Ryanair in 2016

[Inquirer]

Inquirer's claim is also incorrect about the change also being from nov as there were multiple increases on frequency for the summer. Furthermore is your analysis very different from what you said a few days ago.

I've read here ryanair's CEO will soon visit Belgium for his yearly PR press talk and the round up of their already known summer program as well as some other news for next winter

You really seem to love to discuss even with your companies own PR almost sir, because these routes announced at the press conference are very much as from NEXT WINTER -so NOV-.
As such, their effect on the annual numbers is mostly something for next calendar year...

I do hope you know ryanair's fiscal year runs from Q2, so it's a summer season followed by a winter season: when your company talks about its projections for any given year, that year in fact lags a calendar year by 3 months, which is why they are under delivering on their claims for 2015 in relation to airlines which have a fiscal year matching a calendar year. 2016 may indeed not be an exception to this and Stij may be right with his prediction they will once again be beaten by Brussels airlines in Belgium.
JAN numbers will tell us a lot already as to the projected growth from our country's home grown airline.

Also, didn't the CEO visit Belgium, didn't he talk about how they are doing at present and didn't he announce some new routes for next year's winter? I really don't see any error in that????
Very strange remark indeed.

About SN's growth and calling bluff. We all know that they inflate their numbers with codeshare pax and that they love to give impossible growth numbers on the LH to previous years when in fact their aircraft were in maintenance checks so bluff is called on both sides

No idea why Lufthansa passengers would be dealt with differently, but as a general concept, I think that codeshare passengers are something which goes both ways: they get from others and give to others.
No idea what rules are used, but somehow they can't count their own passengers flying on other airlines as well as other airlines passengers flying on their flights, can they?
Besides, when you suggest others are double dipping, consider this: ryanair adds all their sales in Belgium together, regardless what base the plane they fly on comes from. Those are then presented as their Belgian passenger count. No problem with that, but they add them once again at the other end too, as their passenger count over there in their PR, leading to the odd situation that when you add up their country passenger counts, you end up with twice their European wide passenger count.
That is very much the definition of double dipping, you know?

I'm not a FR basher, but why are they trying so hard to screw everything up?
They had a great business model and they are destroying everything that they had going for themselves one by one.

Because they needed to break out of their niche, as growth is limited there: people can only go on holiday a few times a year in the end, so they need to reach out to professional travelers too if they want to keep growing, just like other airlines do.
But I fully agree with you its not the smartest thing to do so with their current brand, as they are now forced to roll out much needed product improvements and take a cost hit from this throughout the entire airline, even on all those flights which still operate in the old markets.
And its really just the start I fear, as much more is needed to appeal to the really interesting professional travelers, no doubt about that, yet it is something which erodes their unique selling point with their huge traditional customer base to the point somebody else may come by and take them away, even sooner than one could imagine.

[Flanker2]

I paid 18€ for a trip to Berlin btw ... Damn those high fares

The fares are still low in the low season I'll give you that.
But in the high season they are already charging very high fares.

On my destinations, return fares are now over 150 EUR for this summer, while the schedule is too inconvenient with less frequencies than before and bad schedules. I'm really scrambling to find workable solutions through one-stops with both FR and legacy carriers. Alot of capacity has now been allocated for "legacy operations" so that FR's original markets are suffering from lack of capacity.

As for the seats, I was sat in row 22.
I will carry a tape measure next time because I'm pretty sure that the legroom has decreased.
The seats are hard now, there is no discussion about that and while they are more attractive to look at, when you look at them from the side you realise that you barely have any padding.
My feedback as a frequent FR traveller is a definite downgrade, no matter how they sell it out of Dublin HQ.

It's shameful that legacy airlines have lead the way with the slimlining, but FR is definitely losing a lot of its originality that set it apart from the rest.

Strangely enough, I even booked a SN trip over FR out of BRU in February, simply because for 89 EUR instead of 65, I've got lounge access (free lunch and breakfast) and a convenient 9am departure inbound instead of 6:30am, which is too early for public transportation, resulting in 25 EUR in taxi costs.
FR better watch out because this is how it begins.

