Despite announcing a $4 billion deal for another 70 Boeing 737-800s, Ryanair was at pains to reassure investors that it is not making a dash for growth but rather keeping current expansion rolling for five more years.

Even so, the plan rests on a doubling of passenger numbers to reach 70 million by 2012. Ryanair is already prepares to take the 100th aircraft of the 155 737-800s that it ordered back in 2001. The latest order, together with 70 options, covers deliveries in 2008-2012, allowing double-digit growth to continue.

Ryanair chief executive Michael O'Leary is keen to reassure investors that the carrier is not overexpanding, stressing that "careful, controlled growth is the order of the day". A further sign of this desire to keep the financial community on side was the rare presence of the carrier's chairman, veteran airline investor David Bonderman, at the press conference to announce the order. "With this new order and new pricing in place, Ryanair expects that unit operating costs, excluding fuel, will continue to fall in each of the next five years," Bonderman says.

O'Leary estimates that the new aircraft, which will come with blended winglets, will be 50% more fuel-efficient than the nine remaining 737-200s that will shortly leave the fleet. He says the new order has "improved economics" compared with the previous 155 aircraft deal and expects around 20-30% of the deliveries to be put on operating leases.

O'Leary adds that the carrier has identified 48 potential bases in Europe, but would only need somewhere around 35 to meet growth requirements. Ryanair currently has 12 European bases. The new bases will be concentrated in Western Europe as Ryanair continues to shy away from a push into Eastern Europe. "Western Europe is where the consumer is really being screwed," he says.

O'Leary dismissed the idea that his warnings of a bloodbath over the winter period had been overblown. "If you were working for the likes of SAS, Alitalia or Volare, you would think the bloodbath was pretty terrible," he says. He added that the yield picture for the 2004-5 winter season benefited from soft comparisons, and also pointed to the fuel hike that was affecting all carriers: "Did we overplay it? No. Our fourth-quarter guidance was a bit better than the previous Armageddon, but it's still pretty bad out there." Earlier in the year Ryanair had warned of a potential 5-10% fall in yields over the winter, but is likely to come in at the 5% mark.

The blended winglets, which will be retrofitted onto all Ryanair aircraft, will reduce fuel costs by at least 2% and possibly as much as 4%. O'Leary is confident enough of the benefits of the modern fleet and the winglets to be sanguine about the effects of a fuel tax. "It doesn't affect differentiation as long as it is applied equally," he says. "And it brings into focus the advantage of winglets."

O'Leary also waned that his carrier may refuse to grow at London Stansted if it is forced by airports group BAA to pay for what it considers to be a costly expansion plan, which he describes as a "£4 billion folly".

The growth plans will see the Ryanair payroll grow from around 3,000 to 5,500. The carrier currently has around 80% of its 800 pilots on its staff, with the rest employed on a contract basis. O'Leary predicts that this ratio will drop to around 70% as the carrier picks up pilots from the likes of Volare, SAS and Eastern Europe.


Source: Airline Business