Ryanair buys 175 jets – with speculation it will get into cheap (€10?) transatlantic flights
Date added: 20 June, 2013
Ryanair has signed a deal – first publicised in March – to buy 175 Boeing 737-800 jets. It may also buy another 200 Boeing 737 Max planes by the end of the year. Michael O’Leary is reported, at the Paris Air Show, as saying Ryanair had a unique opportunity to crack the transatlantic market and offer passengers fares of €10 or $10 to fly to the US. It would need 30- 50 suitable planes for that. O’Leary said: “There is an opportunity with the EU-US open skies to, on a fairly big scale, connect 15-20 European cities with 15 of the big US cities, almost from day one.” But back in March 2013 O’Leary’s right hand man Michael Cawley, said Ryanair’s business model (with high load factors and rapid turn-arounds) is not suited to the long-haul market and he did not “think it is ever envisaged that Ryanair would get into the long-haul market.” Boeing claims the 737 Max has 19% greater fuel efficiency over its rivals, and so 8% lower costs per seat. Long-haul budget flights have become popular in Asia in recent years with (AirAsia X, Jetstar, Jetstar Asia, Scoot) but it has been hard for airlines to make money with long-haul budget flights.
Ryanair buys 175 jets in plan for €10 transatlantic flights
June 20, 2013 (Irish Examiner)
By Vincent Ryan, Business Reporter
Ryanair marked its first ever attendance at an airshow by signing a deal to buy 175 Boeing 737-800 jets and hinting it may buy another 200 Boeing planes by the end of the year.
Ryanair chief executive Micheal O’Leary said that if the airline wanted to offer transatlantic flights for €10 it would need a fleet of at least 30 planes.
Speaking at the Paris Airshow, Mr O’Leary said he was considering ordering up to 200 Boeings 737 Maxs.
After signing the largest single order ever placed by a European airline — $15.6bn (€11.6bn) for 175 Boeing 737-800 jets — Mr O’Leary said he had a team in place working with Boeing on a deal for 200 more planes.
He said if the order was not at least 200 planes, “it wouldn’t be worth doing”.
The Ryanair team is expected to report by the end of September and it is possible the airline could place an order for the planes by the end of the year.
Ryanair’s interest in the 737 Max stems from its 19% greater fuel efficiency over its rivals, resulting in a reduction of 8% in costs per seat, according to Boeing.
However, Mr O’Leary hinted that the airline was giving serious consideration to rival Airbus’s A320, though Ryanair has not purchased any Airbus jets and the European planemaker has repeatedly dampened the idea.
Mr O’Leary said the company had a unique opportunity to crack the transatlantic market and offer passengers fares of €10 or $10 to fly to the US.
To take advantage of the opportunity the airline would require a fleet of 30-50 twin-aisle aircraft to serve hubs in both Europe and the US.
“There is an opportunity with the EU-US open skies to, on a fairly big scale, connect 15-20 European cities with 15 of the big US cities, almost from day one,” Mr O’Leary said.
…..Today, O’Leary sees these ancillary sales as key to the future of the business. He says he wants to work towards ever cheaper fares, with the revenue being made up by the “extras” that passengers are sold. It’s a bit like the Las Vegas casino hotels, he says, where hotel room rates are minimal, but customers spend their money at the gaming tables.
….At Ryanair, cost-cutting culture has been taken to an extreme that Southwest never practised. O’Leary says he bans the buying of biros for the office at Ryanair. “Hotels are great companies that offer free biros,” says O’Leary, “so I regularly purloin my biros and pens… and I’m happy to supply hotel pens whenever I can.”
…..Ryanair’s senior management is unapologetic about the relentless focus on costs: “We cannot offer low fares without having a really low-cost base,” says chief financial officer, Howard Millar. “So if that means we have to get up in the morning and have a fight with everybody, we will.”
Paris – Ryanair, Europe’s biggest budget airline, could start selling low-cost trans-Atlantic flights if it secures enough twin-aisle aircraft and gains access to cities in both Europe and the United States, its chief executive said on Wednesday.
“This will be a unique opportunity to bust open the trans-Atlantic services. Trans-Atlantic fares should start at $10 or 10 euros,” said Michael O’Leary at the Paris Airshow.
