Ryanair Flies High in Recession

Ryanair’s O’Leary said in a recent interview, “We love recession. The best outcome for us this winter is a good, deep recession.” Mr. O’Leary, argues that the economic downturn will force weaker carriers to cut routes, allowing his airline to move in. He anticipates that Ryanair will benefit from falling jet fuel prices, declining labor costs and the possibility that cash-poor rivals will cancel orders for planes.

O’Leary said he intended to expand Ryanair while other airlines shrank and merged. He contended that he could double the profit of the airline, based in Dublin, and its passenger numbers by 2012 despite signs that short-distance air traffic was declining.

“We will grow at 20 percent a year, and we’ll do that because we have another 180 aircraft on order from Boeing to be delivered over the next five years,” Mr. O’Leary said in the interview this month. “At the moment, we are expanding into all areas where someone else is collapsing.”

Ryanair’s earnings fell nearly 80 percent in the six months ended Sept. 30 as it,  grappled with expensive fuel. Analysts say they worry that Mr. O’Leary is overconfident about his ability to ride out the recession and is overstretching his airline by acquiring more planes and planning to add capacity in Italy and Spain.

“Recession is not good for anybody, not even Ryanair,” said Nick van den Brul, an aviation industry analyst in London for BNP Paribas. Still, Mr. van den Brul, like most airline analysts, also says that Ryanair is far better positioned than many of its peers to survive in a harsh economic environment.

Ryanair has financed all its aircraft purchases for the next 18 months; at a time of constricted credit, its loans are 80 percent underwritten with guarantees from the United States Export-Import Bank. By September 2009, Ryanair will have added 58 planes to its fleet.

Where other airlines reduce the frequency of their flights, park their planes or eliminate routes, Ryanair moves into the gaps, siphoning up a bigger share of a declining market with deeply discounted fares.

Italy and Spain are chief targets, Mr. O’Leary says, because of the troubles at Alitalia and Spanair, a subsidiary of SAS. Moreover, airports like Madrid and Copenhagen, fearing a vacuum as short-distance operators pull out, are now inviting Ryanair in.

“That’s the joy of it all,” Mr. O’Leary said. “Our September traffic figures were up 19 percent while the rest of Europe was contracting.” He exudes confidence of being able to maintain that pace for the next five years no matter how bad things get for the industry as a whole.

“We hope that Boeing and Airbus’s order books will both collapse this winter, then we can buy aircraft cheaper,” he said.

Ryanair will just break even in its current financial year, a performance that investors can stomach as long as Ryanair is not burning through cash. Most analysts are looking ahead to much healthier profits next year, betting that Ryanair will be spending less on fuel.

Most experts agree that Ryanair, its expansion strategy allied with a 2.1 billion euro war chest, will come out of the recessionary storm stronger than other European airlines.

“Ryanair can last longer than the others — it has the lowest cost base in European aviation,” said Gert Zonneveld, a transportation industry analyst at Panmure Gordon in London. “They have no pension deficit, no massive debt. Even if we have a two-year recession they will survive.”

Howard Wheeldon, an aviation industry analyst at BGC Partners in London, said the reprieve from high oil prices, which underpins future profit projections, was just a “temporary intermission,” while demand would suffer as European consumers pulled back.

Furthermore, the airlines whose shrinkage or disappearance Ryanair wishes to exploit were suffering for a reason: They could not get enough passengers onto their planes.

“Ryanair may believe it is recession-proof, but growth is now off the table,” Mr. Wheeldon said. “The hole, for me, is the belief that growth in the airline industry is going to go on unrestricted amid a two-, three-, or five-year downturn in global growth.”

But Mr. O’Leary is sure that recession will make the least-expensive flights look all the more attractive. “There’s never been a better time for us to grow,” he said.