View Full Version : Ryanair results

1st Jun 2004, 14:28
www.bbc.co.uk/business (http://www.bbc.co.uk/business)

Michael O'Leary in his usual charming manner predicts doom and gloom for aviation this winter again.

However, how will his merry bunch fare when their hedging runs out in September and they are exposed to sharply higher oil prices?

On the whole though, FR still seem to be making a lot of money... but not as much as before!

For all his rants in the past, this time I agree. Airlines WILL FAIL because of the competition and higher costs associated with operating currently.

What do you PPRUNER's think?

1st Jun 2004, 16:01
All my years in aviation I can't remember a Winter when there wasn't at least one operator going down the tube. It's a pretty safe prediction I'd say.

1st Jun 2004, 16:07
Wheelbarrow, I was amazed bt the Ryanair results to the point that I find them very difficult to believe.

Over the 30 years to around 1994 the aviation industry faced year on year yield reductions of around one percent peryear in real terms. This alone was enough to drive some companies out of business. Ryanair's yield reduction last year was 14%.

Their capacity is rising and their yields are falling. It does not take much of a mathematician to prove that it is only a matter of time before the various graph lines associated with those statistics run into dangerous territory.

I do not think fuel is the main risk that Ryanair face. I think it is that they are assuming that they will be the winner in a vicious price war. That is neither proven nor inevitable. It may turn out to be the case.

Just look at waht is happening in the Ruhr area at the moment. Dusseldorf used to be the overwhelmingly favoured airport. But now there are competitive offerings from and to numerous European cities from Niederrhein, Cologne/Bonn, Dortmund, Munster and Paderborn. Ryanair's operations at Niederrhein are probably the worst located and that disadvantage can only be compensated for by lower fares.

There is almost certainly overcapacity in that area of Germany now and it is likely to get worse.

There will be casualties. Ryanair has probably got enough cash to see off some of its competitors but waht is likely to happen is that the industry will consolidate abd that there will be very few long term survivors. BA in their last results release identified that there are 54 so-called low cost operators in Europe. My guess is that this time next year there will be less than 40.

2nd Jun 2004, 01:23
Budget airlines doomed, says Ryanair chief

Andrew Clark, transport correspondent
Wednesday June 2, 2004
The Guardian

Europe's largest low-cost airline, Ryanair, yesterday revealed its first loss for 15 years and enraged its rivals by singling several of them out as potential victims of a "bloodbath" in the budget travel industry.
In the clearest sign yet that the phenomenal growth in cheap air travel is reaching a limit, Ryanair disclosed that it had lost €3.5m (£2.3m) in the first three months of the year as it slashed its winter fares to withstand fiercer than ever competition.

The airline's chief executive, Michael O'Leary, put a brave face on the deficit by comparing it favourably to the record of Ireland's rugby team: "We're Irish - we're used to losses. England come over and kick the **** out of us nine years out of 10."

For the full 12 months to March, Ryanair's profits fell by 5% to €239m - the first decline since the Irish regional airline reinvented itself as an international budget carrier in 1990.

Mr O'Leary forecast that business would remain tough for budget airlines and he predicted several of his rivals could go to the wall. He claimed that casualties could include BMI's low-cost offshoot, BmiBaby, and the Exeter-based airline FlyBE, both of which furiously denied they faced anyfinancial difficulty.

"We believe some of these loss-makers will go bust - some over this winter, some over the next two years," said Mr O'Leary. Under questioning, he added: "It may be BmiBaby or FlyBE in the UK - they're not all going to survive. They can't all sustain this level of losses for too long."

He alleged that continental victims could include two German budget airlines - Germanwings and Hapag Lloyd Express.

Mr O'Leary's remarks came amid increasing concern among consumer watchdogs about low-cost airlines going bust. Unlike package holiday operators, budget airlines have no bonding scheme to protect customers. Passengers with forward bookings can be left out of pocket if an airline fails.

Two British budget airlines, Birmingham-based Duo and Leeds-based Planet Air, failed this year. Last week, SkyNet became the third Irish carrier to cease trading since January, grounding its fleet at Shannon airport.

