Growing too fast for its own good, low-cost carrier Ryanair will cut prices to salvage a third summer holiday season clouded by the COVID pandemic.
Omicron’s emergence at the end of November caught Europe’s most valuable airline wrong-footed just as it began to plaster the market with more routes and destinations serviced by brand-new Boeing aircraft.
In late December, Ryanair was forced to warn its net loss for the fiscal year ending on March 31 would come in between €250 million to €450 million ($279 million to $502 million), far worse than the €100 million to €200 million previously anticipated, as traffic collapsed.
“By the time we get to summer 2022, we should be in very good shape, but nevertheless pricing will remain very sensitive to news flow,” CEO Michael O’Leary said on Monday. “To aggressively recover traffic, we’re selling lower fares than we would have heretofore.”
The company’s average fare in the three months through December was just €25, down 24% on the same quarter pre-COVID. That was supplemented by a further €22 in revenue per passenger, up 8%, generated from premium services such as priority boarding and reserved seating.
Earlier, the company reported a narrower net loss of €96 million, maintaining its new traffic guidance of just under 100 million passengers for the current fiscal year and 165 million for the coming one that starts in April.
By comparison, leading U.S. Budget carrier Southwest said on Thursday it had ended 2021 “on a high note” with its first quarterly profit excluding one-offs since the fourth quarter of 2019, before the COVID-19 pandemic began.
Fastest growth in Europe
Ryanair plans to continue its opportunistic campaign of expansion in Europe, seizing on the consolidation among many of the continent’s unprofitable flagship rivals, such as Italy’s Alitalia, Lufthansa of Germany, and TAP of Portugal, to scoop up customers left adrift.
Not only is the airline adding Cork, Newcastle, and Venice’s Marco Polo airport to its destinations for this summer, it has doubled the size of its footprint in Rome, Lisbon, and Vienna.
This comes on top of 65 new Boeing 737-8200 “Gamechanger” aircraft that will have been delivered by the end of April, well in time for the peak of Europe’s summer vacation season, after the first plane was received last June.
Specially designed for Ryanair, these planes pack in as many passengers as allowed under EU safety regulations and burn a minimum of 16% less fuel.
“Our summer 2022 capacity is now on sale, and we expect that to run at about 115% of our pre-COVID summer 2019 capacity. And hopefully it will perform well,” O’Leary said. “All of that depends on there being no more negative COVID developments.”
There is a potential risk to its profitability from this strategy of prioritizing the number of seats sold—or “load factor” in industry parlance—over revenue per passenger kilometer flown—or “yield.”
Ryanair is therefore banking on its reputation for keeping a tight lid on expenses to protect margins. The company estimates its operating costs excluding fuel typically run at €31 per passenger, versus a comparable €53 for regional rival EasyJet and €101 for U.S. Leader Southwest.
Although Europe’s benchmark oil futures contract just hit $90 a barrel, with kerosene, a petroleum distillate, closely tracking it, Ryanair said it has hedged the bulk of its exposure at a cost far below current prices.
This disciplined focus to running the airline will help it outcompete rivals and fill its planes going forward, Ryanair said, with a goal of eventually hitting 225 million passengers serviced in the fiscal year ending March 2026.
“No airline will grow faster than Ryanair in passenger terms over the next five years in Europe,” O’Leary said.
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