Sunday 25 September 2016

O'Leary now wants to do an Italian Job on the Germans

Published 02/08/2015 | 02:30

Ryanair’s Michael O’Leary has set his sights on the conquest of the air routes over Germany
Ryanair’s Michael O’Leary has set his sights on the conquest of the air routes over Germany

Ryanair is going on a price war offensive - again. It isn't quite like the old days when Michael O'Leary would show up for a photo opportunity in a military tank at the headquarters of rivals.

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It is all a little more grown up now.

O'Leary is suggesting that he and other airlines should publish details of all of their fares on their own websites to show who is offering the cheapest deal. It is an unusual idea, especially given that independent price-comparison websites already claim to do the same thing, but in an independent way.

O'Leary wants to team up with other airlines and show price comparisons themselves. He is obviously confident of his pricing policy - but this does look a bit more like an old-style Ryanair publicity ploy.

We will have to wait and see.

Meanwhile, the real action for Ryanair is taking place in foreign battlefields. The airline, which reported a massive 25pc hike in first-half profits during the week, really wants to take the fight to Germany.

Ryanair is targeting a 20pc share of the German aviation market within the next five years. It wants to improve on its relatively low 5pc share in one of Europe's biggest markets.

It will locate five new aircraft at Berlin's Schoenefeld Airport from September. It already has five bases in Germany but its market share is well below its average 15pc share across Europe.

It will take time to build but clearly O'Leary is preparing to put the resources behind finally cracking Germany.

You only have to look at what Ryanair has done in Italy where Alitalia is threatening to downgrade Rome's Fiumicino Airport as a hub because of its focus on low-cost airlines and what it called "mediocre service".

It might be a stretch to say Alitalia is being pushed out of Rome by Ryanair, but it mightn't be too far wrong.

Goodbody Stockbrokers reported during the week that of Milan's three airports, Bergamo (which is dominated by Ryanair) is the best performer.

The broker believes it reflects the way the market there continues to shift towards the low-cost carriers. A similar trend in Germany a few years down the road would be worth a lot of money to Ryanair.

Overall it has been another successful month for O'Leary whose shares rose in value by another €27m in July alone to €635m. If the airline hits Goodbody's price target of €15.75 (currently at €12.36) it would be worth another €174m to O'Leary.

Masding should go after PTSB mortgage debacle

Permanent chief executive Jeremy Masding probably should have ignored the advice on his press conference briefing document during the week and just smiled from ear to ear. Things couldn't have gone any worse for the beleaguered bank boss.

I don't think he will be running Permanent TSB for much longer and nor should he be. He apologised for the bank's failures in handling the tracker mortgage issue which saw 22 people lose their homes directly as a result of the bank's failure to provide their interest rate entitlements.

His defence of his own position is twofold: namely, he wasn't around when it first happened back in 2006, 2007 and 2008; but also that the bank was essentially broken and had to be fixed.

This implies that Masding was too busy overseeing a survival plan for the bank to have picked up on the appalling mistake that was unfolding over an eight-year period.

Masding is on very thin ice here, because not only did the bank challenge the Financial Ombudsman and High Court findings on this issue - but it even went for a Supreme Court appeal.

The Central Bank investigation into this issue began in June 2014 but it doesn't appear to have been taken seriously enough until February 2015. It was only in February of this year that Permanent TSB dropped its Supreme Court challenge.

The implications for some bank executives at Permanent TSB could be very serious. The Central Bank has completed its initial investigation which has resulted in the redress scheme offering up to €50,000 compensation to customers.

It is now conducting a further probe into whether wrongdoing or lack of action by executives at the bank warrants fines and/or sanction of individuals.

A maximum fine of €5m can apply for offences committed up to August 2013 but sanctions on the bank for any breaches of the Central Bank Act after that date can be as much as €10m or up to 10pc of turnover.

We don't know whether the Central Bank will make findings against any executives but it has refused to rule out the possibility of offences having been committed after August 2013 in this case.

For all of the chest-beating at the press conference last week, there are lots of unknown aspects to this case. Surely the appalling decision to challenge the Ombudsman ruling went far up the executive management chain? The decision to launch and then drop a Supreme Court appeal must have gone very far up.

It is understood that the ongoing Central Bank investigation will also examine the level of co-operation afforded to the probe by Permanent TSB up to February 2015 and the manner in which these interest issues came to light in the first place.

There are a few real tragedies about this debacle, which overshadow the minor matter of whether Masding stays in his job.

Firstly, while all customers will be appalled at what happened, the lack of competition in the Irish banking landscape means not that many will leave.

Secondly, the customers who have been shamefully treated are the same ones who are paying taxes to cover the cost of bailing out Permanent TSB - several billion of which remains unreturned.

Thirdly, the greater the fines applied to the bank on foot of this issue, the greater the loss to taxpayers, who own 80pc of PTSB. One arm of the State, the Central Bank, could collect fines which will reduce the value of a bank that already owes billions to taxpayers.

Against that backdrop, how can Masding stay?

Bullish Boucher eyes balance sheet growth

Bank of Ireland's Richie Boucher sounded very bullish as he announced a doubling in first-half profits at the bank to €743m on Friday. Boucher has steered the bank very carefully back to financial health and out of the financial crisis. He has taken a very tough line on mortgage deals and standard variable rates which has given the banker a pretty tough reputation.

But aside from headline stuff, he has quietly done some interesting quieter deals. During the week the bank was part of a consortium that bought €2.6bn worth of Irish loans from Lloyds. These were former Bank of Scotland (Ireland) loans.

While others bought the non-performing part of the book, Bank of Ireland acquired around €200m in performing SME loans representing around 650 customers.

This is the kind of lower risk purchase that can allow Bank of Ireland to expand its loan book while gathering new customers to whom it can sell a load of other stuff.

Last year it acquired a chunk of the former Irish Nationwide Building Society mortgage book. Again, it bought the lower risk performing mortgages.

After massive contraction, Bank of Ireland aims to increase its balance sheet from around €82bn to €90bn. These deals will help.

Meanwhile, Lloyds now has just €30m left in outstanding Irish loans, mainly from the old Bank of Scotland (Ireland) business. This is down from about €16bn in 2010. It has been the fastest cut and run from a market by any bank.

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