If you buy a newspaper or can use a BlackBerry, you would have seen a lot of similar reports about Ryanair’s Q3 2009 results which were released on February 1 (See Ryanair’s Q3 results for dummies below). But what you are very unlikely to have read is a meaningful analysis of the implications for new route developers in airports and competing airlines.
Already over 170 new routes planned for 2010
Presenting the results in the City of London last week, Ryanair deputy CEO, Michael Cawley, repeated several times: “I have never been as confident about the market and the opportunities to grow as I am today.” It was especially good news if you are one of the airports at the end of one of the 171 new routes already planned for 2010 (this includes the additional 25 announced since last Monday’s presentation) making Ryanair’s forecast of 200+ new routes discussed only three days previously look startlingly conservative. Analysis of the 50 airports involved in the latest batch of new routes reveals that Spanish airports will see 14 new services followed by the UK and Ireland each with eight. A total of 11 countries will benefit from these new services, all of which are international, and which mostly begin in May.
However, despite singing about “opportunities to grow”, for the very first time Ryanair is painting a different long term future, suggesting passenger growth will slow to 6% by 2013 because of the row with Boeing and the decision not to pursue new orders. Of course by industry standards 6% growth is nothing to get depressed about and if Ryanair doubles in size, then at 6% growth after 2013 could still roughly translate into around 100 new routes per year from a network then approaching 1,500 routes (bear in mind there are 1,000 routes today while there were just 220 at the same point five years ago).
So where are the route opportunities meanwhile?
Ryanair revealed that 37 of this year’s 48 new 737-800s have already been allocated across 14 different bases, including new bases in Italy (Bari and Brindisi), Norway (Oslo Rygge), Portugal (Faro), Spain (Malaga) and the UK (Leeds/Bradford). Nearly half of these newly allocated aircraft will be based in Spain (11) and Italy (7), with six in Portugal, five in the UK, four in Belgium, three in Norway and just one in Germany.
This leaves 11 aircraft to find a home (your airport this year?) and not counting those aircraft that will need re-deploying from capacity cuts planned for Dublin.
One of the reasons Ryanair generates so many new routes is that the average weekly frequency of routes is relatively low, and getting lower. Four years ago, Ryanair’s average weekly frequency across its network was just under nine, or more than daily. This summer, it will be just over five weekly flights.
Ryanair looking closely at Eastern Europe?
Cawley openly confirmed Ryanair’s interest in further expansion eastwards: “We are adding a new country in the next six months; we are in discussions in Eastern Europe where we don’t fly – but expect to see deals being done here in the next couple of years.” Depending on your political definition of “Eastern Europe” presumably this not only refers to the only EU states not operated to – Estonia, Bulgaria and Romania (to which it has a single destination) but also the non-EU states in the former Yugoslavia and later also the Ukraine (population 46 million), when its badly affected economy recovers, and if bilateral conditions continue to simplify. The combined population of these countries is nearly 100 million and a €34 fare is a widely-affordable purchase.
On Tuesday 9 February Ryanair announced that Kaunas in Lithuania would become the airline’s 40th base in May. Two aircraft will be based there and nine new routes added taking the total to 18. See this week’s Take-Off & Landings for more details.
Expansion at London Gatwick?
Ryanair also continues to expand at London Gatwick where it now has seven routes and serves one million passengers annually. Although this is not a base (it is easyJet’s biggest), it still ranks as Ryanair’s 26th busiest airport in terms of weekly departures (based on OAG data for February), and its fourth biggest ‘non-base’ after Paris Beauvais (10th), Berlin Schönefeld (18th) and Venice Treviso (22nd).
Cawley talks positively about Gatwick: “There is plenty of room for Ryanair to grow there and it has a very interesting catchment area with nice connections.” Noting the move of Stewart Wingate from BAA-owned Stansted (Ryanair’s biggest base) to become Gatwick’s new CEO Cawley commented: “So he is gatekeeper turned poacher! Prices at Gatwick are almost the same as Stansted – which is not low – we have talked to the new owners, but not got down to any big detail, but we have no base and won’t unless the costs come down…but they will not ignore us.”
Despite all the growth involving Italy and Spain, the biggest country-pair in terms of weekly flights is still the UK-Ireland market with well over 100 daily flights. From Dublin, Ryanair serves 11 UK airports at least twice-daily, with London Stansted served seven times daily and London Gatwick five times daily. Three of Ryanair’s top country-pair markets are domestic with the airline operating more domestic flights in Italy (44 routes) and Spain (25 routes) than it does in the UK (just 12 routes). Among Europe’s big five air travel markets, Ryanair is least well represented in France. It has only one base in the country (Marseille) and the best country-pair in terms of traffic flows (to the UK) ranks just 12th, behind the UK – Poland market.
Route planning according to Cawley: “let’s do it”
anna.aero has been fortunate to have heard at first hand from Ryanair’s Director of New Route Development, Ken O’Toole and Bernard Berger before him – both have spoken at anna.aero’s annual Network Planning Marketplace in the past 18 months. But Cawley’s comments to anna.aero last week gave considerable insight into how Ryanair comes to make a decision to launch so many unusual new routes and then monitor their performance.
“The cost for opening a route is low” says Cawley in the first surprising statement. “So we don’t bother trying to analyse the living daylights out of it, we have a look at the demographics, and then make a decision to do it – we accept that around 7-10% might not work but we don’t see this as a failure – we see it as 90% success. We leave routes if we don’t make sustainable profits after six months, so there are very few routes under 18 months old that we would abandon.” Again he repeated his refrain: “I have never been as optimistic about the market as this before – I can see 200 new dots on the map for as far out as I can see…” Cawley’s warning/encouragement for potential airports then returns to his favourite theme: “The question of a route is primarily determined by the lowest cost airport.”
However, when the new planes start to run out in about three years, then Ryanair agrees that the resulting reduced growth will drive yields and its cherished cheap fares higher, and by the same token new routes may become a scarcer commodity. Meanwhile, Cawley is adamant that they won’t be calling Boeing back: “If Boeing wants to call us, we’re prepared to listen – but the price would have to be much lower.” Airports will be hoping Boeing will be placing that call.
Ryanair’s Q3 results for dummies
The results themselves were the usual ritual of bad news for Ryanair’s competitors: almost 15% passenger growth yet again, and the reduced quarterly loss of only €11m – against €102m last year – confirming both its powerful competitiveness, and the emergence from recession for much of Europe.
Yields were down only 12% against a feared 20% (making the average fare €34), traffic growth was 14% putting it on course to carry 66m passengers this financial year (in the 2009 calendar year it was 65.3 million). Costs per seat were down 23%, or 4% excluding fuel. The improvement is set to continue through 2010 resulting in a forecast year end €275m net profit as it pushes ahead with its 170-plus route launches with Ryanair hinting that this will rise to 200-plus new routes by the end of 2010.
In the medium term Ryanair is confidently telling shareholders it will double in size (since 2007) to 85m passengers by 2013 by which time it will have 299 aircraft (up from 218 now and 133 in 2007).
But because of the dispute with Boeing, it will start to run out of the new planes it would need to keep expanding, reducing compound growth from a regularly delivered 20% to a very regular (but also very good) 6%.
Not buying new planes will reduce annual capital expenditure from €1.2bn at the moment to $100m allowing it to pay a first time big €1bn dividend – apparently just a “one-off special” from the airline which never normally gives anything away.