FlyBE insisted it was not loss-making and had seen its passenger numbers rise 160% last year. In a statement, it said: "We are a low-cost airline focused on regional delivery with a good balance of domestic and international routes. Unlike Mr O'Leary we do not face a scrap in the major price war which is affecting the London market."

A spokeswoman for BmiBaby said the airline was hoping to move into the black this year: "Far from going under, we're expanding at a great rate of knots."

Hapag Lloyd Express, which flies from Manchester and Newcastle to several German cities, said it believed the number of low-cost airlines in Europe would fall from more than 50 to fewer than 25. But a spokesman added: "Definitely Hapag Lloyd will be one of the survivors."

Andreas Bierwierth, the deputy managing director of Germanwings, said Mr O'Leary was bitter because of Ryanair's poor performance on flights to Frankfurt: "We've been laughing this morning about his statements. I think they are his hopes rather than his real thoughts."

After a decade of phenomenal growth, many low-cost airlines have admitted they have found the going tough since the beginning of the year.

Analysts say carriers are struggling to find geographical territory which is yet to be snapped up. Traditional airlines such as British Airways and Lufthansa have hit back, lowering many of their fares to compete more aggressively. The high price of oil has compounded the financial squeeze.

Ryanair carried 23m passengers last year but cut its average ticket price by 14% to €40 as it struggled to fill up its aircraft. The airline has scaled back its expansion plans - after increasing seat capacity by 55% last year, it will grow by a relatively modest 16% this year.

"We don't walk on water," said Mr O'Leary. "The times you test the mettle of a company is when it's losing money."

2nd Jun 2004, 07:31
Hapag lost Eur 80 million last year, lets see how they do this year in an over supplied German Market. The real barometer will be EZY, I don't think they'll do £160m profit as FR did. There's a lot of bull out there from so called low cost airlines, as far as I can see there is only FR giving the straight facts of life in this sector.
Hats off to BA they are playing a very good game at the premium end, but in the Low cost arena there will be plenty of stranded passengers in the next twelve months unless they chose carefully.

2nd Jun 2004, 07:37
MOL is basing his future predicitons on a risky assumption.

That being, that all customers care about is price. Ergo, as Ryanair is committed to offering the lowest prices (to the extent of destroying its yield in a fare ware), it will be the only survivor.

However, it could be argued that customers are becoming more focused on value rather than pure price, and that they are including onboard service, convenience, reliability and a host of other factors when they make their travel decision. This will benefit airlines such as BA who are IMHO offering the product with the most 'value' (i.e the best combination of price/service)...just look at the results.

2nd Jun 2004, 09:03
The assumption that Ryanair will win a price war doesn't sound too far fetched to me. It has larger cash reserves than any of the competitors and the lowest operating costs in the business, which puts Ryanair at a significant advantage over the rest.

As far as I'm concerned, the so called low cost airlines that are neither here nor there, eg Hapag Lloyd Express, flyBE, bmiBaby and German Wings are most likely to go under. Although they have substantial backing from their parent companies, they will not sit out losses in the long term, similarly to the Go situation with BA. If you remember, the only market that Go was breaking into was BA's own, similarly to German Wings and Lufthansa.

2nd Jun 2004, 09:22
Well, the CEO of Snowflake, the SAS operated LCC said last month that if the losses of the company would continue they would stop operations within 2 years...

Value before price? EZY flies into the main airports, not Ryanair. That makes a difference, but there are but a few pax that would look at the service on a 1-hr trip as an advantage to price (not thinking of connecting flights, etc.)

Me go price anyday...

2nd Jun 2004, 09:24
You have got to wonder what accounting skeletons there are . What would happen if FR had to repay all the taxes it says it is allowed to keep ?
Pleased to see MOL and his ****ty little airline are at last beginning to get their come-uppance .