But I fully agree with you its not the smartest thing to do so with their current brand, as they are now forced to roll out much needed product improvements and take a cost hit from this throughout the entire airline, even on all those flights which still operate in the old markets.
And its really just the start I fear, as much more is needed to appeal to the really interesting professional travelers, no doubt about that, yet it is something which erodes their unique selling point with their huge traditional customer base to the point somebody else may come by and take them away, even sooner than one could imagine.

I'm in total agreement with what you say there.
IMO they are making a very dangerous shift here and leaving their core business in jeopardy for anyone to come in and take-over. Wizz Air seems very eager to do just that and FR better watch out because a 239 seat A321NEO is a true CASM killer.

[flymd11]

Also, didn't the CEO visit Belgium, didn't he talk about how they are doing at present and didn't he announce some new routes for next year's winter? I really don't see any error in that????
Very strange remark indeed.

FR are still at the beginning of their winter 2016 announcements. I wouldn't exclude that future announcements (for things that are likely still being negotiated) include routes/additional frequencies to CRL/BRU.

[flymd11]

I paid 18€ for a trip to Berlin btw ... Damn those high fares

Strangely enough, I even booked a SN trip over FR out of BRU in February, simply because for 89 EUR instead of 65, I've got lounge access (free lunch and breakfast) and a convenient 9am departure inbound instead of 6:30am, which is too early for public transportation, resulting in 25 EUR in taxi costs.
FR better watch out because this is how it begins.

There's a major difference:
- FR's €100 return fare is on average sustainable and even generates a profit for the company (it depends on the route, airport charges, sector length, etc. but speaking on average)
- SN's €89 return has no chance of being sustainable. It's a pure loss leader for the company. This is even more once it includes passengers taking advantage of lounges (through an FFP or other method that incurs a charge for the operating carrier).

The beauty of the market economy is that it's the very reason we have the €89 SN fare (and the whatever the equivalent FR fare would be). The problem starts when one of these exits the market.

[flymd11]

I paid 18€ for a trip to Berlin btw ... Damn those high fares

I'm in total agreement with what you say there.
IMO they are making a very dangerous shift here and leaving their core business in jeopardy for anyone to come in and take-over. Wizz Air seems very eager to do just that and FR better watch out because a 239 seat A321NEO is a true CASM killer.

With the exception of markets where FR has very poor brand recognition (mainly/only Central & Eastern Europe), I don't see evidence of Wizz Air's ability to effectively compete.

A 197 seat Max-200 won't be a bad CASM machine either.

[b-west]

- SN's €89 return has no chance of being sustainable. It's a pure loss leader for the company. This is even more once it includes passengers taking advantage of lounges (through an FFP or other method that incurs a charge for the operating carrier).

The beauty of the market economy is that it's the very reason we have the €89 SN fare (and the whatever the equivalent FR fare would be). The problem starts when one of these exits the market.

I think a lot of people getting into the loft use non Miles&More FF cards, and as such earn the company a few euro's as SN can charge the access to the card issuer.

[epsilon]

Ryanair, Europe’s favourite airline, today (Feb 1) announced Q3 profits of €103m, a 110% increase on prior year. Traffic grew 20% to 25m as ave. fares fell 1% to €40 (load factors rose 5% points to 93%) while unit costs fell by 5% (ex-fuel down 1%). - See more at: http://corporate.ryanair.com/news/news/ ... lxnu8.dpuf

http://investor.ryanair.com/q3-results-fy16/

[Poiu]

Impressive figures!! Ryanairs new strategy works.
The doomsayers on here are proven wrong once again.

[Inquirer]

Are there any doomsayers here then?

Pointing out structural and strategic weaknesses and operational shortcomings isn't doomsaying, it's an openminded analysis of where they have it wrong and could do (even) better.
A two-brand company like several people have brought up as an alternative might very well have posted even better figures, you know?

