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Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 1:53 am

Hello everybody.

Did anybody else on this forum wonder why Ryanair grew that fast during the last few years? I can still remember, about 10 years ago they had a weekly charter flight STR-SNN, every Saturday afternoon with BAC-1-11(!).

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Must have been a really crappy cheap airline. Last summer I flew HHN-PIK, 732, but on my trip I saw many brand-new 738s. And some weeks ago, I read that Ryanair was looking for 50(!!) second-hand 737classic.

It's really impressing to see an airline grow that quickly. But how long is it going to last? I know they are financially save. But remember, when Debonair started low-cost flights within Europe, everybody said they are financially save, too. They kept on growing, they even operated aircraft for SR and LH... and one day they went bankrupt. Don't you think the same might happen to Ryanair, if they keep on growing that quickly??

ps: This is not meant to be a discussion low-cost vs. established airlines. And I know that Ryanair offers a good product for a low fare. My question is, don't you think it's a financial risk for *every* airline to grow that quickly, without having time to make a save financial background?
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RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 2:06 am

Yes, Ryanair is really growing fast in the last few years and I wonder also that they don`t have financial problems since the terror acts. Last week I saw a report in the German TV (also in the magazine Spiegel) that Ryanair wants to enter the German domestic market with offers which are 90% under the LH fares. I hope that Ryanair realize their plans.

NZ1's mother is a disgusting crack-whore and his father is a worthless alcoholic!

RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 2:25 am

How long have Southwest been around? Any chance of them going bust? Nope? There's your answer, then, Ndebele!  Big grin
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RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 2:31 am

Growing fast can create indeed problems. The first problem companies that grow rapidly will encounter is the change in the organisation. Any organisation is capable of handling a certain capacity. Once you've reached that level you must expand your organisation which costs money. Moreover, the danger is always that you loose your corporate culture. If you look at FR you see that they still are capable of handling these issues succesfully.

Another problem some companies encounter when growing very fast is a short term cash flow problem. These cash flow problems can be fatal for the company. Fortunately for FR, shares of low cost airlines are very "hot" these days and they have an easy acces to the captial markets and as long as nothing serious happens they are able to cope with the increase demand for cash. Should FR be considered an unattractive airline to invest in than they would have a serious problem.

Finally, once they grow they must increase the number of destinations quite fast. If you look closely to FR you see that they don't start many new destinations. They only connect an existing destination (for example Charleroi) with another existing destination (for example Trevisio). However, at a certain point you must introduce X number of new destinations and you come also at a point that you may have to go head-to-head with the competition (all low cost airlines seem to avoid eachother as much as possible)

As long as FR manages to control costs while maintaing the corporate culture I don't see many problems (provided that nobody cuts their acces to the capital markets).

The last thing on FR. FR does have a long financial track record. It's around for at least 15 years (allthough initially not as a low cost airline).

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RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 2:34 am

Good point, Ceilidh. But didn't Southwest start with only three 732s and three destinations, when they started in the early 70s, and grow slowly and steadily? Don't get me wrong, but for Southwest an order for 50 Boeings is not *that* much. They keep on adding about 20 additional 737s to their fleet *every* year. Ryanair is not yet an established airline, imho they might go bust from one day to the next day, if they grow too fast.

RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 3:19 am

Ndebele, Ryanair have been around for 17 years or so - and have very substantial financial resources behind them. By buying 50 aircraft, they are simply taking advantage of the firesale prices available - those aircraft will cost them the same as 10 (or even fewer) aircraft a few months ago. That's financial prudence!

I suspect that a number of the aircraft being added to the fleet will replace the -200s on a one-for-one basis, so not all 50 will be additional capacity. Don't forget either that they had a load of brand new -800s on order which they have now cancelled: given the current state of the market, new aircraft don't make sense for anyone!

On the financial markets side of things, they recently did a stock split which doubled the 'float' - making the shares more widely tradeable and ensuring lower volatility. This, in turn, makes them much more interesting to institutional investors.
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RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 6:47 am

Ryanair will live for long. They have a really good managment staff (even if sometime MOL talks too much against competitor....).
In my opinion they need a strong hub in the center of Europe cause I don't think Charleroi and Hahn could be like Stansted or Dublin.
They should enter in a big airport and my idea are Munich or Zurich or Milan MXP. (I know airport fee are higher than regional airports and it's easy get some delays, but the network you could build there it's more close to the STN hub).
Easyjet (largest FR competitor) now will enter in LGW and also looking at Paris Orly.
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RE: Ryanair - Pride Comes Before A Fall?

Tue Dec 25, 2001 7:57 am

Ryanair cancelled a 738 order? Oh. I must admit I wasn't aware. I suppose that means they no longer consider buying the 50 737s new from Boeing, either?

Anyway: Traditionally, a company choosing fast expansion runs the risk of piling up much debt (because of the cash flow problem), unless it's a pseudo business like some Arabian airlines that have unlimited funding available for insane expansion if their sheiks feel like seeing their favourite colourscheme on a few more big airliners. Look at Virgin Atlantic (and the entire Virgin empire) as one example: For most of Virgin's history they've been a fast-expanding empire with major cash flow problems (read any of Branson's biographies) - growth drains all resources. One main reason why there are constant rumours about Virgin Atlantic's health is that hey have been expanding rather quickly during the past few years, and accelerating significantly. So in a situation where market forces changed, they are the most fragile, with an already tight cash flow. That does not mean bankruptcy (and so far, they seem to cope with it, and I'm confident they will continue to cope), but it does mean a rather strong limitation on flexibility.

Similarly, Ryanair is set to do fine, until they miscalculate badly, or outside influences drain their markets. (Imagine a low-cost airline suffering a crash - it would probably ruin the airline, if not the sector). So far nothing bad is on the horizon. The only problem I see is that their European expansion into Hahn might not be as successful as they anticipate. Stansted is far away from London, but still it is serving a city of 10 million people. Low cost airline heaven. Germany is far less focused on one city, and so it is harder to achieve as big a hinterland. And Germans are probably a bit more fussy about calling an airport "Frankfurt" if it is over an hour away. I would have thought Paris would be a more obvious choice for another no-frills hub. But I'll leave the management to Ryanair. They probably know better what they're doing.

So: My opinion in one sentence: Unless major errors or outside influences directly affect their market, they are in a good position (despite fast growth) to come out as market leaders and not in ruins.

Basically the crisis in the aviation industry and transatlantic markets has opened the window of opporunity wider than ever before for no-frills operators: Cheap planes, investment is channelled to them that would otherwise have gone into other airlines, cheap airport fees, more slot availability... They'd be stupid not to try and grab as big a marketshare as they can while conditions are still favourable. Probably the next two years or so will determine who will be the "Southwest" of Europe, and it will be really hard for any other airlines to enter that market once one (or two) of the airlines is established Europe-wide.



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