2nd Jun 2004, 09:43
Colegate’s mention of the Ryanair yields highlights a curiosity inherent in the lo-co business model. Conventionally, breakeven load factor is calculated by dividing cost per unit of capacity by yield (revenue per unit of traffic). Ryanair’s comes out at a healthy – I guess, 60% or so?

But paradoxically, an FR flight that is only 60% full will probably be losing money quite heavily, because most of the pax have paid fares that don’t cover the cost of flying them. It’s only when you get to the higher fare levels that the real money starts to be made.

With an 81% average load factor in May you can bet there were a lot of flights with punters on board paying top whack, which for FR is normally between €150-200 one way. If they lose those passengers, the model looks very shaky.

In the last year, Ryanair have abandoned 14 routes. If you consider that the FR model is supposed to work ‘anywhere’, that’s a hell of a lot. Pick one at random – say, Stansted-Ostend. Who’s going to pay €129.99 or €169.99 (plus taxes) for that? Sure, you can fill up the aircraft with €39.99 ‘where shall we go today?’ punters but they won’t pay the bills.

2nd Jun 2004, 10:00
It never ceases to amaze me when MOL pontificates about the demise of low cost operators why he always tactfully excludes his own outfit from the list of possible casualties. The old adage "the bigger they are, the harder they fall" may well hold true here - time will tell.

Both Easyjet and Ryanair have vast numbers of aircraft to be delivered - one wonders what exactly are they going to do with them? The smaller operators like Flybe and BmiBaby have much smaller route structures and considerably less and smaller aircraft. Inevitably, their overheads will be proportionately lower and, in the long run, I predict they WILL survive.

MOL might like to take a good long look at his own operation before criticising his competitors!

2nd Jun 2004, 10:04
MOL is basing his future predicitons on a risky assumption.

That being, that all customers care about is price. Ergo, as Ryanair is committed to offering the lowest prices (to the extent of destroying its yield in a fare ware), it will be the only survivor.

However, it could be argued that customers are becoming more focused on value rather than pure price, and that they are including onboard service, convenience, reliability and a host of other factors when they make their travel decision. This will benefit airlines such as BA who are IMHO offering the product with the most 'value' (i.e the best combination of price/service)...just look at the results.Absolutely right, IMHO. And I believe that more of the European market than the American market will look for value over absolute price. I think BA and others have adopted a better marketing proposition than their US counterparts, who seem to think that counter-attacking on price alone is the answer. Even if it's true for the US market, the result there seems to be that the majors now often provide a poorer service for a higher price than the low-fares (including their own low-fare units in some cases), which is suicidally crazy.

2nd Jun 2004, 12:15
The trick is get your break even load factor as low as possible by keeping your cost base low e.g FR's break even load factor is 56% EZY's is 81%.
You don't have to be a genius to see FR's strength in acompetitive market place.

2nd Jun 2004, 12:43
Red Sky Ahead for Ryanair
Wednesday June 2, 7:10 am ET
By Peter Eavis, Senior Columnist

Michael O'Leary's last-man-standing strategy is looking very shaky.
The outspoken CEO of Ryanair, the big European budget airline, argues that his company will emerge victorious from a brutal fare war. But results that came out Tuesday for Ryanair's 2004 fiscal year, ended March 31, suggest the company may never again report the sort of earnings that once caused its stock to soar.

Indeed, the 2004 numbers and comments made by O'Leary suggest that the chief exec has no convincing recovery strategy for this new, harshly competitive environment.

With the company's American depositary receipts, or ADRs, nearly 50% off their 52-week high, some investors are eager to know when to buy Ryanair stock. On Tuesday, O'Leary said that after a long, hard slog, his company would be well-placed to trounce the competition. But the 2004 numbers show an airline that is attempting to fly with broken wings. Ryanair is becoming incrementally less profitable on each new dollar it invests in its business -- and it actually a made a negative return on capital employed in the fourth quarter.

In the 2004 fiscal year, Ryanair posted net income of 215 million euros, using U.S. generally accepted accounting principles, down from 242 million euros in fiscal 2003. It actually made a small 2-million-euro loss in the fourth quarter. Such a setback would have been unthinkable just a year ago, when earnings growth was robust and O'Leary was the toast of Wall Street. Ryanair ADRs rose 21 cents to $30.90 Tuesday.

