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Whether lucky or smart, be a winner. Michael O’Leary, boss of low-cost Irish carrier Ryanair, understands that. The first horse owner in half a century to notch consecutive wins at Britain’s Grand National, will not be unseated by Boeing’s new handicap.
Alaska Airlines’s near disaster last week has put every Boeing Max owner on watch. Ryanair, Boeing’s second-largest customer, has about 400 planes on order. O’Leary has warned that Boeing’s manufacturing problems could weigh on the airline’s profits.
Fortunately, Ryanair did not purchase any Max 9s, the model that has been grounded following an incident in which part of a plane fell off mid-air. It has opted for Max 10 models instead.
However, O’Leary has frequently complained about Boeing’s slow delivery schedule. The accident could make this worse. That may affect previous forecasts for capacity growth in the European short-haul, low-cost carrier market.
The positive for Ryanair is that Europe’s short-haul fares are unlikely to fall.
Yes, seat availability has finally exceeded 2019 levels. But that is not as good as it sounds. Underlying demand for seats has historically grown at 4 per cent per year, says Alex Irving at Bernstein. That implies a tighter market today than pre-pandemic. No surprise that European airline sector 2023 revenues per seat-kilometre flown cruised up to 35 per cent above pre-pandemic levels.
Ticket prices will depend on how many new planes take to the skies.
Even if Boeing can keep its previous schedule intact, there is another issue. Outages related to Pratt & Whitney engines on the popular Airbus narrow-body jets have affected rival Wizz Air. The effect should limit regional capacity additions to 5 per cent, protecting pricing power for another year.
That is especially true for airlines that fly to popular leisure destinations, for which demand is robust. Carriers providing city-hopping services still struggle with sluggish business travel trends. Last year, these were only about 70 per cent of pre-pandemic levels. That hurts. This is traditionally a higher margin segment.
Add all this together and Ryanair may yet prosper from Boeing’s woes. So far, the Boeing accident has done no damage to the airline’s share price.
Ryanair already provides more than a fifth of the seats on short-haul routes. True, its customer base has traditionally been cost-conscious, willing to land in out-of-the-way airports to shave a few pounds off the ticket price. Nevertheless, Ryanair has Europe’s lowest cost base and can maintain its fare competitiveness. That suggests the Irish airline’s shares offer a winning ticket in 2024.
*This note has been corrected to say that it is Alaska Airlines that had the accident.
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