Ryanair’s O’Leary pledges growth push by stealing European market share

Ryanair chief executive Michael O’Leary has vowed to push for breakneck growth and win more market share from rivals in Europe, as he presses ahead with a goal to double passenger numbers over the next decade.

The airline’s ambitious new target to fly an annual 300mn passenger by 2034 would be more than any airline has yet managed.

“I think the thesis that there’s no more growth in Europe, [and that] Europe is completely tapped out, is wrong,” he told the Financial Times.

The company bought 300 short-haul aircraft in a $40bn deal with Boeing earlier this month. But some investors and analysts question whether there are enough passengers left to carry in Europe, particularly at a time of rising climate concerns when policymakers are raising carbon taxes on flying.

O’Leary agreed the airline’s growth rate would moderate to around 4-5 per cent a year, but said this was enough to hit its forecasts. He said there was still plenty of room to steal market share from rivals in western Europe, as well as stimulate demand in new markets in central and eastern Europe.

“As long as we don’t do something stupid — which is a daily challenge in this industry — we will continue to wipe the floor with every other airline in Europe,” he said.

Ryanair has been European aviation’s post-pandemic winner, moving into new markets as financially weaker rivals retrenched. The carrier is already the largest in Europe by passenger numbers; it expects to carry a record 168mn passengers in the year to the end of March, 13 per cent higher than before Covid.

Alex Irving, an analyst at Bernstein, envisages the airline’s growth inevitably slowing as the industry stabilises following the pandemic. Its home market of western Europe is “essentially fully penetrated”, he said.

“Double-digit, and even high single-digit growth rates, were sustainable while it was smaller, but as a near-600 plane airline, it cannot maintain these rates without spoiling yields,” he said.

Irving instead expects Ryanair to pivot from high growth to returning cash to shareholders, and estimates payouts of €2bn per year in the near future.

However, O’Leary is unmoved by doubts. Speaking in Ryanair’s offices near Dublin airport, he boiled the business model down to three words: “lowest cost wins”. 

Analysts agree that no European airline other than Hungarian carrier Wizz Air comes close to matching Ryanair’s cost base; the Irish airline spent decades stripping costs and passing the savings on to consumers through lower fares.

It uses a single fleet of aircraft to keep maintenance costs low, and keeps a regular flow of new and more efficient planes to lower fuel consumption. It targets quick turnrounds at generally cheap airports to sweat its assets to the maximum.

The obsessive focus on low costs and subsequent “no frills” experience has left Ryanair with a reputation. UK consumer group Which? said Ryanair “regularly sits at the bottom” of its table ranking UK airlines, and only escaped “last place this year through the horrendous experience offered by [fellow ultra-low cost airline] Wizz Air.”

But passengers have kept coming, attracted by low fares and its recent record of reliability. Ryanair did not sack staff during the pandemic, cutting their pay temporarily instead, and did not suffer from the disruption which blighted the rest of the industry last summer.

At about €16, its shares have returned to their pre-pandemic levels but have easily outstripped rivals since the start of the crisis in 2020.

Chris Davies, an investment manager at Baillie Gifford, which is the third-largest investor in Ryanair and has owned the stock for more than a decade, said it was “strategically remarkably consistent”.

“They haven’t really deviated very much from the core premise of bringing the unit costs down, bringing airfares down and taking market share ,” he added.

Many within the industry agree, and airlines are riding high off a bounce in demand for travel.

“Many several years ago predicted that Ryanair would soon run out of European growth opportunities and it hasn’t yet,” one industry consultant said.

Olivier Jankovec, head of airport industry body ACI Europe, said the shape of the pandemic recovery has suited short-haul airlines like Ryanair, as leisure travellers have returned in higher numbers than business people.

He said Ryanair wielded “a lot of market power”, including demanding airports offer major discounts on landing fees as it rebuilt its routes.

“The impact is that it puts airports in competition with each other like never before . . . I don’t think it is good for the market or consumer,” he said.

However, there are questions over whether the rebound in demand for travel is sustainable, particularly if airfares stay high.

Prices have risen sharply over the past year, outstripping inflation, and O’Leary himself is among a clutch of senior industry executives to forecast the end of the super-cheap air fare.

One senior aviation executive said industry forecasts for passenger numbers are based on old models which assumed that ever cheaper fares would drive growth. Instead, they said structurally higher air fares could erode demand for flying.

“The truth is no one really knows now. We are in an entirely different world where air fares are rising. No one really knows what this means for demand,” they said.

The industry is also facing rising climate concerns, including paying higher carbon taxes as a system of free allowances is phased out under EU Emissions Trading Scheme, which analysts believe will raise fares further.

“Ryanair’s business could be challenged by environmental legislation” that would potentially restrict routes and impose minimum pricing, analysts at Barclays said in a recent note.

Sébastien Thévoux-Chabuel, a portfolio manager at French asset manager Comgest, which is a top-15 shareholder in Ryanair, said it was “the best operator in the sector. We see large market share for them to gain . . . The only two questions remaining are how far are we on that journey of conquering new countries and what kind of impact will the cost of carbon have.”

Ryanair’s long-term passenger forecasts run into the next decade, and project forward to a future which might not involve the 62-year-old O’Leary, who has almost single-handedly dragged Ryanair from a bit-part regional airline into a global aviation powerhouse. Few European corporates are as intimately linked to their CEO.

“Ryanair breathes MOL,” said one former executive at the airline referring to O’Leary’s initials. “It’s one of those brands that has clearly imprinted its CEO’s personality.” 

O’Leary’s current contract runs out in 2028 and there are signs of succession planning as it has created a group structure, with the Irishman sitting at the top of a senior management team.

He said he has stepped back from managing every aspect of the business, and now largely works on fleet development and funding. He is no longer as hands-on with union talks, negotiations with airports or route planning, he said.

“I think in the early days when we were turning this thing around . . . I was the key man, it depended on me. I made all that decision. it’s too big now,” he said.