Seeing Red
O'Leary says that because Ryanair has lots of cash in the bank and a low-cost operation, it can take on all competitors and come out ahead. But while Ryanair will likely survive, its profits will suffer badly and it will be dogged by tough competitors for as long as a market for low fares exists in Europe. It has been O'Leary's massive miscalculation to believe that only his airline can offer something as simple and commodity-like as budget air travel.

He half admits as much in his rhetoric. "One thing I don't want coming out of this conference call is optimism," O'Leary said Tuesday on an earnings call. He is quick to give everyone the message that Ryanair will come out on top. But that's far from certain, looking at what came out Tuesday.

First off, an important indicator of profitability sank into negative territory. Return on incremental invested capital, whose methodology can be found here, is a yardstick that Detox has applied to Ryanair over the past year. In the fiscal fourth quarter, that return sank to minus 7%, from 18% in the third quarter and 55% in the year earlier quarter. This is a clear sign that the company is making less and less on every new dollar it employs in the business. It indicates that O'Leary, believing his own hype that Ryanair was indomitable, has continued to spend heavily on a fleet with slumping profitability.

It appears that O'Leary thinks he can win the fare war by driving down prices further than can be borne by competitors. To be sure, he was willing to suffer a big drop in average fares in 2004, when they fell 14% to 40 euros, from 46.50 euros. One way in which O'Leary likes to show that an average fare decline is all part of the plan is by pointing to passenger growth. For example, in Tuesday's press release, Ryanair said that its 47% increase in passenger traffic in 2004 "was driven by significantly lower fares." There's one big snag with that line of argument -- average fares fell precipitously in the fourth quarter, and so did passenger numbers. The average fare plunged 9% to 32.27 euros from 35.62 euros in the third quarter, while passengers fell 6% to 5.73 million. There is no seasonality in this, since in 2003, passengers actually went up 4% from the third to fourth quarters.

True, last year's Iraq war and an acquisition may have skewed passenger numbers. Even so, the fourth quarter is strong evidence that Ryanair is in that nightmarish position of cutting fares and attracting fewer, not more, passengers.

Going Hiking?
There are other reasons to be worried. Ryanair execs could give average fare guidance for the next two quarters but not for the 2005 full fiscal year. This sent shivers down the spines of some analysts who interpreted the refusal as a sign that management has lost control of the situation. J.P. Morgan analyst Chris Avery slashed his 2005 earnings estimate to 162 million euros from 222 million euros. Ryanair is currently guiding investors to expect earnings of 200 million euros or higher.

O'Leary unconvincingly brushed off two areas of concern -- higher fuel costs and the European Commission's ruling earlier this year against Ryanair's allegedly anticompetitive deal with Charleroi airport near Brussels. Ryanair is hedged on fuel costs only until the end of September, and it is betting that oil prices will come down in the winter. Ryanair says it will absorb higher fuel costs through cost savings in other areas. But O'Leary conceded on the conference call that there were no longer big and obvious ways to cut costs at the company.

As for the Charleroi, the Ryanair bears have argued that the ruling will force many of Ryanair's airports to hike fees to abide by new European Union guidelines. O'Leary said that the earnings guidance didn't factor in higher airport costs due to the commission's ruling. So if, as is likely, the ruling does boost airport costs, expect it to reduce the chance of Ryanair hitting the already lackluster guidance.

O'Leary also made an argument that was starkly, and therefore suspiciously, at odds with everything he has said before about airports. O'Leary said that Ryanair was going to stay at Charleroi even though it has been offered cheaper deals by several other airports. In the past, Ryanair has argued that it will always look to move to cheaper airports, especially when it is facing regulatory problems at a more expensive airport.

The fact that it has no plans to move from Charleroi suggests either that Ryanair no longer follows that strategy, or that the offers from other airports may not be as attractive as O'Leary claims.