Any move into the competitive trans-Atlantic market would see the Irish short-haul carrier follow in the footsteps of Laker Airways, which began low-fare flights from London to New York in the late 1970s but went bankrupt in 1982.
Long-haul budget flights have become popular in Asia in recent years with Malaysia’s AirAsia X, Australia’s Jetstar and its Singapore-based affiliate Jetstar Asia, and Singapore Airlines subsidiary Scoot starting operations.
O’Leary said a long-haul business would have to be run separately to succeed, allowing management and staff of the short-haul business to remain focused on that.
A long-haul service would also need to start operations with a fairly large fleet of 30-50 aircraft in order to have economies of scale, he added.
“There is an opportunity with the EU-U.S. open skies to, on a fairly big scale, connect 15-20 European cities with 15 of the big U.S. cities almost from day one. But you need a fleet of 30, 40, 50 aircraft and not two, four or six,” said O’Leary.
The model would also be different from Ryanair’s short-haul one, which hinges on offering low fares on flights that are operated in a high-density single-class configuration in Boeing 737 aircraft. Passengers have to pay for frills such as better seats and checked-in baggage.
A long-haul service, for example, could feature a “premium” section, just like that offered by the Asian airlines. “There is 15 percent of the public who will pay for the frills and you will be mad to switch off from that,” said O’Leary.
It has, however, been tough to make money with long-haul budget flights. Laker Airways went bust in a recession in the early 1980s, and as its full-service competitors on the trans-Atlantic services cut fares in order to get more passengers on-board as demand fell.
There have also been questions about the profitability of the Asian airlines. Malaysia’s AirAsia X dropped services from Kuala Lumpur to London and Paris due to the cost of fuel and the relative inefficiency of the Airbus A340 aircraft, and due to competition from full-service airlines such as Emirates.
It also dropped services to India due to the country’s high taxes, showing how factors outside an airline’s control can affect its cost base and make a dent on thin profit margins.
However AirAsia X, which has 10 Airbus A330-300 aircraft, is more successful with its intra-Asia Pacific flights and is adding more services to destinations within the region.
It plans to list on the Kuala Lumpur Stock Exchange this year, and to use part of the proceeds to help pay for aircraft it has on order, which include 15 more A330s and 10 A350s.
Ryanair tells transatlantic passengers it has no interest in their business
Long haul is not part of airline’s future despite new Boeing deal
By IrishCentral Staff
22.3.2013
Ryanair tells transatlantic passengers it has no interest in their business
Photo by JFAleman
Michael O’Leary has shunned the chance to ever introduce the Ryanair model to transatlantic flights – days after signing a massive deal with American plane manufacturer Boeing.
Speculation that O’Leary would introduce his no frills service to US flights heightened after he ordered 175 new aircraft from Boeing in a $15billion deal.
But passengers hoping for a fares war on the transatlantic routes have been dealt a blow after Ryanair signalled it will not be entering the market.
O’Leary’s right hand man Michael Cawley, has told the Irish Independent that Ryanair’s business model is not suited to the long-haul market.
Cawley said: “I don’t think it is ever envisaged that Ryanair would get into the long-haul market.
“Long haul for us is flying to the Canaries or to Greece at the moment. Some of our flights are four and five hours. From Prestwick to the Canaries, it is five hours.
“As far as flying across the Atlantic is concerned, a lot of the things we do, like 25 minute turnarounds, are not that relevant in the context that you are not going to get an extra flight like you will from Shannon to London if you do it often enough during the day.
“We just signed up a deal with Boeing which is going to keep us busy for the next six or seven years growing in Europe.
“If an opportunity came along and if long-haul aircraft prices declined dramatically, it might be possible to get into the business then, but there is no imminent prospect of that.”
Ryanair has claimed it will use the “open skies” agreement between the European Union and the US to launch transatlantic flights with fares from just £6.
Within the next three or four years, Ryanair plans to launch a new airline with a fleet of up to 50 aircraft to several destinations in North America.
Michael O’Leary, the airline’s chief executive, said the cheap tickets would be possible by flying to secondary airports such as Baltimore and New York Long Island Islip Macarthur, and selling in-flight extras such as food, drink, duty-free items and entertainment.