To comment on their latest results: these are very good Q3 figures indeed, but they are also significantly below market expectations at the same time (some 12% under the target in fact).

The reason is that cost control is seen to be relaxing, with their unit costs ex fuel as good at flat versus last year, right at the time when their nearest competitors are slashing them far more and are expected to do so even more.

As a consequence, ryanair has simultaneously announced it will start a share buying program which should underpin and even boost the current share price. Good call for current shareholders in the short to medium term, yet a bad long term decision for the company: that money could alternatively have been used for a strategic acquisition. It's not because the Air Lingus take over failed, that the idea behind it was bad: in fact it was a far better plan than what they do now, so they should try again, elsewhere.
They need to invest in order to grow into a real aviation group with different products, brands and markets; a stand alone 1 product European carrier remains just a niche player on the global scale.

[flymd11]

A two-brand company like several people have brought up as an alternative might very well have posted even better figures, you know?

I don't see many examples of successful of "two-brand airlines".
If anything, I would say the transition from an "ultra LCC" (and one that also previously flew to quite a few primary airports) to the present Ryanair has gone very well. The numbers show this.

The reason is that cost control is seen to be relaxing, with their unit costs ex fuel as good at flat versus last year, right at the time when their nearest competitors are slashing them far more and are expected to do so even more.

What are these nearest competitors that are slashing costs?

They need to invest in order to grow into a real aviation group with different products, brands and markets; a stand alone 1 product European carrier remains just a niche player on the global scale.

100m passengers per year makes them a niche player? The wider Europe is a pretty sizeable niche.

[Flanker2]

I think that FR is now benefitting of a temporary bubble in growth and profits.
Pax like me have little alternatives for most of our intra-EU flying to niche markets that other airlines do not operate efficiently to and are putting up with FR's higher fares for now.

But this isn't going to go on forever.
The day Easyjet, Vueling, Wizzair, or any new start-up LCC decides to fly the same routes for 1 euro less, people are going to dump FR without as much as a thought.

In fact, where FR got 90% of my intra-EU flying in 2014, in 2015 they only got 40% overall and 0% in the high season as I flew legacy airlines.
The story repeats itself in 2016 as I'm now searching other airlines for my high season flying, considering FR is only 60 Euro cheaper on a return flight basis. Throw in an additional 30 Euro return transportation to/from CRL, inconvenient schedules, lack of lounge access and equivalent total travel time and you can start wondering what FR has left to offer.

I get it that FR wants to go for multi-billion profits and grow big.
There was a time when the Roman Empire had similar ambitions, but when the cheap bottom line dried up (ie slave labor), it collapsed because it could no longer offer their produce at a reasonable price.
Factor in the cheap oil that enables all airlines to compete efficiently against FR and I think that FR is going to hit a wall in a few years.

[flymd11]

FR could drop all flights from Rygge over the planned Norwegian travel tax:
http://www.newsinenglish.no/2016/02/01/ ... rom-rygge/

This also explains why it is not bookable from CRL next winter.

[flymd11]

I think that FR is now benefitting of a temporary bubble in growth and profits.
Pax like me have little alternatives for most of our intra-EU flying to niche markets that other airlines do not operate efficiently to and are putting up with FR's higher fares for now.

That doesn't fully explain how FR are managing to successfully enter already crowded markets. These don't appear to be passengers picking FR because of a lack of other alternatives.

Anna.aero has data for summer 2016. Counting only the 5 "pan-European LCCs" (easyJet, Norwegian, Ryanair, Vueling and Wizz Air):

Ryanair vs Vueling head-to-head on 50 routes
Ryanair vs easyJet head-to-head on 42 routes
Ryanair vs Norwegian head-to-head on 23 routes
Ryanair vs Wizz Air head-to-head on 42 routes
http://www.anna.aero/2016/01/13/easyjet ... ting-more/

Then you'll find dozens more examples of Ryanair going head-to-head against other carriers: from Dublin many of their routes compete head-to-head with Are Lingus, from Cologne there is a lot of head-to-head against Germanwings and Air Berlin, etc.

