Ryanair Expansion Plans for the Future

Nov. 15, 2011 - PRLog -- Chief executive Michael O'Leary told the Financial Times that he wanted to increase passenger numbers to between 120 million and 130 million over the next decade - which would make Ryanair one of the biggest airlines in the world.

Mr O'Leary said the airline is in talks with plane makers Boeing, Comac in China, and Russia's Irkut over the purchase of 200 to 300 new narrow-bodied aircraft.  Dublin-based Ryanair carried 72.1 million passengers in 2010/11 but the plans could double the size of its fleet of about 270 aircraft.

Mr O'Leary added that Ryanair could increase its share of the European market as the tough economic environment boosts demand for low-cost travel.   The outspoken Irishman said the airline could deploy 50 new aircraft to serve Scandinavia and a further 100 to service the Baltic states, Poland, Hungary and the Czech Republic.  

The airline paid a 500 million euro (£431 million) special dividend in 2010/11 and Mr O'Leary said another payment is under consideration for 2012/13.  A third special dividend could be paid in 2014/15 if no aircraft order had been finalised by then.  All of Ryanair's planes are manufactured by US manufacturer Boeing, and analysts said costs could increase if it bought aircraft from another maker.

Mr O'Leary is well-known for courting controversy with his cost-cutting suggestions, which have included charging to use the toilets on planes, removing a toilet, standing passenger space, and scrapping the role of the co-pilot.

Commenting on plans by Ryanair’s chief executive, Michael O’Leary, to buy up to 300 new aircraft and boost passenger numbers to 130m in the next decade, Professor Joseph Lampel of Cass Business School, said:

“One of history’s enduring mysteries is why Napoleon invaded Russia.  He had an empire, all the pomp and circumstance of an imperial court, and the all round title of military genius.  And yet he could not resist the lure of complete domination of the European continent.  He had plenty of victories, but what he wanted was total victory."

“One gets the same feeling reading the news release about Michael O’Leary’s ambition to acquire 300 aircraft from Russian or Chinese manufacturers if he cannot get them from Boeing and Airbus.  The goal is to grow Ryanair to 130 million passengers, which would make the airline the largest in Europe, and one of the largest in Europe."

“What is the rationale for this audacious expansion?  It seems that Michael O’Leary is convinced that the economic recession will lead to mass defection from other airlines to Ryanair.  What this assumption seemingly ignores is that the cost of air travel is a smaller proportion of the total cost of travel.  The cost of being there is usually much greater of the cost of getting there.  The recession is therefore likely to reduce air travel primarily because fewer people can afford to spend their hard earned cash on hotels, restaurants, and other travel pleasures."

“Is O’Leary unaware of this basic economic reality?  This is hard to say.  What is clear is that he sees the current economic crisis as an opportunity to push aggressively forward where other airlines fear to tread.  The risk he runs is that an extraordinary success story will come apart.  It is not only that this expansion will stress Ryanair’s organizational capacity and constrained terminal availability to the limit, but there are also other forces lurking in the background ready to take on O’Leary if he stumbles.  There are shareholders who are told that they can expect much  lower dividends during the expansion, and there are also O’Leary’s many critics who have always felt that he cuts too many corners."

“Perhaps he should take a lesson from Napoleon.  When told by his advisers that the winters in Russia were exceptionally long and cold he insisted that they were misinformed.  The winters in Moscow, he told them, were no colder than Paris, just a bit longer.   He lived to find out that reality can bite.”

To speak to Professor Lampel please contact Chris Johnson, Press Officer at Cass Business School.  Professor Lampel teaches finance, corporate finance, and banking subjects to undergraduates (http://www.cass.city.ac.uk/courses/undergraduate/courses/...) MBAs, and executives.

# # #

Cass Business School is one of Europe’s leading providers of business and management education, consultancy and research.