O’Leary ready to pounce as Ryanair’s rivals crumble

Airlines are facing their worst crisis in a generation and Michael O’Leary is in no mood to waste it. As rivals have collapsed and retreated, the Ryanair chief executive is on the hunt for opportunities to increase the Irish airline’s dominance of European airspace.

“I have never in my 30 years in the industry seen such a clean-out,” Mr O’Leary told the Financial Times in an interview. “The real seismic change from Covid will be the growth opportunities across Europe. They are much greater than after the financial crisis or 9/11.”

Airline capacity has been gutted during the pandemic, creating a window for survivors to fill the gaps once people start flying again. Thomas Cook and Flybe have collapsed while Norwegian — until recently a big operator in the European market — has entered administration.

Mr O’Leary predicted that 100m of his competitors’ seats would be taken out over the next 18 months, around a 15 per cent reduction on normal passenger traffic.

“Somebody has to step up and take that capacity” he said, adding that he was in discussions with airports in Italy and Spain, which had been Norwegian customers, about filling those slots with Ryanair planes.

Mr O’Leary has cultivated a reputation for outlandish claims as he has overseen more than two decades of near continuous growth at Ryanair, based on slashing costs and maximising efficiencies to undercut rivals and take their passengers.

But low-cost carriers are widely expected to lead the recovery in flying because the short-haul and leisure markets they serve will rebound faster than intercontinental and business travel.

Traditional flag carriers, such as British Airways, Air France and Lufthansa, rely on using their short-haul networks to feed passengers into their hubs and on to long-haul flights.

“The shape of the demand recovery favours airlines exposed to short-haul leisure traffic,” said Daniel Roeska, aviation analyst at Bernstein.

Or, as Mr O’Leary put it: “Everyone who has been trapped and gone on holiday to Bognor Regis will want to go to Portugal, Italy and Greece.”

Predictably, an executive who has historically used industry downturns to cut his own costs is driving a hard bargain. “The question is which airports are most commercial about regrowing their traffic quickly in summer 2021,” he said.

London Stansted was “all over us” when UK rival easyJet announced it would close its base there, he added. Ryanair hoovered up more than 300 of easyJet’s weekly slots at the airport for next summer.

Still, the initial impact of the pandemic on Ryanair has been bruising. It expects to carry just 38m passengers this year, a fifth of 2019’s number, and suffered a net loss of €197m for the six months to September. Losses in the second half of its financial year are expected to be greater, especially after the fresh wave of flight cancellations this week, as countries closed their borders to the UK over concerns of a new strain of the virus.

Line chart of Change in share price this year (%) showing Investors bet on low-cost carriers leading the recovery

The latest uncertainty came as a blow to an industry hopeful that an uptick in travel over Christmas could offer some much needed cash during the lean winter months.

Despite this, Andrew Lobbenberg, head of airlines research at HSBC, agreed there was an opportunity for Ryanair to grow as flag-carriers lost out on long-haul flights and weaker rivals disappeared.

The Irish carrier has also signalled its ambition by confirming a discounted order for Boeing’s troubled 737 Max aircraft, which will cut its costs further when it begins taking deliveries from early next year.

But Mr Lobbenberg cautioned that any expansion was not “going to be immediate. Everything is gradual and increasingly it is hard to anticipate the pace of it”.

While easyJet is regarded as having taken a more conservative approach to the crisis, Hungarian low-cost carrier Wizz Air has promised to take on Ryanair as it expands out of its eastern European heartlands to become a regional player.

Dirk-Maarten Molenaar, a partner at Boston Consulting Group, said legacy carriers were also becoming more flexible and the “last thing” companies such as BA wanted to do was make significant cuts to the short-haul networks they need to feed into their hubs.

Despite the recent pressures, Ryanair’s share price is higher than it was a year ago — and has risen by about a quarter since the start of November — as investors have been encouraged that the rollout of Covid vaccines would fuel a recovery.

Mr O’Leary said there had been a “noticeable but single-digit” uplift in bookings over the past month, but from a “very, very low base”.

He conceded that his plans were dependent on the swift rollout of vaccines by the governments he regularly savages for incompetence and inefficiency. “They will mess about but ultimately they will throw so much money at the vaccine they will get there,” he said of the UK government.

Ryanair has a “working assumption” that it will fly between 90m and 130m passengers in the year to March 2022, a wide spread based on how quickly the demand for travel returns. It is well below 2019’s nearly 150m passengers, a number the chief executive did not see returning until at least 2023.

“We have consistently been planning for a reasonably quick recovery and constantly disappointed, what has changed is the vaccines are arriving,” said Mr O’Leary. “The issue for our industry is, is that recovery in May or August? We just don’t know.”

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