“By mid-2009, we will be carrying 70 million passengers at 23 bases across Europe,” said Mr O’Leary. “It will be relatively straightforward for us to do a deal for 40 to 50 long-haul aircraft and connect these bases transatlantically. There would be no-one to touch us.”
The flights would also include a premium service for passengers wanting a little more in-flight comfort.
This week low-cost carrier Zoom announced that it is to launch flights to New York from Gatwick on June 21, with prices from £129 one way, including all taxes, fees and charges.
The carrier, founded by Scottish travel industry entrepreneurs John and Hugh Boyle, was started three years ago and already operates from Britain’s regional airports to various Canadian destinations.
Zoom will offer a two-class service, economy and premium economy, with designated seating and a meals service. A spokesman for the airline said its service would have “plenty of frills”.
“You cannot put a sheaf of paper between the prices charged by British Airways, Virgin Atlantic and the American carriers on the New York route and it is high time that passengers had a better deal. We are offering savings of up to 70 per cent on these flights,” said Mr Boyle.
The service comes in advance of a new “open skies” agreement between the European Union and the US from next year, which will allow airlines to operate from any European city to any US destination, and vice versa. The increased competition is expected to lead to further price falls.
Low-cost long-haul services are likely to become more commonplace in the next few years. Last year Oasis Hong Kong Airlines announced fares to the Far East from as little as £75 one-way, Air Sahara to India from £130 and Air Asia X to Kuala Lumpur from under £100.
Budget airline reins in expansion strategy and will hand money saved back to shareholders
Ryanair has pulled out of talks with Boeing for an order of 200 aircraft and will scale back investment in planes from 2011. The move is seen as a sign that the era of rapid growth in budget airlines and their fleets is coming to an end.
Ryanair boss Michael O’Leary had previously threatened to ditch his ambitious expansion plans if he could not agree a deal with Boeing by Christmas – and hand the money saved to shareholders instead.
While Ryanair and Boeing were able to agree on pricing, the Irish carrier terminated the negotiations because the American plane-maker wanted to change delivery conditions.
O’Leary said: “Ryanair has made clear to Boeing that we will not order aircraft if we believe that either the pricing or the other contractual terms and conditions will be inferior to those which we currently enjoy, as this would not be a wise or sensible use of shareholders’ funds.”
The breakdown of talks will not affect Ryanair’s planned delivery of 112 Boeing aircraft during the next three years. It is also scheduled to take delivery of 48 planes next year. But it will now bring forward plans to “significantly” reduce growth and capital expenditure, in order to hand back money to shareholders between 2012 and 2015.
“We have no plans to reopen discussions with Boeing or any other aircraft manufacturers,” O’Leary said. “Instead we will focus our efforts on maintaining Ryanair’s strong traffic and new route growth into 2010 and we look forward to briefing shareholders in the first quarter of the new year with a revised strategy, which will comprise much reduced capital expenditures through 2011 and 2012, thereby generating substantial surplus cash balances for distribution during the period 2012-2015.”
He did, however, strike a conciliatory note by saying “perhaps in future there may be other opportunities for Ryanair and Boeing to work together to our mutual benefit during the period from 2013 onwards”.
The founder of rival Easyjet, Sir Stelios Haji-Ioannou, said: “I’m delighted that Michael O’Leary now accepts what I’ve been saying for over a year – the era of endless fast-growth and ever larger aircraft fleet is near its end. Low-cost airlines are now the mainstream way to fly in Europe. As such, it’s getting difficult to find significant new passenger traffic which is profitable.”
He added: “Using shareholders funds to finance profitless growth by buying more and more aircraft from Boeing and Airbus is no longer acceptable. I look forward to companies like ours becoming ‘normal’ and starting to pay dividends.”
Arbuthnot analyst Gerald Khoo said: “The challenge faced by Ryanair is how it delivers earnings growth when its capacity growth slows or ends. Given the already low cost base, further significant unit cost savings will be difficult to deliver. Average fares would no longer be diluted by the discounting associated by new routes and rapid growth.
“However, with stable unit costs and stable capacity (and assuming a stable capital structure), average fares would have to increase in order to generate earnings growth in the long term.”
