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CAPA Live: Ryanair - some state aid is "blatant discrimination"

Insight

Ryanair DAC CEO Eddie Wilson believes that some of European government state aid is blatant discrimination and could cause problems for those airlines that are well managed and well capitalised, but in the longer term it will play out.

Mt Wilson said he believes the 737 MAX aircraft is a game changer that will provide a lot of options and flexibility and will play a key part of its strategy going forward.

Falling over the precipice of a hard Brexit isn't in anyone's interest. Common sense will probably prevail, but Ryanair is well prepared.

Talking at the CAPA Live on 11-Nov-2020, Ryanair DAC CEO Eddie Wilson spoke with CAPA's chairman emeritus Peter Harbison. Highlights from the transcript can be found below.

Summary
  • Ryanair CEO believes that some European government state aid is discriminatory and could cause problems for well-managed airlines.
  • The 737 MAX aircraft is seen as a game changer for Ryanair and will play a key part in their strategy.
  • The CEO is confident that common sense will prevail in Brexit negotiations and Ryanair is well prepared.
  • The COVID-19 vaccine will help boost travel demand, but it will take time to coax people back into flying.
  • Ryanair is ready to receive the 737 MAX aircraft and believes it will transform their cost base and provide more flexibility.
  • The CEO highlights the need for better coordination in European aviation, improved air traffic management, and sustainability efforts.

"Some of the state aid is blatant discrimination. Some of the state carriers were technically bankrupt so they will be able to sell below cost, which will cause problems for airlines that are well managed and well capitalised"

"Our regulatory department is the place where we're hiring more people, such are the number of court cases that we now have. Some of them are just blatant discrimination, if you look at what's happened in France. Not just direct subsidies to the airline, but saying that only French airlines or NAOC get a rebate on taxes. I mean, that's not what the European Union is about. So it's quite blatant, and we're confident of winning those cases. We should have a number of decisions before Christmas."

"But there's a short-term story under the longer-term story here. I think in the short term they are going to be able, because they're technically bankrupt, these former state carriers. And they will be able to sell below cost, and that is going to cause problems for those airlines that were well-managed and are well-capitalised, because that competition wouldn't be there in the normal course. But I think over time, it's going to play itself out, and I don't think people, it has really dawned on them yet."

"If you look after 9/11, where Swiss, Sabena, all went bust for not flying for three or four days. And I think it's yet to play itself out here. I mean, all the commentary in Germany at the moment is that Lufthansa is just becoming swamped with debt at the moment, and are caught in that corner of what they do to reduce jobs and reduce their cost base? And do they get smaller? That's going to have to play itself out over time. And I think with government involvement in those airlines, it is going to hamper them in the medium to long term."

"All as we can see is that capacity is going to fall, certainly in the short term, and their ability to repay those debts is going to be... I just can't see them being able to pay that money back. And while governments have an appetite sometimes for saving the flag, their appetite for fleet replacement and that sort of money that's involved, when health services need money and there's all sorts of drains fiscally, it's going to be very difficult to sustain them."

"I don't think we've seen how it's going to play itself out just yet, but in the short term, it's going to be anti-competitive. In the longer term, there's going to be less seats on sale. And that, in the longer term, is going to be good news for well-run airlines."

"The vaccine will help people who want to travel but we are going to have to coax people back into the air"

"While we've seen good news on the vaccine, and if things were to snap back in summer 2021, that would give us a good base to continue our growth, albeit at lower levels. We wouldn't reach the targets of 200 million that we originally had envisaged. We'd have to wait a number of years, but I wouldn't take anything for granted at this stage. I'm just saying that if consolidation is essentially accelerated by this crisis, well then, that'll be good news in the long run for those carriers that are well-capitalised."

"We're by no means out of the woods yet, but we can certainly see that if... I mean, companies like Pfizer don't make announcements like that given the regulatory environment, and one would hope that it is going to have the rates of efficacy that people think, at 90%. And there are a number of other vaccines coming. And it gives an alternative narrative, I think, for people who want to go back travelling. There is pent-up demand, but people are still going to have to be coaxed back flying. So we have to have the ability to fly first. Then we've got to get the confidence of people to fly. And then, in the longer term it's got to be good for the likes of Ryanair and the other well-run carriers, or well-capitalised carriers. But I wouldn't be saying we're out of the woods just yet."

