O’Leary ready to pounce as Ryanair’s rivals crumble

Airline in discussions with airports in Italy and Spain about taking Norwegian Air slots

Ryanair chief executive Michael O’Leary: “I have never in my 30 years in the industry seen such a clean-out.” Photograph: Niklas Halle’n/AFP/Getty Images

Ryanair chief executive Michael O’Leary: “I have never in my 30 years in the industry seen such a clean-out.” Photograph: Niklas Halle’n/AFP/Getty Images

 

Up to 100 million of Ryanair’s competitors’ seats will be taken out over the next 18 months as the impact of the Covid-19 crisis on airlines deepens, Michael O’Leary, chief executive of the low-cost airline, has claimed. The figures represent around a 15 per cent reduction on normal passenger traffic.

“Somebody has to step up and take that capacity,” he said, adding that he was in discussions with airports in Italy and Spain, which had been Norwegian Air customers, about filling those slots with Ryanair planes.

“I have never in my 30 years in the industry seen such a clean-out,” Mr O’Leary told the Financial Times. “The real seismic change from Covid will be the growth opportunities across Europe. They are much greater than after the financial crisis or 9/11.”

Airline capacity has been gutted during the pandemic, creating a window for survivors to fill the gaps once people start flying again. Thomas Cook and Flybe have collapsed, while Norwegian – until recently a big operator in the European market – has entered administration.

Yet low-cost carriers are widely expected to lead the recovery in flying because the short-haul and leisure markets they serve will rebound faster than intercontinental and business travel.

Traditional flag-carriers, such as British Airways, Air France and Lufthansa, rely on using their short-haul networks to feed passengers into their hubs and on to long-haul flights.

“The shape of the demand recovery favours airlines exposed to short-haul leisure traffic,” said Daniel Roeska, aviation analyst at Bernstein.

Or as Mr O’Leary put it: “Everyone who has been trapped and gone on holiday to Bognor Regis will want to go to Portugal, Italy and Greece. The question is which airports are most commercial about regrowing their traffic quickly in summer 2021.”

He said London Stansted was “all over us” when UK rival easyJet announced it would close its base there. Ryanair hoovered up more than 300 of easyJet’s weekly slots at the airport for next summer.

Losses

Still, the initial impact of the pandemic on Ryanair has been bruising. It expects to carry just 38 million passengers this year, a fifth of 2019’s number, and suffered a net loss of €197 million for the six months to September.

Losses in the second half of its financial year are expected to be greater, especially after the fresh wave of flight cancellations this week as countries closed their borders to the UK over concerns of a new strain of the virus.

The latest uncertainty came as a blow to an industry hopeful that an increase in travel over Christmas could offer some much-needed cash during the lean winter months.

Despite this, Andrew Lobbenberg, head of airlines research at HSBC, agreed there was an opportunity for Ryanair to grow as flag-carriers lost out on long-haul flights and weaker rivals disappeared.

Ryanair has also signalled its ambition by confirming a discounted order for Boeing’s troubled 737 Max aircraft, which will cut its costs further when it begins taking deliveries from early next year.

However, Mr Lobbenberg cautioned that any expansion was not “going to be immediate”.

“Everything is gradual and increasingly it is hard to anticipate the pace of it”.

While easyJet is regarded as having taken a more conservative approach to the crisis, Hungarian low-cost carrier Wizz Air has promised to take on Ryanair as it expands out of its eastern European heartlands to become a regional player.

Dirk-Maarten Molenaar, a partner at Boston Consulting Group, said legacy carriers were also becoming more flexible, and the “last thing” companies such as BA wanted to do was make significant cuts to the short-haul networks they need to feed into their hubs.

Bookings

Despite the recent pressures Ryanair’s share price is higher than it was a year ago – and has risen by about a quarter since the start of November – as investors have been encouraged that the roll-out of Covid vaccines would fuel a recovery.

Mr O’Leary said there had been a “noticeable but single-digit” uplift in bookings over the past month, but from a “very, very low base”.

He conceded that his plans were dependent on the swift roll out of vaccines by the governments he regularly savages for incompetence and inefficiency.

“They will mess about but ultimately they will throw so much money at the vaccine they will get there,” he said of the UK government.

Ryanair has a “working assumption” that it will fly between 90 million and 130 million passengers in the year to March 2022, a wide spread based on how quickly the demand for travel returns. It is well below 2019’s nearly 150 million passengers, a number the chief executive did not see returning until at least 2023.

“We have consistently been planning for a reasonably quick recovery and constantly disappointed. What has changed is the vaccines are arriving,” said Mr O’Leary. “The issue for our industry is, is that recovery in May or August? We just don’t know.”

– Copyright The Financial Times Limited 2020