ANALYSIS: Ryanair poised to pounce as rivals restructure

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Low-cost carrier giant Ryanair is in discussions with "75-plus" airports as it seeks to capitalise on cutbacks by Europe's flag carriers and mid-tier airlines.

"Airports are increasingly desperate for growth," says the Irish budget carrier's deputy chief Howard Millar. "Ryanair's one of the very few airlines who will be able to give them significant growth over the coming years."

Millar - who presented Ryanair's annual results in London while chief Michael O'Leary was in New York for investor briefings - singles out the potential of Germany's market, noting more approaches from German airports, amid restructuring and capacity reductions by the territory's top two airlines: Lufthansa and Air Berlin.

Adding to Germany's allure is the fact that, by Ryanair's reckoning, low-fare carriers have achieved a market penetration of just 25% there. The comparable figures for the UK, Spain and Italy each exceed 50%. Furthermore, unlike France - where budget airlines have a similar share, and Ryanair is again placed third - Germany is not seen by the Irish airline to have restrictive labour rules that inhibit the opening of local bases.

 

Against a backdrop of restructuring "right across the European piece" - encompassing Air France-KLM, Iberia, SAS and LOT, among others - Ryanair expects to grow traffic a quarter by 2019. In the same period, it will add 175 new Boeing 737-800 narrowbodies purchased at prices Millar terms "very, very attractive". Factoring in lease returns and disposals that together will take more than 100 aircraft out of its inventory, Ryanair's fleet will grow from 303 aircraft today to 375 in 2019.

In the year ended 31 March, Ryanair boosted traffic 5% to 79.3 million as Poland and Italy joined Ireland and Spain among the countries in which it claims the number-one position. The airline foresees a 3% rise to 81.5 million in the current financial year, which it expects to be a game of two halves: about 2% growth in the first six months, around 5% in the second. In line with the expectation of a busier off-peak period, Ryanair will ground 60 aircraft this winter, less than the 80 it parked over the last winter.

No new aircraft will arrive until September 2014. The first will be one of 11 delivered in the financial year 2015, followed by 35 the next year, 50 in each of the two years after that, and 29 in the financial year 2019.

ryanair fleet plan (may13) 

Costs are increasing at Ryanair, which expects its fuel bill to rise by 10% this year, and unit costs ex-fuel to grow 3% as a consequence of increasing sector lengths and Eurocontrol charges - or, as Millar refers to them, "the price of fresh air". Still, with "growth available as competitors consolidate, restructure or fail", Ryanair expects profits to at least remain stable as it opens seven new bases and some 200 new routes. Its profit guidance, of €570-600 million ($730-770 million), compares with a figure of €569 million, on revenues of €4.3 billion, for the year to March 31.

Explaining its buoyancy, Ryanair points to a unit cost ex-fuel of €29, estimating that the figure for nearest rival EasyJet is higher by €25, with more than half of this accounted for by higher airport and handling charges, and most of the rest by staff costs and sales and marketing expenses. Ryanair meanwhile puts its average fare at €48, and EasyJet's at €82,

ryanair fleet development (may 13) 

It is in this context that Ryanair expects the next five years to be a period of "controlled, profitable, organic growth" with a compound annual rate of 3-5%, That might not be as fast and frantic as the airline's last half decade, which brought a doubling of passenger numbers. But if all goes to plan, Ryanair will before the dawn of a new decade pass a major milestone: the 100-million mark.