"I was flying in Europe recently and it's terrible to know that I was the oldest guy on the airplane. So you can see the profile of passengers changing. And I think that once people have an alternative narrative that, 'It's locked down, don't move anywhere', to, 'It's safe to fly', I think we've generally won the argument."

"There isn't that sort of pushback or disbelief that we got at the start of this crisis, that aircraft were sort of vectors for this virus. I think people now generally accept that it's a safe place to be, though people will be tentative about returning. You've got airports, they are sanitised environments, generally. And I think people, once they start traveling again, will see that there isn't a problem."

"I think the difficulty is that you don't necessarily need the vaccine to travel because people will make up their own minds whether they're in high-risk groups or not. And I think it will take longer for older travellers to come back, as well. But younger people, I think the pent-up demand is there. And certainly in a market like Ireland, which is a small market, the social pressure not to travel in this country during the summertime was unbelievable. People were ostracized for it. And that's where everybody knows what everybody does in this country."

"So I think people, once they're given an alternative narrative, 'It's safe to fly. We're back flying, and that you are less likely to contract this, and people are not dying', I suppose, like in those high-risk groups, because they will be vaccinated, whether they travel or not is going to be that alternative narrative to get people back. Now, I think it'll come back to leisure for us before business does, but let's just wait and see."

"The MAX is a game changer aircraft and gives us a lot of options. Our pilots are ready"

"The MAX has got to be welcomed. It is a game changer aircraft, as we would say, in terms of our call space, fuel burn, and extra seats to sell. And it gives us lots of options, as well, in our ability to flex capacity. And I think we need to get it into the fleet."

"If we're not going to grow, we still have the flexibility of lease returns. We've got the flexibility of selling aircraft. But I think we've got to get this aircraft. And it's a fantastic aircraft. It's probably going to be the aircraft that has got the most scrutiny from safety regulators. And we are really looking forward to having it in our fleet. We've got the simulators here. Our pilots are ready. We were an integral part of the process of the joint group, that worked with the ASM, and also with Boeing in getting this aircraft back into service. So it's a key part of our strategy going forward. And the sooner we get it, we believe, the better."

"We have 100% of our plan that we have done agreements with our unions. And so, we've kept everybody current. But at the moment, it's pretty bleak for a lot of our pilots here in the amount of flying that they're doing. But we're keeping everybody current, and we have the simulators here, and we are ready to go with this."

"We have a self-imposed capacity of about eight deliveries of these aircraft per month in terms of how we bring them back from the States. So if that's delayed, it might be slightly less than 30. If the snapback was more than expected, maybe it might take some more, and take deliveries in the summer, but we normally wouldn't. But let's just wait and see what happens."

"The EU has suffered from a lack of coordination. Because a vast majority is land based, aviation policy has been missed because people can still move around. But industry will take the lead and sort it out"

"The EU project has always been dogged by lack of coordination, whether that's on foreign policy, it tends to take a long time for them to come together. And it's no surprise to us that every country... It's almost like the start of a yacht race. Somebody fires the gun and everybody goes in a different direction. And that seems to be the way it worked in the European Union. And I think it will sort itself out."

"And I think it will be industry that will take the lead here. We certainly won't be waiting around for that level of coordination. A new traffic light system has mixed benefits in it, but where you've got alternative modes of travel for the vast majority of Europeans on land-based, whether it's trains or by car, I think the aviation policy has been missed, because at least people can move around still. But I think it will be the companies and the private sector that will sort this out in the end. And we can't wait for the lead because nation states seem to have forgotten about the European project and are looking after themselves at the moment."

"It's very difficult because they have this EU traffic light system at the moment that is a matrix of infection rates and positivity rates. But again, where countries are connected by land, it's largely academic because people can find alternatives, and you have this free movement of people. But the traffic light system at least has all the characteristics of moving at the same time. But largely, this will be overtaken by vaccines, and people's behaviour, and their confidence returning to air travel. And I think it will happen itself rather than by the prompting of the European Union."

Insights from Ryanair DAC CEO Eddie Wilson at CAPA Live, 11-Nov-2020

"Aviation has a long way to go in sustainability terms, although shipping seems to get away scot-free. We've heard murmurings about minimum fares, but that's largely from state owned airlines that can't compete"

"I think our industry has a long way to go, and we are unfairly targeted on this. I mean, 2[%]-3% of global emissions, but shipping seems to get away scot-free when they are almost twice the emissions of airline travel. And taxing doesn't work. No matter what happens, aviation seems to track GDP growth and taxes just don't seem to work."

