Ryanair Plans to Capitalize on Norwegian’s Problems

There’s little love lost between European low-cost rivals Ryanair and Norwegian.

The Irish carrier’s acerbic CEO Michael O’Leary has suggested Norwegian is doomed and last year tensions rose over pilot recruitment. It’s amazing to think that at one stage they were supposed to be working together.

Even though Ryanair has had its fair share of issues recently, Norwegian's problems are greater. Its finances have come under increasing scrutiny of late with rival airlines contemplating a bid. Investors have warned that its balance sheet is stretched and it has made a risky bet on fuel prices.

Now, Ryanair is waiting for its rival—and perhaps others— to collapse in the hope it can gain an advantage in an increasingly competitive market.

“I think what will really drive the fleet plan over the next number of years will be – the rate and pace of airline failures and consolidation in Europe this winter,” O’Leary said on an earnings call this week after the release of its first-quarter results.

“Clearly, most of our – and most of the market focus will be on Norwegian, which continues to lose money hand over fist. And we would – I think the market generally expects Norwegian will not survive in its current form.

“Whether it's taken over by somebody else or just goes bust this winter, we don't know. But I think that will significantly alter both our growth prospects in certain markets, the availability of pilots in other markets and may significantly affect the valuation of the lease rates on Airbus aircraft going forward.”

There’s also the small matter of air traffic control issues across Europe. In its earnings release earlier this week, the carrier said strikes and staff shortages had forced it to cancel more than 2,500 flights in the first quarter.

Along with other airlines it has now initiated legal action “against the French Government to keep Europe's skies open during these unacceptably frequent French ATC [air traffic control] disruptions.” But O’Leary said fewer airlines might help lesson the impact.

“Will it [air traffic control issues] become a growth obstacle? It is probably a growth obstacle, but a lot depends on how much capacity disappears out of the system this winter with oil at $80 a barrel. I mean, if there's a bankruptcy at Norwegian or a significant slowdown in their growth plans of loss-making airlines like Norwegian, Alitalia continues to be loss-making, SAS is loss-making. If there was a material change in that kind of capacity, then it would free up some ATC [air traffic control] services.”