THE significance and importance of Ryanair ordering the purchase of 175 aircraft from Boeing seems to have flown over the heads of many people in Ireland.
US President Barrack Obama got it. While he may have used it, during his press conference with Taoiseach Enda Kenny at the White House on Tuesday, to highlight alleged Irish economic recovery — and it is not actually a great example of that — the deal was actually of more importance to the American aircraft manufacturer.
It may be a world famous name, its aircraft used throughout the world, but it faces enormous competition from the likes of Airbus in Europe and new Chinese imitators. It has had battery problems with its new and crucial 787 passenger jet. The company has admitted that the Ryanair deal fills up Boeing’s 737 production “pretty significantly” until production of the new 737 MAX starts in the next few years, with first delivery projected for 2017. In other words, it needed guaranteed business.
Ryanair took advantage of that. Ryanair held the power hand in negotiations over price for these aircraft. The list price for 175 aircraft is about $16 billion. Ryanair is expected to pay little more than half because it is buying in such bulk. Think about that: an Irish airline just over 25 years old is in that position of power. Has any other Irish business in the last quarter century been anywhere near as successful? It has the money too to complete the deal with big borrowing, making the deal relatively low risk. The business has about €2bn in cash available to it, sitting on its balance sheet.
It will not borrow recklessly to fund its aircraft purchases. It will use the money from its own present and future cash resources and will still continue to reward shareholders with occasional special dividends. Payments are staggered according to delivery.
O’Leary is not afraid of taking risks anyway. His reputation for securing bargain aircraft orders during industry slumps is best emphasised by his decision to place his last big order with Boeing soon after the 9/11 terrorist attacks in the US. While almost everybody speculated about major travel restrictions and predicted people would be too afraid to fly O’Leary took the view that the panic would pass and that people would return to flying. He was right but got his aircraft at a bargain price.
Ryanair tends to buck conventions. Interestingly Ryanair is one of the rare companies that does not seek to attract investors with the promise of dividends each year. They are asked to believe in the prospect of capital growth. It has paid off. The company is now worth just shy of €9bn. For what it is worth, the stockbroker Davy are speculating that the shares might be worth €7 each in the future, compared to €6.16 at which they were trading yesterday.
The same stockbroker, who it should be said has a connection to the company in that it acts formally as its broker and, as such, has an interest in pushing the shares, is confident that Ryanair can grow by between 3% and 5% each year and increase its EU market share from around 15% to 20%. Ryanair will sell or lease some of its older aircraft as well. The new Boeing 737-800s aircraft will increase the size of Ryanair’s fleet to 400 planes from 300 at present, as some of the older planes are sold, raising more money. This will allow Ryanair to increase passenger numbers by 25% over the next five years. This as rivals plan to cut routes and services. The planes will create more than 3,000 jobs for pilots, cabin crew and engineers at Ryanair’s growing number of aircraft bases across Europe. As it stands Ryanair serves 179 airports and parks its aircraft at 57 bases.
Let’s not forget too that Ryanair is not doing business for the sake of being busy, but is highly profitable. The company is expected to report profits for the year to March 31, 2013 of €540m, 7% higher than in the previous financial year to March 31 2012. O’Leary is the most successful Irish businessman of his generation; the building of a successful airline from a peripheral island in Europe — which already had a State-owned monopoly, Aer Lingus — in place is an extraordinary story by any standards.
Ryanair’s successes raises all sorts of questions as to how and why Ryanair is so despised in Ireland. Politicians, bureaucrats, trade unionists, sections of the media and swathes of the general public tend to loathe the company and its high-profile chief executive.
O’Leary’s success to date has been due partly to his non-conformist behaviour, his willingness to confront instead of cosying up to the powerful, to say it as he sees it rather than to sugar-coat, his ability to see opportunities where others see only risks.
This has made him many enemies. O’Leary hasn’t “played the game” as it is done in this country. It doesn’t even help him that he remains resident for tax purposes when others have taken advantage of soft rules to reduce their payments to the State greatly or that when he has strong political views he airs them publicly rather than schmoozing behind the scenes to get the influence, decisions and help he wants.
He and his company are not without their faults it should be said. Many have good reason to complain about standards of creature comfort for passengers on flights, the location of some airports used by Ryanair, the loading of extra charges for simple things like baggage and the general attitude of the airline towards customer complaints, be they legitimate or not. Flying Ryanair is not for everyone.
BUT as many as 80 million passengers each year like the Ryanair approach; it works despite increased fares (up by about 8% in recent times as pre-booked seats in a form of business class are introduced) and a perception that every “extra” comes at a hefty price. It is perceived as cheaper than rivals, the services have an excellent safety record and it is highly probable that you will reach your destination on time. It is all about getting from A to B, safely, on time and at a reasonable price.
Ryanair is motivated by self-interest but very few businesses aren’t. But that self-interest is governed by a need to give customers what they want, which is what Ryanair clearly does well.
And Ryanair is more committed to Ireland than many would concede. Yesterday the airline announced the establishment of new routes of Shannon Airport. Ryanair undoubtedly drove a hard bargain with the new airport bosses there, just as he did with Boeing.
But why should he be charitable? Foreign companies get all sorts of subsidies to operate in Ireland. Has O’Leary asked the State for any money to support his purchase of planes from Boeing? Shannon needs his business and it is not getting enough from other sources for it to be a viable airport.
Remember that the next time you hear complaints about whatever services Ryanair offers from Shannon.
*The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.
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