independent

Wednesday 16 April 2014

175 planes could just be the start of Ryanair spending spree

Boeing Commercial Airplanes President & CEO Ray Conner and Ryanair CEO Michael O'Leary pose after signing a $15.6 billion purchase agreement on March 19, 2013 in New York City.
Boeing Commercial Airplanes President & CEO Ray Conner and Ryanair CEO Michael O'Leary pose after signing a $15.6 billion purchase agreement on March 19, 2013 in New York City.

Michael O'Leary has hinted that Ryanair could be looking for an additional "100 or 200 more" planes, on top of the 175 Boeing aircraft order it has placed.

The deal – revealed last week by the Irish Independent – was unveiled yesterday by Ryanair boss Michael O'Leary in New York.

Of the new 737-800 aircraft being ordered, 75 will be used to replace existing planes in Ryanair's 305-strong fleet, while the remainder will help it expand its operations across Europe.

The increased Ryanair fleet will see the carrier employ an additional 3,000 cabin crew, pilots and engineers. That will bring its total workforce to over 11,000.

The order is the biggest ever by Ryanair and the largest ever order for Boeing from a European airline.

Ryanair has secured a deep discount on the purchase as Boeing focuses on developing the next model in its 737 range.

Mr O'Leary said Ryanair was paying "slightly higher" prices compared with a 53pc discount it got on a previous Boeing order.

Ryanair is ordering the aircraft at a time when legacy carriers such as Lufthansa, Alitalia and Iberia are cutting back their short-haul route networks. That gives airlines such as Ryanair and rival Easyjet an opportunity to muscle in further on ground once guarded by flag carriers.

"We needed this order to fill the gaps left by the likes of Iberia in Spain and SAS in Scandinavia as the network airlines concentrate on long-haul and feeder services," said Mr O'Leary, adding that expansion was also being eyed in Poland and Italy.

He also confirmed Ryanair could order another 200 aircraft by the end of the year.

"We could be looking at 100 or 200 more when we decide on the Max, depending on how much the market opens up." He was referring the Boeing's 737 Max, which is the next generation of the aircraft type. "Today's order is a very much an interim order," added Mr O'Leary.

Costs

He said that the aircraft just ordered – the first of which will be delivered next year – would enable Ryanair to lower its costs even further.

"They provide Ryanair with the additional capacity to exploit substantial growth opportunities that currently exist as many of Europe's flag carrier and smaller airlines are restructuring and reducing their short-haul operations."

While Ryanair has primarily focused on secondary airports, it's likely that primary airports will also become targets for the airline.

"Their share of the short-haul market has been growing as legacy carriers have been cutting back," said analyst Donal O'Neill at Goodbody Stockbrokers. "Germany is a big opportunity for Ryanair, as is Italy and Spain once it recovers."

Mr O'Neill told the Irish Independent that there's "plenty of scope" for Ryanair to do another big aircraft order and that the measured pace of passenger growth being targeted by the airline would ensure that the carrier's fares won't come under downward pressure as a result of extra capacity coming on stream.

Ryanair is thought to be looking at a number of options for funding the aircraft purchase, including the possibility of using some of its more than €3.5bn cash pile. But shareholders are still likely to see further special dividend payments as the airline continues to be strongly cash generative.

Irish Independent

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