For most airline chief executives the challenge is how to build up a cash pile in the first place. For Ryanair's Michael O'Leary, the problem has been spending it.
Another profitable year - more so than originally envisaged after Ryanair lifted its full-year outlook range to €490-€520 million ($627.3-$665.7 million) - is further swelling its cash position. That reached €3.9 billion as of the halfway stage of its current financial year. While €500 million will this month be used up in the form of another shareholder payment, that will be quickly replenished; the carrier has grown its cash position by €1 billion over the last 12 months.
The lack of a major outlay is not for the want of trying. Ryanair has been working to strike a bulk aircraft order which could replicate the deal that facilitated its growth over the last decade, and, six years on, is still trying to buy Aer Lingus.
"If you look at their results, their cash position is high. So what would anyone want to do with that much cash?" asks Patrick Edmond from Dublin-based consultancy e2consult.
He believes the three most obvious outlets for Ryanair's spending are the acquisition of an airport, an airline or aircraft. The carrier has ruled out buying into London Stansted airport, while its third takeover bid for Aer Lingus is again the subject of deeper investigation by the European Commission. It remains to be seen how regulators will view its recently submitted remedies package.
"Otherwise it might be they are interested in going out and buying someone like Wizz, which would take out a competitor and open the door again to Airbus," says Edmond. Historically though Ryanair - apart from an early deal to buy Buzz and its Aer Lingus campaign - has preferred consolidation by exploiting opportunities at airports where there are airline failures or major retrenchments.
"They have a very large pot of money and are taking the last of their 737s [this year]. One of the fundamentals of their model has been operating a young fleet they can dispose of before the D-check. So I wonder if there is an aircraft order in the offing," says Edmond.
Certainly an order remains on O'Leary's agenda. "I do think we will place another aircraft order, but I think it will be over the medium-term. I don't expect to place any aircraft orders over the next 12 months," he said during a first half results press conference in London on 5 November.
"We are in a very comfortable position. We've been generating a lot of cash. So we are one of the few airlines that can actually order aircraft and pay for them," he says. "We want to build up cash because some time in the next two to three years there will be a large aircraft order and we think the next aircraft order will be paid for much more with cash than debt."
Edmond says covering, for example, pre-delivery payments on a sizeable order could give it a cost-advantage over rivals on aircraft financing. "They effectively got free aircraft for five years [with their last order]. That's not going to happen again. But it's about having a relative cost benefit against their rivals and I think they can achieve it," he says.
Ryanair had been in talks with Boeing over a potential 200-strong order for 737-800s before these broke down at the end of 2009. Efforts to re-engage a bidding contest, including drawing in the Comac C919, have so far failed. O'Leary says talks rather than negotiations are taking place with Boeing, while it will approach Airbus again before the year-end - though he says recent attempts at rapprochement have been rebuffed by the European airframer.
O'Leary's main interest is in current-generation aircraft, rather than the updated variants, and he sees a potential opportunity at Boeing for deals as the manufacturer prepares for entry-into-service of the re-engined 737 Max. "I think there will be more price opportunity to acquire end-of-line next-generation 737s," he says, adding that as an end-user of the aircraft it would be less concerned about their potentially lower resale value compared with banks or aircraft lessors.
Interestingly this marks a reversal of the situation under its last bulk aircraft deal, the timing and terms of which enabled it to take aircraft at low cost and later sell them at a strong price. "The challenge [more recently] has been selling 10 aircraft a year," says CTAIRA analyst Chris Tarry. "If you look at their fleet now, they have more aircraft than they were expecting. That means more older aircraft, though they still have a very young fleet."
O'Leary says additional maintenance costs from operating aircraft for longer could be offset by lower ownership costs. He also sees the market for second-hand aircraft, a cyclical business, eventually beginning an upward trajectory.
The aircraft issue is moving to centre stage given that this year Ryanair takes the last seven of the remaining Boeing 737-800s it has on firm order. This will take its fleet to just over 300 of the type.
O'Leary though sees no rush for a new commitment. "At this point of time we already have more aircraft than we need for summer growth [in] 2013. We don't feel under any pressure to place another aircraft order until we get to summer 2016 or even 2017.
"Capacity growth next year will be about 4% just with the new aircraft deliveries [this autumn and winter]. We could grow at another 4% for the following two years just by grounding fewer aircraft in the winter. A lot more of our growth over the next two years may come in the winter period," he says. "So there is plenty of growth available to us."
Ryanair expects passenger numbers to reach 79 million this financial year, growth of around 4% on the previous year. This compares to 7% in the previous two years, albeit from a lower base figure, and strong double-digit growth in the three years before that.
Financial year ending
| || || || |
|March 2013 (est) ||79.0m ||4.0%|
|Dec 2012 ||76.5m ||7.3%|
|Dec 2011 ||71.2m ||7.1%|
|Dec 2010 ||66.5m ||30.6%|
|Dec 2009 ||50.9.6m ||19.8%|
|Dec 2008 ||42.3m ||22..3%|
"It has been a growth strategy. If you stop growing [as fast], what do you do in mature markets? The environment is not the same as we saw ten years ago." notes CTAIRA's Tarry, pointing to the untapped markets and strong economic growth which accompanied the rise low-cost carrier traffic in Europe.
In a lower-volume environment - and higher fuel-cost climate - there is more emphasis on improving yields and ancillary revenues. Over the six months to 30 September, Ryanair's average yield rose 6% and is likely to be 4% higher for the full year.
"It's a strategy of increasing traffic value rather than just volume. In the last two or three years they have managed to get their fares up," says Tarry. Ryanair's average fares were €53 as of 30 September - still lower than rivals, but €9 higher than the same point two years ago.
| || || || |
|Average yield ||€53 ||€50 ||€44|
Source: Ryanair first half presentations 2010-12
At the same time O'Leary says there has been no cannibalisation of its existing priority boarding from the airline's reserved seating initiative - which helped lift ancillary revenue 12% in the first half to €12 per passenger.
"But what is Ryanair's great advantage is it is the lowest cost," adds Tarry.
Peter Morris, chief economist at Flightglobal's Ascend consultancy, echoes this view. "The benchmark is about what the national carriers are doing," he says. "The other people on the same playing field have rather more issues.
"They could use the opportunity [of slower growth] to re-optimise the network to make more money than before. It could be they could make more money by not growing," Morris says.
The Ryanair model has been hugely successful, in what has been a largely struggling European market over the last decade. Another expected profit this year will take Ryanair's net profits over ten years to more than $4 billion - a run in which only rocketing fuel costs saw it post a loss in 2008.
E2consult's Edmond believes the growth model is most the natural state for Ryanair. And it appears O'Leary does too. Despite the lack of an imminent aircraft order, Ryanair has a 50% jump in passenger numbers to 120 million in its sights over the next decade.
"I think a lot of the growth over the next five to ten years will come from replacing high fare, loss-making, short-haul flights from flag carriers and switching them onto Ryanair," says O'Leary.