Ryanair Chief Puts Rivals on Notice With Big Boeing Order
Ryanair Holdings Plc has a plan to thunder back from the air travel slump.
(Bloomberg) -- Ryanair Holdings Plc has a plan to thunder back from the air-travel slump, grabbing airport space while its weakened rivals are still in retreat.
The Irish discount airline will use the 210 737 Max jets it’s getting from Boeing Co. over the next four years -- an average of one a week -- to expand across Europe, Chief Executive Officer Michael O’Leary said in an interview.
“Those airports in Amsterdam, in Spain, in Italy, in Germany where they’ve seen huge capacity reductions, we’re out there today in active negotiations,” the 59-year-old chief executive officer said. “Airports will be looking to us to recover their traffic.”
Europe’s most valuable carrier is using its financial strength to go on attack before its competitors can recover. Air traffic cratered this year after the coronavirus crisis stifled demand, and airlines are focused on saving cash. While large plane purchases are off the table for most, Ryanair on Thursday topped up its Max order by 75 jets.
Ryanair opened bases in Venice, where EasyJet Plc recently reduced its presence, and Paris Beauvais airport this week. The carrier plans to serve 18 new routes from the Italian airport, it said on Friday. The Irish company also plans to expand in central Europe, home to smaller rival Wizz Air Holdings Plc, O’Leary said.
Key to the effort is the Max, which O’Leary said uses 16% less fuel than Ryanair’s current 737 fleet, is quieter and seats eight extra customers. The deal with Boeing calls for a condensed delivery schedule packing all 210 planes into a four-year span.
O’Leary is gambling that the aircraft will give him a cost advantage, and their arrival starting in early 2021 will be timed well for a comeback in air travel made possible by a rollout of vaccines. With holiday specialist Thomas Cook and U.K. regional operator Flybe gone bust, Deutsche Lufthansa AG unit Germanwings closed down, and Norwegian Air Shuttle ASA fighting to survive, he sees opportunities.
It’s a risk, but Ryanair likely received significant discounts on the order, which has a face value of $9.4 billion, said Sash Tusa, an analyst with Agency Partners.
“One of the things investors look for in Ryanair is a very experienced management that are prepared to take risks and are extremely aggressive on cost,” Tusa said.
Contingency Plan
The main threat to Ryanair may come from Budapest-based Wizz, which is now stretching west into hubs like London Gatwick. Wizz has 255 Airbus SE narrow-bodies on order through 2026 and is also seeking to expand in the aftermath of the pandemic.
Wizz is investing in the Airbus A321neo, a higher-capacity narrow-body with cost advantages over the Max, said Daniel Roeska, an analyst at Sanford C. Bernstein. The Max 10 variant of the 737 that Ryanair is discussing buying from Boeing would provide closer savings, he said.
If travel doesn’t rebound by mid-2021, Ryanair will leave some of its older 737s on the ground for a longer period of time, O’Leary told Bloomberg Television. He said he’s investing in Ryanair with a 5- or 10-year horizon in mind.
The bigger issue, O’Leary said, is how long fares take to recover.
“If we’re selling loads of 9.99-euro fares, demand will rocket back,” he said. “The question is how many 9.99 airfares do we have to sell.”
©2020 Bloomberg L.P.