2nd Jun 2004, 17:01
From the Flybe website......

Mr O’Leary is quoted yesterday in saying “The times you test the mettle of a company is when its losing money.” We agree with Mr O’Leary as we were there in 2001, we have taken £40m out of our cost base, and as a consequence delivered two consecutive years of profit growth through the efforts of all of our 1500 dedicated staff. So if you want to know how to turn around your winter losses of £2.3m Mr O’Leary, give us a call. We stand ready and willing to help."


Back to news menu

2nd Jun 2004, 17:37
Compare FR's winter losses with EZY's, and you'll see that they're doing better. However, no-one is speculating about EZY's future, so why the doubts about FR?

MOL may be a b&stard, but he's a clever b$stard, and I doubt that he won't come out on top.

Before everyone throws their arsenal at me, I don't even work for him, and I certainly don't like what he's doing to his staff right now, but I just can't see the business loosing out in a price war - more likely BMI Baby now that they're going toe to toe with EZY at EMA.

2nd Jun 2004, 17:41
Here we see the usual investor-led hysteria when their "poster-child" suddenly shakes them into reality with negative results. It was always fairly obvious that Ryanair couldn't sustain enormous growth in profits and margins till the end of eternity, as some people appear to have believed. MOL more than once warned that falling yields were inevitably going to have an effect on the bottom line, but no one wanted to know.

Looks like the European low-cost bubble is on the verge of bursting - at least for some airlines. Despite the negativity in the press, I'm willing to bet Ryanair and easyJet will still be with us in 5 years' time.

Yes, some airlines provide more value than others, but el cheapo fares will continue to attract the masses...not unlike a big supermarket in the UK.

2nd Jun 2004, 18:06
Hmmmm....I'd argue that the "value for money" you get from Tesco is exceptional. Netto on the other hand may have lower prices, but it's obvious whom the U.K consumer prefers.

2nd Jun 2004, 18:51
A billion euros of cash is a decent cushion, so Ryanair will be flying for the foreseeable future.
But what will they do with all these new aeroplanes?
They could pick off competitors like cherries, if they saw fit. Take Leeds-Bradford. If FR moved in there on Jet2's routes, and flew everyone for free for a couple of months, Jet2 would probably suffer fatally. So FR would inherit a handful of routes with established client bases and use up half a dozen new 737-800s. It would cost a few million £, but whoever would challenge them after that?
Of course, they haven't implemented such a strategy, but they could afford to, and could destroy any competitor that didn't have their massive cash cushion. Not only that, they would be buying (stealing?) an established base fairly cheaply.

Just a thought.

2nd Jun 2004, 19:48
Ryanair and MOL will be long term survivors, make no mistake. why? Because they have the lowest cost base and are strategically focussed on cost leadership. All their activities in their value chain are geared to this, they are not trying to be all things to all men, they're not trying to offer low prices [b]and[b/] a quality service because they know any airline that goes down that route is doomed to failure.

In other words they are following what top business guru's like Harvards Michael Porter have come to realise that firms must pick one generic startegy, you either pick cost leadership or you differentiate your product by quality/service etc. You cannot pick both. Many companies across many industries have tried this and failed as they got eaten alive by firms committed to just one strategy and who geared all their resources to that end.

You can like it or not, Ryanair and more importantly their customers who love those cheap fares really don't give a damn what individuals like stanley37uk think!

This battle wil be won and lost in the market place and at the moment FR have the competitive advantage.

2nd Jun 2004, 20:00
If we're treating air travel increasingly as a commodity, let's look at the supermarket comparison.

The biggest supermarket chain in the UK is Tesco which is focused on delivering value rather than low prices. The lowest-priced chains are, looking at their relative size, 'niche' operators. Ironically, in the same way that Waitrose or the Harrods Food Hall are 'niche' operators.

Now, the question is, will Ryanair become a 'niche' operator, only able to offer dirt cheap flights with bare-bones service to out of the way airports? If they do, they'll have a lot of spare capacity.

