Why Ryanair Is Hungry for Acquisitions

After a gap of more than a decade, Ryanair seems to have developed a sudden taste for dealmaking.

Earlier this year it surprised aviation observers by buying a chunk of Austria-based airline LaudaMotion — and the Irish company is now sniffing around for more acquisitions.

The likes of IAG and Lufthansa have created airline groups with multiple brands and CEO Michael O’Leary thinks that model is something Ryanair could copy.

The plan is eventually for a holding company to sit atop the group structure with separate airlines below. Along with its investment in LaudaMotion, Ryanair has a unit called Ryanair Sun, a charter airline operating out of Poland.

“The thinking is Ryanair Holdings will evolve probably into a holding company not dissimilar to IAG over the next two to three years, O’Leary said on an earnings call with analysts after the release of the company’s full-year results on Monday.

Once it gets approval from the European Union, Ryanair plans to up its 24.9 percent stake in LaudaMotion to 75 percent and will pump in around $118 million (€100 million) in start-up costs over the next couple of years.

O’Leary is still predicting a big shake-up of the European aviation industry but his prophecies of doom for certain carriers look more realistic given the situation at Norwegian—where IAG is reportedly set to make a third bid—and the fact that the price hovering around $80 a barrel.

“I also think there will be other opportunities within the M&A space, not that we will lead in that space,” O’Leary said.

“But for example, if – I mean if an IAG or somewhere Lufthansa were to acquire Norwegian, for example, I think it's inevitable that there would be significant competition divestments coming out of that, and we would certainly want to play a role in any kind of competition divestments that will arise out of a restructuring or a takeover by an either Alitalia or a Norwegian or any of the any of the other loss-making airlines at the moment. And at group structure, again, model on the IAG structure would enable us to build some scale to participate in those kind of processes."

Full-Year results

O’Leary’s comments came after the release of results showing Ryanair had another good year.

Revenue for the twelve months to the end of March rose 8 percent to $8.4 billion (€7.2 billion) with pre-tax profit up 10 percent to $1.9 billion (€1.6 billion). The improved performance came despite a drop of 3 percent in air fares, rising fuel prices and the fall-out from last September’s rostering error.

While Monday’s results might have been pleasing for the airline, they were overshadowed slightly by a gloomy outlook for the rest of 2018 and beyond.

Ryanair said it was on the “pessimistic side of cautious” for full-year 2019.

“Staff cost pressures appear to be the main factor, along with last year's fuel tailwind becoming a material headwind this year,” said analysts at Liberum in a note to investors.