With seven of its Boeing 737-200s due to be retired, the Irish airline has decided that they will not be replaced

Irish low-cost carrier Ryanair is to cut capacity growth this year by not replacing seven aircraft damaged in maintenance, as competition in the sector hits the airline's profits.

Ryanair chief executive Michael O'Leary says Irish maintenance provider FLS Aerospace has agreed to pay around $10 million in compensation to the carrier for the retirement 18 months early of seven Boeing 737-200s, which allegedly sustained potentially damaging scribe marks on their fuselages during paint stripping (Flight International, 10-17 February). O'Leary says the aircraft will not be replaced, taking the carrier's capacity growth from 20% forecast to 16% this year. Traffic growth will also slow to 20% over the next 12 months. The airline is receiving deliveries of new Boeing 737-800s as part of an 80-firm, 80-option order placed in 2001, with 27 aircraft entering service this year.

"In the current competitive situation, it is quite good to have slightly fewer aircraft," says O'Leary. The airline is phasing out 13 remaining -200s, which will leave service by December next year, he adds.

Capacity growth could return to forecast levels, however, if International Lease Finance lowers its lease rates for six 737-300s operated by Ryanair's UK subsidiary Buzz Stansted, he adds. Failure to halve the rates, negotiated by previous Buzz owner KLM UK, would result in closure of the unit, says O'Leary.

Ryanair suffered its first fall in profits last year, to €227 million ($272 million) for the year to March compared with €239 million for the same period last year. O'Leary says the decline is attributable to the euro/sterling exchange rate and a tougher market. "The level of competition we are facing from many new entrants is higher than we had thought, and the massive rise in overall capacity has led to a reduction in fare levels across the industry," he says.

O'Leary adds the next 12 months will be "a bloodbath" as several loss-making European low-cost carriers will cease operations. Joachim Hunold, chief executive of Europe's third largest no-frills carrier Air Berlin, says Ryanair's profit decline shows that "increasing passenger numbers by using every technique possible does not lead to profits".

O'Leary says the forthcoming crisis in the no-frills sector vindicates Ryanair's decision to opt for a fleet of all-189 seat 737-800s, rather than a mixed fleet. "Higher seat density reduces the unit cost and lowers our break-even load factor, and thus increases our profit margin."



Source: Flight International