[Acid-drop]

That doesn't fully explain how FR are managing to successfully enter already crowded markets

Maybe because the brand is very strong.
Once you are known to be cheap, you dont have to be cheap anymore.

Another example in another field: mediamarkt came recently and took the market, telling everyone they arr the cheapest although they are not.

[Flanker2]

That doesn't fully explain how FR are managing to successfully enter already crowded markets. These don't appear to be passengers picking FR because of a lack of other alternatives.

FR financed this establishment artificially by dumping capacity onto these hubs, supported by cheap fuel and higher fares collected at their core market which remains the niche LCC to/from secondary airports.

However, legacy airlines are fighting back quite successfully as Ryanair is not really stealing any pax from those crowded markets but rather moving those pax from their secondary airports to main airports and also generating a new demand that just didn't exist before.

The day the core market starts collapsing, FR will have a problem. At the current fares, the market will collapse sooner or later, it only needs a few triggers, ie:
-new LCC competition or more aggressive existing LCC competition, cf Wizzair
-higher oil prices which will drive their fares too high on their original core market out of secondary airports, as higher backoffice costs and primary airport operations no longer enables them to offer low enough fares to generate demand. This is where FR made its steady yearly 500 million profits for years. If this base starts collapsing, what does FR have to hold on to?
-loss of trust in the brand. The cheap aspect does not mix well with a safety-sensitive sector like aviation transport. Be certain that the first major accident will have media all over it even if in my view FR is safer than any other airline in Europe.
-FR makes mistakes in the new markets and finds itself investing in bottomless pits
-a new global crisis that will see FR exposed as much as the legacy airlines are.

Their current profits can mostly be explained by cheaper fuel expenses which are a universal truth for all airlines.
Do the math:
300 aircraft x 3000 flight hours per year per aircraft x 2.5 tons per hour x 200EUR per ton cheaper fuel = 450 million less fuel cost = 450 million more profit.

In 2016 they will make even more profits, but then again because fuel will not be 200 EUR per ton cheaper versus 2014 but 400 EUR per ton. In fact, if FR didn't change anything to their operations in 2014, cheaper fuel should bring its profits from 500 million in 2014 to 1500 million in 2016. If they book less profits than that, one could say that their new strategy is already failing.
As soon as the fuel prices go back to 2014 levels, they will see their profits collapse.

[sean1982]

Are there any doomsayers here then?

Pointing out structural and strategic weaknesses and operational shortcomings isn't doomsaying, it's an openminded analysis of where they have it wrong and could do (even) better.
A two-brand company like several people have brought up as an alternative might very well have posted even better figures, you know?

Isn't it funny then, that FR, eventhough it has brilliant business figures, does it ALL wrong according to you? Never have I seen you writing something positive. Others who's business figures where until recently questionable to say the least, are prime examples of how it is to be done?


Flanker,

your numbers are very "natte vinger werk" and they are totally wrong. May I suggest do dive back into the balance sheets. The lower fuel price is only 5% of the 1 billion EUR profit (projected).

[sn26567]

The lower fuel price is only 5% of the 1 billion EUR profit (projected).

But it could have been much more! MOL himself told at the latest Brussels press conference that the price at which fuel was hedged has been significantly above the market price for the last two years and the current year, because Ryanair wanted stability in price through hedging rather the uncertainty of the market price. Currently Ryanair pays $52/bbl (market price is around $30/bbl).

[sn26567]

Ryanair to close its bases in Alghero and Pescara in anger over hike in Italian passenger tax.

[Poiu]

The lower fuel price is only 5% of the 1 billion EUR profit (projected).

But it could have been much more! MOL himself told at the latest Brussels press conference that the price at which fuel was hedged has been significantly above the market price for the last two years and the current year, because Ryanair wanted stability in price through hedging rather the uncertainty of the market price. Currently Ryanair pays $52/bbl (market price is around $30/bbl).