"I think we've got a big job to show, maybe we need to change the charging regimes at airports so that it's on a green basis, on a per-passenger basis. But we are the low-hanging fruit for the green parties or the green lobbies, and they're not going to stop aviation. And we've got a job to do convincing the public and coming up with the technology that sustains it. It's going to happen anyway."

"So we've seen murmurings of minimum fares, but they're largely driven by our higher-cost competitors that are state owned that can't compete. Like, they would run contrary to European law, as well, in terms of putting in minimum pricing on our ability to contract. So it does come up from time to time, but we're not unduly concerned of it."

"Air traffic management through Europe has to be sorted out. There's a ridiculous situation when France ATC is on strike Air France seems to do better than people flying from UK to Spain. Why should passengers suffer when there are technological solutions?"

"The air traffic controllers in France go on strike every Tuesday and the Italians go every Wednesday, it tends to complicate things during the summer. But clearly the technology is there. And the idea of moving from national airspace, particularly when you've got EU261 responsibilities on airlines to be the insurer of last resort when there's nothing we can do about it."

"And I think there are interesting initiatives coming about from the EU commission that will allow overflights where you have the ridiculous situation where, in an air traffic control strike in France, Air France seems to do better out of it than people flying from the UK to Spain. Like, that really needs to be sorted out. And why should passengers suffer in that environment when there are technological solutions for overflights? And I think there is some progress on that, but it is slow."

"Falling over the precipice of a hard Brexit isn't in anyone's interest. Common sense will probably prevail, but we are well prepared"

"I think this will be pulled back from the brink of a hard Brexit. The Brits have managed to fall out with the Russians, the Europeans and the Americans all at the same time. It takes a lot of skill to engage in that level of self-harm. But I think that we are well-prepared, but I think the spectre of the UK not being connected by air on the first of January next year is even something that the UK government couldn't live with. And I think the posturing will eventually come down. We all have to live together. We all have to trade together. And falling over the precipice isn't in anyone's interest."

"And I think with the background of the US presidential election, common sense would probably prevail. But we have the ownership structure here. We will be able to operate. We've got Ryanair UK, and with a small number of aircraft that will allow us to fly to non EU countries and continue our domestic operation. So we're well prepared."

"We have kept our cost base under control and pared back very early, so we've made very few redundancies and haven't lost any pilots"

"We really haven't lost many people at all, because we were out of the traps very, very early. And if you look at the main components here and you exclude oil, you've got the aircraft, which we're industry-leading on anyway. And we've got the MAX coming, so that should lower our costs even farther for the long term. And on the airport side, we were in very quickly with airports, and we're making good progress there."

"And with our people, what we did was we made it very simple at the start to say, 'Rather than going through a redundancy programme, we reduce your hours, reduce your money, keep you in employment so we can flex back up'. So we haven't lost any of our pilots. We haven't made anybody redundant there. We had some redundancies here in head office, and we had a small number of cabin crew redundancies."

"So what we've done is we've pared back. We had a clear message to our people. I think it's easily understood. You know, the older days that your parents would tell you, 'Don't move from a job until you have another job'. And I think in times like this, it's hang on to a job. And that's what we're doing."

"If we get our cost base under control, which we have done, we'll be in the best position for coming back for the next three or four years, which are going to be difficult"

"If we get our cost base under control, which we have done, we'll be in the best position for coming back for the next three or four years, which are going to be difficult. And the amount of applications we've had from pilots who left us to go to the Middle East and Norwegian and all sorts of things. So I think our people know that when the chips are down, we make the right decisions here to preserve our business model and their employment. We're in good shape."

"With the MAX, you've got eight extra seats. You've got a 16% less fuel burn. It just makes so much sense. It is really going to transform our cost base from what were historically the best per-passenger ownership costs in the industry. And that's with a 189-seat aircraft. We're going to move 197 with less fuel burn. It's got to make sense for the next 10, 15 years with the lowest per-seat cost in the industry."

"And then, we've got the efficiency on the airport side, the right mix of secondary and primary airports, and we've got the people here, and we've been able to come to common sense solutions with them. They get their pay back over the next five years and that sustains employment. I think we've got a very good business model for the future, but it's going to be a difficult two to three years."

