Yahoo Finance Ryanair proves the age of cheap travel is not dead
It is easy to be snobbish about cheap foreign holidays. Those who can afford to jet off to Barbados every summer in business class might recoil at the thought of a week’s all-inclusive in the Algarve, or a self-catering apartment on the Costa del Sol.
But for many families, some affordable summer sun is often the number one priority when it comes to discretionary spending.
Soaring household costs put this firmly to the test. Research has shown that as inflation has soared, travel plans are often the last thing that people cut back on. Meanwhile, the washout weather of April and May has been an unwelcome reminder of why Britons love holidaying abroad.
Few travel industry figures understand this compulsion more than Ryanair’s Michael O’Leary, which is a big part of the reason why an airline that has a reputation for treating passengers with contempt has bounced back far quicker and stronger from the pandemic than rivals.
That intuition also helps to explain how Mr O’Leary has been in the job for nearly three decades when so many of his counterparts have found themselves strapped to the ejector seat after repeated crash landings.
Ryanair’s bumper financial figures are testament to such resilience after the Dublin-based carrier swung from a €430m (£374m) annual loss to a €1.4bn profit in the 12 months to the end of March.
If proof was needed that the age of budget travel isn’t dead, an airline that so many people profess to hate is now making more money than it was before Covid effectively closed down air travel for two years.
Profits were 13pc higher this time around than in the final year prior to the pandemic, while turnover more than doubled from €4.8bn to €10.8bn.
The airline industry’s obituary was written numerous times during lockdown as the world’s biggest carriers racked up billions of pounds in losses. Many, including both British Airways and Easyjet, required giant shareholder lifelines.
European aviation was kept afloat by similarly eye-watering quantities of state aid. Air France-KLM’s case has only recently finished paying back the €4bn handout it received from the French government at the height of the crisis.
If coronavirus didn’t kill off large numbers of airlines, then the exorbitant costs of meeting strict net-zero targets surely would, experts have predicted.
Ryanair has done several things differently to others. It was better placed for the rebound after persuading pilots and cabin crew to take temporary pay cuts during the pandemic while the rest of the sector was swinging the axe with abandon.
In the words of finance boss Neil Sorahan, the company owns “almost all” its planes, giving it an even greater cost advantage over most rivals who lease their fleets, and are being hit by rising interest rates.
It also boasts “one of the strongest” balance sheets around, according to Mr O’Leary, despite a €850m bond repayment at the end of March. Mr Sorahan points to “industry-leading fuel hedging” too, which saved Ryanair €1.4bn last year.
Never one to resist an opportunity to bait his competitors, Mr O’Leary is more bullish than ever, telling the Financial Times this week that Ryanair would “continue to wipe the floor with every other airline in Europe”.
Mr Sorahan has joined in, telling CNBC that consolidation in Europe is “inevitable”, and soon “just four or five large carriers” will be “effectively flying 80pc of the traffic around Europe”.
Ryanair has also urged holidaymakers to book early to avoid surging summer fares as it prepares for its busiest ever getaway season.
But then Mr O’Leary has no interest in talking down the airline’s prospects. Egged on by a €100m share bonus that kicks in when the share price hits €21, he has been consistent in telling the naysayers that they are wrong, and the numbers back that up fairly emphatically.
With the shares back at pre-pandemic levels of nearly €16 and the expiration date on the bonus scheme recently pushed out from 2024 to 2028, a bumper payday looks more likely than before.
Ryanair carried 169 million passengers last financial year, compared to 97 million the previous period, and expects to fly around 185 million people across the Continent in the coming 12 months.
The Ryanair chief has also put his money where his considerable mouth is too. In a sector where others have been slashing capacity by as much as 20pc, Ryanair struck a $40bn (£32bn) deal for 300 new planes from Boeing earlier this month as it gears up for another anticipated jump in demand over the coming decade.
It has predicted that passenger numbers will increase by 80pc to 300 million by March 2034.
The fly in the ointment is that despite a widespread assumption that ever-cheaper air fares would continue to drive growth, prices are rising for the first time in years, and sharply too, outstripping inflation. The more bearish analysts think that will inevitably erode demand.
Mr Sorahan admits “you won’t see too many €9.99 fares” in the future. However, “you’ll still see €19.99 fares”, he points out, and if Mr O’Leary is right that Ryanair’s low-cost “advantage” over competitors will only “widen”, then it should still be possible to get a return flight to Europe cheaper than it costs to take a black cab across London.
Whatever you might think of Mr O’Leary and Ryanair’s ruthless no-frills model, he has been a relentless champion of the right to a cheap holiday. Does that make him a man of the people? Probably – providing you don’t insist on bringing an extra bag.