There will always be a hard-core who want the cheapest of everything. But as the Tesco analogy shows, it's becoming increasingly apparent that the majority want a little more....and are willing to pay for it.

2nd Jun 2004, 20:21
Thats what I'm saying BL, Tesco's are following a differentiated product strategy based on service. They have geared all their capabilities and resources to that end. But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service, explain then the rise and rise of Aldo and Lidl supermarkets? Explain the rise and rise of Wal-Mart?

Ryanair have done the same. And a firm following a low cost, price leader strategy is not a "niche" operator. Thats the generic strategy they have chosen.

There is always room in the market for price leaders. And what we are seeing is the airline industry is a mature industry now, the hey day and glamour days are long gone. And what can be seen in mature industries is the battle shifts from non-price to price competition.

2nd Jun 2004, 20:57
OneWorld22: But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service, explain then the rise and rise of Aldo and Lidl supermarkets?Er, what rise and rise?

When Aldi, Lidl and Netto first moved in to the UK, the financial press was all full of the impending demise of the established supermarket chains. Sainsbury's and Tesco both doomed, must radically reinvent themselves to match the prices, etc. etc. But it hasn't happened, has it? It's been something like 10 years now, and Aldi, Lidl and Netto are still effectively confined to being specialist retailers.

The market shares may fall into a different equilibrium where the airlines are concerned, but I entirely agree with BahrainLad on this - enough of the UK/European market is sufficiently concerned with value, as opposed to price, that FR and others will hit a ceiling. While this may come as no surprise to astute observers, I reckon that in time MOL's present rhetoric will come to sound a bit hollow.

2nd Jun 2004, 21:25
But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service.

No, they want both. Ryanair don't, they only offer a low price. That's all well and good, but what's becoming increasingly apparent is that people are willing to pay a little more for a smile, or an allocated seat, or a centrally located airport....or a spare a/c when it all goes tits up.

Ryanair have specifically stated that they are not interested in providing anything other than low fares, at all odds.

Time will tell whether they become a Netto/Aldi/Lidl or a Tesco/Sainsburys/Asda.

codpiece face
2nd Jun 2004, 22:46
I think there are other factors involved here particularly equipment and routes ie flybe operates from very small british airports with regional equipment using a loco business model, so this does not put it head to head with ryanair. Following on how many of these routes could Ryanair use?.

Easyjet seem to be overlooked by MOL these days as if they were not competitors at all, and i still question the swap of equipment by EZY to the airbus which i am sure ( although will stand corrected ) has a greater range opening up the longer routes to EZY in the long term, to the point were they could do etops sectors to ny. A little far fetched i know but all you have to do is look just how far the boundary of the eu is just now and you will see that it is almost to the middle east and the artic north.

At the end of the day the airlines that survive the fare wars could just be the ones with the most daring bank manager.

2nd Jun 2004, 23:47
Like BL you're missing the point Globaliser......

No true business strategist would have predicted the downfall of Sainsbury's and Tesco's because of what I pointed out earlier, namely that firms can choose EITHER a strategy based on low cost, low price to the customer OR offer a product that is significantly differentiated from the competition that the firm can charge a price premium.

In other words there's plenty of room for a Sainsbury's AND Aldi/Lidl in the market place. It does not have to be one or the other. Each have their own customer base.

There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis. All these players have their target market, leave them to it! Theres room for all firms that follow sound strategic choices and commit themselves and all their resources totally to it.

BL, customers don't want both, if they did, Ryanair would just be another case study on a failed airline read by MBA's......Customers know full well what they get with FR and they are willing to pay for it. Who are you to tell us all here what exactly the customers want? They make it clear by looking at FR's passenger numbers.....

Wee Weasley Welshman
3rd Jun 2004, 10:19
What happens when long haul starts raking in the cash again for the very large airlines? When the North Atlantic premium pax return - and like the salmon, they always have - BA for one will be raking in gazzilions.

Nothing to stop them then 'refreshing' their shorthaul product and pricing. Much to the detriment of those airlines whose whole business is inside european airspace.

