “substantial irregularity” in its initial rejection of the deal. No word on when a decision could come down, but Aerocivil said it would proceed “quickly” with its review.
- Trade group Airlines for America (A4A) wants the Department of Transportation to extend slot waivers for U.S. airline flights to China and Tokyo Haneda through the end of October. The waivers, which have been in place since the start of the pandemic, allow carriers to temporarily suspend flights without running afoul of rules that require them to return these government-allocated authorities if they do not use them in a given 90-day period. U.S. airlines “do not foresee significant and certain international passenger growth in either China or Japan before expiration of the [slot waivers] on March 26, 2023 leading into the summer season.” China reopened to international visitors on January 8, and Japan dropped its border restrictions late last year.