"It will take time for business traffic to come back, but there's a lot of pent-up demand. When the Canary Islands came back on the green list we jumped from 2000 bookings a day to 28,000 bookings a day"

"Revenue management will return. I mean, the 'computer says no' quite a lot here lately. And it doesn't understand what's happening in terms of there's much more close-in bookings. And we're going to have to retrain the machines on that. But it will return. It will bounce back."

"I don't think things are going to change that much. I think it'll take longer for business traffic to come back, but I think there's so much pent-up demand. We saw there with the Canary Islands when they came back on the green list, and the UK. Like, we jumped from 2000 bookings a day to 28,000 bookings a day. And then, the same thing happened with Portugal and when it came back on the green list and out of the UK during the summertime. People still want to travel, and that's not going to change."

"And the human race is remarkably resilient, and has a short memory on most things, and we tend to get over things. And I would tend to be an optimist in that. It's going to be difficult for the next two to three years, but I think people will look back on this and move on, like we've been able to get through most things in this industry. And this is the biggest thing we've ever had to get through, but we will get through it."

"It's going to be a smaller market. Fares will be lower and beyond summer 2021 there will be fewer airlines. People have always talked about yields going up, but it never seems to happen. I can't see that changing now"

"Norwegian yesterday were talking about there's no more money coming from the Norwegian government, and easyJet have been out there saying that they're going to be smaller. The legacy carriers, it's very hard to see them with government involvement, having their priorities of putting capacity on some base routes like summer, when they'll be largely preoccupied with that connectivity with the core commercial centres, or whatever makes sense to government appointees on board. And I think that's the way it's going to go."

"I think it will be a smaller market. Fares will be lower because you've got the confidence issues with people coming back. But beyond summer 2021, I think there'll be fewer airlines. And hopefully in the long run that may see something happen on yields. But people have been talking about yields going up in this company for, I don't know, since I got here about 25 years ago. It never seems to happen. Everybody always says, 'The next market will go into yields. It'll be a gold mine', but it never is. So we tend to dampen that with capacity. So I can't see that changing."

"Even with small passenger numbers ancillaries have been resilient, as people want to keep their bag with them and want to know who they are sitting next to. Inflight retail is a challenge, but we are looking at an internal WIFI solution"

"It was remarkable, even on really, really small passenger number volumes during the summer, the relationship between carry-on luggage and priority boarding and seats was remarkably resilient. And we're seeing some uptake in those, as well, because people now want to know, 'When am I getting on?' Some people want to have their bag with them all the time, rather than [it] going in the hold. And people now want to know where they're going to sit and who they're going to sit with. So there's been upside on that."

"Inflight retail has been really challenging. That has gone down. And we're looking at some initiatives on board, as I know other airlines are, as well, where we are trialling a sort of an internal WiFi solution. So you can order from your seat and use your own technology on board, to stop people moving around the cabin, as well. So we might see some upside on this. But inflight sales have seen a reduction, but the other revenue streams have been remarkably resilient. And some of them show signs that there is some way to go on those, as well, particularly on seats."

"There's remarkably little crossover with Wizz but we have no difficulty competing"

"We've got the lowest cost base by some margin. And yes, there's been remarkably little crossover there. They've tended to move east, but we've seen of late where they've opened and closed some routes. Like, no sooner have they been opened and they were closed or reduced significantly in places like Italy. And also, they opened in Norway on the domestic front, and they now seem to be drawing a lot of attention on what we went through in 2017. So, welcome to Western Europe, if not Eastern Europe."

"And we've no difficulty competing. Competition is good. And they are a good operation, and we will, if we lock horns with them, we've no difficulty with that. We've got the lowest cost base on a per-passenger basis, and no difficulty with that whatsoever."

"We have no plans to look at the North Atlantic...I just don't think distraction is something that we need at this moment."

"Everyone who's tried it who hasn't got a background or the volume in that business and has failed at it. Norwegian being the latest. And the key here is the operational efficiency of getting an extra turn on the aircraft isn't there, and we'd have to learn a business we don't know, and we don't know anything about...but you got to learn about it, you got to have a first class to pay for everybody down the back, and the aircraft that we have don't do that."

"And Norwegian going to secondary airports just didn't work. And it didn't work because you've no high-yielding passengers. And there's enough low-hanging fruit here in Europe, we believe, over the next 5 to 10 years to get 200 million passengers, rather than distracting ourselves. I just don't think distraction is something that we need at this moment."

Highlights from CAPA Live, 11-Nov-2020

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