Another point on quality. I think the biggest quality shorthaul airlines can offer is the city pair, followed by the frequency/timing, followed by reliability.

As for allocated seats - some pax want them, others like free seating. In flight meals/drinks/newspapers - again as many don't want them as do. Nice happy staff - everyone wants them but I don't think any airline can claim a monopoly on those.

If the above is true then one business model suggests itself as being attractive.



3rd Jun 2004, 20:08
Surely if BA are to compete on quality and reliability, they'll have to work at matching Ryanair's punctuality.

"Saturday May 29, 2004
The Guardian

Ryanair is Britain's most punctual airline, according to statistics released by the Civil Aviation Authority this week. With 81% of their qualifying flights on time or less than 15 minutes late in 2003, Ryanair tops a table that includes British Airways in fourth place with 78% of their flights on time. "

I've flown with Ryanair dozens of times to the South of France. I've only been delayed once and I've been early many times. I like the small airports that they use. On arrival it's only 10 yards to the car hire desk, 500 metres to the autoroute and you're away.

3rd Jun 2004, 23:54
OneWorld22: In other words there's plenty of room for a Sainsbury's AND Aldi/Lidl in the market place. It does not have to be one or the other. Each have their own customer base.

There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis.I don't think we're actually disagreeing very much here. BA isn't competing purely on price, and BL and I both think that there is enough of a value-driven (as opposed to price-driven) market for something like the current BA approach to work even in current circumstances. The numbers seem to suggest this - compare the horrific legacy numbers on the other side of the Atlantic where the majors are making the mistake of competing on price alone.

The problem is that MOL - or rather his rhetoric - fails to recognise this. And I think that he will come to rue his words. (No, actually, given that he's such a thick-skinned *******, we will come to see that his words were no good.)CARR30: Surely if BA are to compete on quality and reliability, they'll have to work at matching Ryanair's punctuality.On the basis of those figures, BA's work would seem to be largely done! The difference between them is 3 points. (3 more in every 100 BA flights slipped over that magic "15 minutes late" mark.) When you take into account the fact that FR operates at so many secondary airports where there is no ground or air congestion, whereas BA has a huge operation at (probably) the world's most congested airport, it's pretty surprising that the margin between them is so small.

Of course, as with all statistics one needs to dig a bit more to find out what they really mean.

4th Jun 2004, 07:03
Guys, Guys, FR carried 26 milliion passengers last year and are currently carrying more bodies around Europe the BA, the formula works ! the passengers have chosen. If another company wants to try and take that market good luck, some people will pay for the frills, most will take a cheap ticket for a hour long flight. Its a simple model, lets stop whinging and pretending it will go away... it won't.

4th Jun 2004, 07:19
Dewdrop, I don't think anyone's denying that Ryanair can carry around huge number of passengers around Europe. At the price they're offering it would be wrong to expect they wouldn't. The questions I think need to be answered are:

(a) If you accept a £1 lead-in price is paid for by the pax who pay the £100+ fare, then how do you improve yield when flag-carriers are lowering their prices too?

(b) Are you going to be able to carry on differentiating your product in a highly competitive market place if you focus exclusively on price - and other carriers are very close to matching that price?

Low margin requires very high volume to produce profit. Profit provides opportunity for investment. It doesn't take much before it becomes hard to realise enough money to invest in future products...

I have no doubt that MOL and RY will be around for a long time although there's no way the growth of previous years will continue at the same rate. RY are very good at what they do and MOL (for all his cheeky chappy Irish charm) is a bright man (also a trained accountant so knows the cost and value of all around him)who's been around for a long time.

Personally though, I predict rocky waters ahead and I think he knows it (ergo the downbeat trading assessment from the usually ebullient gent).

4th Jun 2004, 12:24
OJS I agree with everything you say about FR and the bottom line is cost control. If FR maintain the lowest cost base they will allows lead the LC operators, and put pressure on everyone else who wants to compete on price.

The question I suppose is how big is the market for those who wish to provide a service with frills and who is trying to grab that market ?