Correct, but once the fuel price starts rising, and that day will come, FR will keep on paying low fuel prices for 18 to 24months.
Those who think they are profitable today because they didn't hedge will be suffering big time.

[Inquirer]

I don't see many examples of successful of "two-brand airlines".

This is an aviation forum, right, so I do suppose you know that BA for instance is just one of the many brands of IAG, a holding company which also trades as Iberia, Vueling or Aer Lingus depending the market they are active in?
I am equally sure you are aware a skoda is manufactured by the same company as an Audi.
And that 2/3rd of the washing powders in your local Colruyt store comes from the same company too.
Et cetera.

What are these nearest competitors that are slashing costs?

https://www.aviation24.be/forums/viewtopic.php?f=7&t=57924
It's to early to tell if they are right or overly optimistic in their claim, but as was pointed out above, an 239 seat A321 is going to have a serious competitive advantage over the much smaller 737s used by ryanair.
I think their optimistic comment needs to be read in relation to that as I think that such a plane will indeed be able to beat ryanair's unit costs by a considerable margin. If they put it on high demand routes where the 2 compete, it's going to hurt the one with the smaller plane and they are not exactly after the kind of customer who's persuated by allegedly better service or frequencies, are they?

I think that FR is now benefitting of a temporary bubble in growth and profits.
Pax like me have little alternatives for most of our intra-EU flying to niche markets that other airlines do not operate efficiently to and are putting up with FR's higher fares for now.

I wouldn't necessarily call it a bubble because of it's negative connotation, but what they are doing now is indeed a text book example of pseudo-monopolistic abuse, which is always successful in the first couple of years: one moves into new markets while funding the start up costs by increasing the fares at the often monopolistic traditional markets (which is exactly what they are doing as you and others have repeatedly noticed).
As such, it's not really difficult to grow the total volume of the business and -on the back of lower fuel prices- also the financial results even.
However, in order to consolidate those new markets and make them financially sustainable on their own, at once point they will have to increase fares there and thus also the product offered to justify the higher fares, which -due to a lack of product segregation- will feed through to the traditional markets and their pricing, and that's where the problem is indeed, because some of the risks you bring up, do make perfect sense:

The day the core market starts collapsing, FR will have a problem, i.e.:
-new LCC competition or more aggressive existing LCC competition, cfr Wizzair
-higher oil prices which will drive their fares too high on their original core market out of secondary airports, as higher backoffice costs and primary airport operations no longer enables them to offer low enough fares to generate demand.

As to your analysis of the origin of their current profit, I only partially subscribe to it because I don't think the full impact of the lower fuel prices has already trickled down to the bottom line of their current balance sheets, but equally I do not share the optimism which is widely exposed here by a few very vocal people who lack the objectiveness and IMHO also the economic background to fully understand what they are being shown in ryanair's assertive communication.
What I've noticed is that after the surprise loss and the subsequent crash of the share price, ryanair's management team (which also holds a considerable amount of shares in the company they run) have embarked on a very effective turn around program to rapidly create additional shareholders value on the back of their monopolistic position at regional airports, but it's far from clear how they will turn that into a viable long term strategy once they are say 5 years into the program and the theoretical lower cost competitor comes in to undercut them (prime candidate is Wizzair), or the much needed price increases in their new markets can not be achieved because the competitors there are perfectly able to successfully compete with ryanair without going out of business (Aer Lingus and BRU Airlines show it's perfectly possible, something which goes against the constant talk of ryanair in all of their financial presentations such just is not possible.. and should thus definitely not be tried. )

You'll never hear them say so officially, but I dare to bet that it's extremely frustrating to have examples like these litterally fly in their face as it's showing the whole strategy which they try to put up, is much weaker than they want to make everybody believe. It indeed has a genetic error in it, as both of us have pointed out from the onset, one that will become obvious only after a couple of years.