Is Ryanair heading for serious financial trouble?

[kerrynorth]

Or even bankruptcy if the recession lasts long enough. Ryanair has committed to buying over 100 new aircraft from Boeing over the next few years. However, it is facing a severely contracting market in Europe so that even at bargain basement fares people are just not going to fly. This has already been seen with Ryanair parking a significant percentage of its fleet over the Winter period. It is entirely possible that Ryanair will fly less passengers this year than 2008 with most of its markets in severe recession and it seems to be in perennial dispute with a number of large airports who seem more and more content to see Ryanair walk.

To date Ryanair has been able to juggle the new aircraft into their fleet by selling on existing aircraft second hand to Asia at an even higher price than they got from Boeing for their bulk deal. However, the bottom is about to fallout of the airline industry globally. Both price and demand for Ryanairs cast-offs will collapse as the price of new builds becomes significant cheaper.

Ryanair I think are committed to taking circa 125 aircraft off Boeing over the next 5 years. This comes to circa $3-3.5billion. With collapsing revenue it will not take long for this to drain Ryanairs reserves. It puts a new spin on the AL bid as well - does Micko need AL far more than anyone realises?

[locke]

I'd be concerned about Ryanair's finances too and the prospect of them going bust with an 80% market share was one of the reasons I was opposed to their bid for Aer Lingus.

Ryanair have rarely made much money from flying passengers. Trading in aircraft and selling those passengers anciliary services have provided the profit. Both those are areas that will dry up faster than revenue from passenger fares in a recession.

I've seen a few reports suggesting that they'll pick up business travellers because of belt-tightening, but as someone who does quite a bit of business travel, I'm not so sure.

For business travellers frequency is as important as cost. For one thing, the cost of a hotel for an extra night can make the extra frequency attractive. But also for anyone on long-term assignment, it can have pretty devastating tax affects when it comes to tax residency.

Also, a huge number of businesses have located themselves near large international airports. These aren't going to change to Ryanair when Ryanair don't fly out of Heathrow, Schiphol etc. My two business trips so far this year have been to Leiden and Reading. Ryanair won't get you anywhere near those places, even though they're situated right next to major airports.

[Dillinger]

I honestly though Ryanair would have been sold on themselves by now, and changed their name. I thought O'Leary would have got out of the game by around 08, and tried his hand at something else. It seems as though he is determined to try to expand the company, and keep it intact, and also to swallow up Aer Lingus. Could this be his undoing.

[Digout]

Ryanair I think are committed to taking circa 125 aircraft off Boeing over the next 5 years. This comes to circa $3-3.5billion. With collapsing revenue it will not take long for this to drain Ryanairs reserves. It puts a new spin on the AL bid as well - does Micko need AL far more than anyone realises?

Depends on the contract, the delievery might be subject to market conditions each year, so they may not have to take the planes?

[goosebump]

I can't see them going bankrupt.

Their fuel costs have dropped by over 100% and they have billions in cash reserves. They'll also increase their market share as their competitors fall away.

If Ryanair can't survive a recession, we won't have any airlines anywhere in Western Europe.

[locke]

Depends on the contract, the delievery might be subject to market conditions each year, so they may not have to take the planes?

No

The contract commits them. Considering the low price they received, Boeing would not have absorbed the risk as well.

However, if Ryanair approached Boeing asking to swap Boeing 737-800 orders for orders for a higher value aircraft, Boeing would probably listen. So purchasing a few long-range aircraft and going transatlantic may be an option.

[Digout]

So purchasing a few long-range aircraft and going transatlantic may be an option.

ahhhh, hence the rush to buy aer lingus, but they are donald ducked then, cos aer lingus has contacts with airbus ?

[slx]

I think they're utterly mad trying to takeover Aer Lingus, even from their own perspective.

Aer Lingus is an absolutely terrible fit for Ryanair.

1) Public service body mentality within the organisation
2) Higher cost model, yes I know they've trimmed the frills, but they'll never be as cheap and nasty as Ryanair.
3) A work force that isn't a pushover when it comes to wage negotiations. This includes major pension committments etc
4) Fleet is entirely Airbus standardised, ryanair gets its economies of scale by being entirely single standard Boeing 737. They'll loose that if they purchase a medium sized airline which has standardised on Boeing's rival.
5) Route clashes - most of Aer Lingus' short haul routes are duplicated by Ryanair anyway
6) They'd have to be bedfellows with the Government + trade unions!
7) What advantage would Aer Lingus bring to ryanair? A few extra slots at major airports, that would only apply to ex-Ireland routes?
8) Ryanair would be better off launching their own transatlantic operations than trying to bolt on an old-school 'flag carrier' like Aer Lingus. Open skies agreements etc make it all much easier.

Frankly, if I were a Ryanair shareholder I would be worried that O'Leary's persuing some kind of a personal agenda to swallow up Aer Lingus at all costs. To me it makes absolutely no business sense.

[Joe Soap]

No

The contract commits them. Considering the low price they received, Boeing would not have absorbed the risk as well.

However, if Ryanair approached Boeing asking to swap Boeing 737-800 orders for orders for a higher value aircraft, Boeing would probably listen. So purchasing a few long-range aircraft and going transatlantic may be an option.

Locke, they already tried swapping 737 orders for 777's. This is where all these rumours about a 'long-haul' operation keep coming from.
But Boeing rejected the offer. They have him over a barrell at last. The tables have turned. He boasted of 'raping' Boeing in 2001. Now they'll return the favour. They can find markets for 777's, but they don't need O'Learys 737's. Nobody does.

To make matters worse, I was talking to a Ryanair engineer recently. He told me O'Leary ordered all these aircraft with minimal fit out (as you'd expect) - seats don't recline, no window shades, bizarre upholstery, no galleys, but even worse, the cockpit nav and comms set up is way below the basic standard specced by any other carrier. One of everything instead of the usual one plus backup system.
This makes these aircraft even LESS marketable in a collapsed market. They are the 'one bedroom apartments in Blanchardstown' of the aircraft market. Unsaleable.

He has big problems.
First 10 arrive in March!!

[Keith-M]

I can't see them going bankrupt.

Their fuel costs have dropped by over 100% and they have billions in cash reserves.

What, someone is actually giving them money take the fuel? No wonder they have cash in the bank!