Monday, 18 May 2020

Ryanair warns of a price war ahead when it starts flying again in July and the German and French governments are acting illegaly

The Chief Executive Officer of Ryanair, Michael O’Leary has told Bloomberg Markets: European Open show, that the support by the German and French governments for their airline industries is "illegal" and will "distort the market." 

The bombastic boss of the low-fare-high-fee carrier made the outlandish comments just after Ryanair's coffers were swelled with a massive £600 million / $726 million loan backed by the U.K. government. 

Despite the European Union agreeing on the bailouts and confirming they are lawful,  Ryanair insists that are not. It says when it returns to normal scheduled flying from July, the competitive landscape in Europe will be distorted by unprecedented quantums of State Aid  "in breach of EU rules" under which over €30bn has been gifted to the Lufthansa Group, Air France-KLM, Alitalia, SAS and Norwegian among others. Because of this,  it warned there would be a price war on its newly restored routes where it will offer significant price discounting at below cost selling to combat the same tactics Ryanair believes those flag carriers with huge State Aid war chests will do - despite no evidence.

Ryanair says unlawful State Aid – to date
Lufthansa Group€12.4bn plus
AF-KLM Group€10.1bn plus
Alitalia€ 3.5bn plus
TUI Group€ 1.8bn plus
SAS€ 0.8bn plus
Finnair€ 0.7bn plus
Norwegian€ 0.3bn plus

Earlier Ryanair reported its full-year profit of €1,002m (excl. hedge ineffectiveness), compared to €885m last year, so it is not like the airline is struggling to survive.  Other highlights the airline says were carrying 149 million passengers, it opened 5 new bases and started 390 new routes and its revenue per passenger increased by 6%.

The airline continued to make huge amounts of money on the sale of ancillary products, which grew by 20% and amounted to €2.9 billion with more people choosing Priority Boarding and Preferred Seat, so they could sit together.  Total seat sales revenue was €8.5 billion driven in part by more passengers and higher fares. 

Ryanair is also seeking to mislead and confuse passengers with remaining its Boeing 737 MAX 8 aircraft to Boeing 737-MAX-200. Boeing is currently guiding customers for a late-summer return to service in the US for the B737-MAX aircraft, but the Irish budget carrier say it will be at least October before "we receive our first MAX-200 aircraft. We remain fans of, and committed to, these “gamechanger” aircraft." despite there inherent safety issues. However, it is currently reviewing short-term growth plans and negotiating with Boeing to reduce planned deliveries over the next 24 months to reflect slower traffic growth post-COVID-19 in 2020 & 2021.

Despite making huge profits, the firm announced last week that it has reduced its office headcount in Dublin, Stansted, Madrid and Wroclaw by over 250 through a combination of probation/fixed term contract ends, resignations and redundancies, as these people will not be required to return to work on 1 June, when the Ryanair offices reopen, due to the substantial decline in traffic the Ryanair Group Airlines is facing in 2020.

Group Airlines

During FY20, the Ryanair Group continued to evolve. Buzz increased its fleet to 45 B737s and expanded outside Poland with new bases in Prague and Budapest.

Lauda underperformed in FY20 with fares lower than expected, due to intense price competition from Lufthansa subsidiaries in its core Austrian and German markets. FY20 traffic, however, grew to 6.4m at high load factors.  In April, David O’Brien (former Ryanair CCO) joined the Lauda management team as Joint CEO.  Due to Covid-19 restrictions, the Lauda fleet has been grounded since 17 March.  With costs running ahead of other Group airlines and Lauda’s main competitor, Austrian Airlines, expected to receive an €800m State Aid bailout, Lauda has had to completely rethink its strategy and significantly lower its growth plans.  Its management team are implementing restructuring and cost cutting plans and are currently in discussions with its people and its unions in relation to staff savings to secure the future of its Vienna A320 base.  Failure to agree meaningful cost reductions on 20 May will result in the Vienna A320 base being closed on 30 May with over 300 job losses.  Lauda has already abandoned plans to operate a base in Zadar for the Ryanair Group.

Malta Air, which became the 4th Group airline last summer, grew strongly in FY20.  With a fleet of almost 120 aircraft, it has taken over the Group’s French, German, Italian and Maltese bases.  Like Buzz, Lauda and Ryanair DAC, it is also reviewing all areas of its cost base so that it remains competitive in its core markets where it will compete against government bailed out legacy carriers.

Ryanair DAC performed well in FY20 and opened new markets in Armenia, Georgia and Lebanon.  Its fleet, however, has dropped to 275 B737s as both Buzz and Malta Air took over flight operations for the Group.  Punctuality improved to over 90% (excl. ATC delays) thanks to Ryanair’s investment in new handling arrangements in Stansted, Poland and Spain.  In Sept., Eddie Wilson was appointed as Ryanair DAC’s CEO.

The airline is yet to pay out refunds to hundreds of thousands of passengers who have had their flights cancelled due to the current health crisis, some analysts have said the airline owes as much as €6.7 billion to passengers. 

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