It looks like Ryanair is preparing itself for a major shakeup of the European airline industry. We've heard it talk about struggling competition before, but things are getting much tougher out there.
Ryanair plans to use its new group structure to take advantage of further consolidation in the European airline industry by snapping up airlines, jets, or airport slots that might become available because of competition rules.
The likes of Wow Air, Primera Air, and BMI Regional have all disappeared in the last year, with struggling Thomas Cook currently looking to offload its airline division.
All this change gives a stronger player like Ryanair the chance to cement its position of power even though it’s suffering from the tough operating environment.
The carrier earlier this year announced a group reorganization, with CEO Michael O’Leary becoming head of larger Ryanair Group, which would control subsidiaries including the main airline Ryanair DAC, Laudamotion, and Buzz (formerly Ryanair Sun). Part of the advantage of this structure is the mix of aircraft manufacturers among the different units.
“We see ourselves now being well-positioned, particularly if there is further competition divestments, which I think is inevitable as IAG, Lufthansa, and possibly Air France-KLM look to participate in more consolidation,” O’Leary said on an earnings call with analysts on Monday.
“You look at Lufthansa, for example, at the moment, [they] are interested in Condor/Thomas Cook. It’s inevitable that there would have to be significant consolidations coming out of that kind of a merger [if it] were to take place. And we now can do and participate in those mergers: a, because we’re unionized, which I think would previously have been a blockage; and b, because we are both an Airbus operator and a Boeing operator.”
Ryanair’s desire to play a part in further M&A activity comes as it announced a hit to profitability.
A mix of falling fares and higher fuel costs took their toll, leading to a pretax profit of $1.1 billion (€948 million) for the year to the end of March, down 41 percent on 2018. Excluding the impact of Lauda, profitability fell by a more modest 30 percent to $1.3 billion (€1.1 billion).
The good news for Ryanair was the continued surge in ancillary sales, up 19 percent to $2.7 billion (€2.4 billion), helping total revenue growth of 6 percent to $8.4 billion (€7.6 billion).
“In our view, Ryanair remains the long-term winner in the European airline industry, based on its leading market position, extensive network, low unit costs, and strong balance sheet,” said Gerald Khoo, an analyst at broker Liberum in a research note.
“We see tougher market conditions in the short term as positive for the stronger airlines in the long term, since this clears out weaker competitors and aids consolidation in the market. However, Ryanair is not immune to the impact of these short-term headwinds.”
Ryanair is one of the many airlines dealing with the fallout from the worldwide 737 Max aircraft grounding, following two fatal crashes.
The company has delayed delivery of its first five aircraft until winter 2019, subject to European safety guidance. However it still expects to have a larger tranche of the Max order — 42 aircraft — operating for summer 2020.
“We are in continuing almost daily dialogue with Boeing and with the European regulator, EASA. We’re reasonably confident that the aircraft will be approved to return to service some time later in July or August of this year,” O’Leary said.
However, Ryanair is expecting some compensation for the delay.
“We have frozen all predelivery payments to Boeing since the aircraft grounding. We will resume the predelivery payments once we have certainty from Boeing on when these deliveries will take place,” O’Leary said.
“We do expect that Boeing will cover the lost profits from the five aircraft that we haven’t operated this summer, but it’s not a material number and will form part of our return to service dialogue at Boeing.”
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Tags: air france-klm, europe, iag, low-cost carriers, lufthansa, m and a, ryanair, thomas cook
Photo credit: Two Ryanair aircraft. The airline group is setting itself up to take advantage of further European airline consolidation. Dylan Agbagni (CC0) / Flickr