Cantillon: Will Ryanair’s long-haul plan take off?
Message going out to airline manufacturers that Ryanair is a potential buyer
Ryanair has put forward a strategy to investors to grow its European traffic – now 82 million passengers each year – by 50 per cent by 2019. Photograph: Chris Radburn/PA Wire.
Ryanair has indicated that its venture into the transatlantic market will not use its existing brand, though it will make clear that this service is “brought to you” by the Ryanair team. This is interesting in marketing terms, but investors will want to know how it all stacks up. Will the financing of the new investment to undertake this service come from Ryanair’s balance sheet, or will Ryanair set up a separate structure to raise the debt and take ownership of the service, linking it to the existing infrastructure and website?
This is a significant question. Ryanair has put forward a strategy to investors to grow its European traffic – now 82 million passengers each year – by 50 per cent by 2019. It has tweaked its plans, changing its image, its marketing and some of its routes and flight times to attract new traffic, particularly from the business market. But essentially it is the same business, making money from flights in Europe based on a low-cost model.
Going transatlantic is a different ball game, involving the purchase or lease of a new fleet of aircraft. The evolution of new, more fuel-efficient aircraft may make low-cost flights to the US workable, but the quick turnaround model pioneered by Ryanair in Europe would not work on long-haul. Norwegian Air Shuttle, which started lower-cost flights from its own market and now serves three US airports from London Gatwick, is being watched. It appears to be filling its planes reasonably well, but its fast pace of expansion has left its recent results in the red.
Ryanair, as a bigger airline with more traffic, would start from a stronger position. But with such a big play in a new market, the current investor base would have to be brought along. Michael O’Leary would either need to persuade investors that a risk is worth taking, or structure the enterprise as a separate company. This would limit the risk for existing investors, but also limit the upside for them.
In the meantime, the message is going out to airline manufacturers, which are always juggling orders, that Ryanair is a potential buyer. And also that Aer Lingus could face a new transatlantic competitor in a few years.