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Ryanair is Europe's largest airline, the largest low-cost carrier, and one of the world's largest airlines as measured by international passengers carried. Ryanair has its largest base at London Stansted Airport, and second-largest base at Dublin Airport. Ryanair currently operates a network covering over 40 bases and 1,100 routes (with over 1,300 daily departures) across 26 countries, connecting some 155 destinations. Ryanair operates a fleet of over 250 B737-800 aircraft, with a large order backlog and employs more than 8,000 people.
Location of Ryanair main hub (London Stansted Airport)
Ryanair share price
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider Ryanair fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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Aer Lingus grows FY operating profit, but needs further cost cuts. Meanwhile, IAG bid inches forward
Aer Lingus grew its operating profit in 2014, although the net result fell into loss due to a one-off pension scheme payment. Unit revenues increased across the network, helped on European routes by modest capacity reduction, but also achieved on the North Atlantic in spite of double digit growth.
However, unit costs increased too, albeit a little more slowly than unit revenues, and have been rising for five years. In 2014, this was partly explained by costs of further long haul growth before assets are fully utilised. Nevertheless, Aer Lingus has rightly identified unit cost reduction as a priority to drive margin expansion.
This will be vital, regardless of the outcome of IAG's bid for Aer Lingus at EUR2.55 per share (EUR2.50 in cash and EUR0.05 in dividends). The Irish government, holder of 25% of the company, now seems to be inching towards the IAG deal. However, there could be a sticking point in its recent request that IAG extend beyond five years the commitments it has offered over the continued use of Aer Lingus' Heathrow slots on Irish routes.
Just as Rome was not built in a day, the battle among the airlines at its main airport will also take its time to play out.
A year ago, CAPA examined the growing levels of competition at Rome Fiumicino. The fight was not only between the disruptive LCCs and the well-established, but struggling, Alitalia. It was also increasingly between the LCCs themselves. At that time, Ryanair had just entered the airport for the first time, Vueling was about to establish a new base and to inject massive capacity growth there and easyJet also planned strong growth. Alitalia faced further erosion of its market share.
A year on and the battleground continues to be fiercely contested. Vueling plans further huge growth this summer, Ryanair is to transfer more routes to Fiumicino from Ciampino and easyJet, while taking a relative pause for breath, is still set to grow capacity at a double digit rate this summer. Alitalia's share continues to fall, but at least it has ensured its survival after receiving an investment by Etihad.
Both Ryanair and easyJet recently reported strong progress during the quarter ended Dec-2014. Both demonstrated that losses in the traditionally weak winter period are narrowing. Ryanair even looks set to report a profit for its winter half year and raised its guidance for FY2015 (March year end).
Ryanair cautioned that high levels of fuel hedging would limit profit growth in FY2016, especially as it expects lower fuel costs to add to downward pressure on fares. easyJet too has fairly high levels of fuel hedging. Nevertheless, both look well positioned to take further market share from higher priced legacy carriers, building on initiatives around product and service quality and targeting business travellers (although they are at different stages in these areas).
Where there is a marked contrast between Ryanair and easyJet is in average revenue per passenger. Ryanair's lower costs allow it to sustain lower fares profitably. For many years, the two have mainly attacked different markets, but head to head competition between them is on the increase. In this report, we analyse the extent of their overlap.
Ryanair CEO Michael O'Leary's latest musings about a possible low cost transatlantic project indicate that he believes any such operation would need average fares below EUR100. This raises the question of just what is a sustainable fare in this market? Until recently the exclusive preserve of legacy full service carriers, the North Atlantic has witnessed the entry of LCC Norwegian over the past year.
However, it was always possible to find relatively low fares and Norwegian's pricing, while lower than that of premium airlines such as British Airways, does not appear to be substantially lower than the average all-inclusive economy fare of AEA member airlines between Europe and North America.
Mr O'Leary's thoughts suggest he would aim for a discount of 60% or more to legacy airline fares. This would undoubtedly drive volume. It would also be greater than the equivalent average discount offered by Ryanair in short haul. However, it may be difficult to find and sustain the cost savings necessary to make this profitable on long haul routes, even with a high fare premium cabin as part of the model.
CAPA's top 10 stories of the year - ranked by number of visits - is, we confess, weighted in favour of those which appeared in the first part of the year, but we offer them as holiday reading as we look back on another eventful 12 months. Ryanair is as always a popular topic; its Feb-2014 report topped the number of visits to a CAPA report by a long way. Our other SWOT analyses also feature, with Singapore Airlines and easyJet "swotted" in the Top 10.
Reports driven by CAPA's Airport Construction and Investor Databases have also been strong performers throughout the year; the unique and extensive detail they contain makes for compulsive reading for airport-related activities. And Dubai Airport's relentless rise through the capacity ranks secured it a place in the Top 10 as well.
Etihad has been a news leader during 2014, ending as CAPA's Airline of the Year in recognition of the structural change it is introducing to the world's system. Singapore Airlines, also an agent of change in some ways, now with three low(er) cost airline subsidiaries, appeared twice and the A380 and A350 also attracted attention.
We thank all CAPA Members and other visitors for your great support in 2014 and look forward to continuing to provide you with industry leading analysis, news and data in 2015.
IAG's 18-Dec-2014 announcement that it had offered to buy Aer Lingus four days earlier was a surprise. At no time since the Irish airline's 2006 IPO had anyone other than Ryanair shown interest in acquiring Aer Lingus. Moreover, with only 1% of seats to/from Europe controlled by Aer Lingus, this deal would make little difference to market concentration in the region, where consolidation has lagged North America.
However, Aer Lingus has two key attractions to IAG and its CEO Willie Walsh, an ex-CEO of Aer Lingus: an important holding of slots at London Heathrow, the main hub of IAG's British Airways, and a high growth strategy on the North Atlantic, which is BA's key long-haul market.
Probably to the relief of both companies' advisors as the holiday season approached, Aer Lingus rejected the offer on the grounds that it fundamentally undervalues its business. Nevertheless, a convergence of factors makes it likely that IAG will return with another offer. Mr Walsh is an old acquaintance who does not wish to be forgot.