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Ryanair rattled but ready for post-COVID era

Arthur Sullivan
May 18, 2020

Like other airlines, the COVID-19 crisis is going to cost Ryanair a fortune as its latest results show. Yet even though it won’t be tapping state funds like its rivals, it is still well-placed to come through the storm.

Starker Rückgang der Flüge vom Flughafen Berlin-Schönefeld wegen der Corona-Krise
Image: picture-alliance/Geisler-Fotopress

"Lufthansa is going around hoovering up state aid like the drunken uncle at the end of a wedding, drinking from all the empty glasses. They can't help themselves."

Ryanair CEO Michael O'Leary rarely attempts to hide his contempt for national flag carriers like Lufthansa, as the above quote, which he gave to Bloomberg, attests to.

He went even further when he spoke to Sky News in the UK, comparing the airline to a "crack cocaine junkie" due to the fact that it has asked the German government to provide a €10 billion ($10.8 billion) rescue package on top of the short-time work provisions it was already availing of.

Ryanair and its loquacious CEO has stepped up criticism of flag carriers such as Lufthansa, Air France-KLM, Alitalia and others since the COVID-19 crisis prompted a raft of state interventions into the airline sector.

At the release of its financial results on Monday, the Dublin-based airline insisted it would not be seeking any government support as it tries to make it through the crisis, which has caused serious financial problems for the aviation sector as lockdown restrictions have dramatically impacted international travel.

UK Ryanair CEO Michael O'Leary
"A drunken uncle" was Ryanair CEO Michael O'Leary's latest take on Lufthansa, one of his common bêtes noiresImage: Reuters/P. Nicholls

A bad quarter ahead

Ryanair has been one of the big success stories in global aviation in the last 20 years yet even though it appears capable of weathering the crisis on its own, the results it presented on Monday illustrate how serious a threat the COVID-19 crisis is for the sector.

It expects a €200 million loss for its fiscal first quarter (April-June), the period in which restrictions are most stringent and in which it expects to operate less than 1 per cent of its scheduled flying programme.

Ryanair did not provide any profit guidance for the 2020-21 fiscal year but it did say it expects to carry almost 50% less passengers by March 2021 than it would have otherwise, down to 80 million from its original goal of 154 million.

Earlier in May, Ryanair announced its plan to resume operating up to 40% of its normal flight schedule from July 1, an ambitious goal given the extent to which travel restrictions are still likely to be in place across Europe by then, as well as complications over hygiene and social distancing.

Several have questioned the viability of Ryanair's plan but O'Leary and the airline have been equally strident in their views regarding proposals around 14-day quarantining and the prospect of middle seats being taken out of airplanes in order to facilitate social distancing.

O'Leary described UK government plans around 14-day quarantining after flying as "idiotic", and used the same word to describe the proposed removal of seats from aircrafts.

The state of aid

As part of its own plan to cope, Ryanair plans to cut around 3,000 jobs. It has also instituted plans for wholesale unpaid leave and for significant paycuts, including a 50% paycut for O'Leary itself.

While O'Leary has never shied from speaking in an uncomplimentary way about the likes of Lufthansa, as often for publicity purposes as anything else, the issue of state aid at the moment genuinely rankles with him.

Ryanair has a long running rivalry with Lufthansa. By most metrics, the two airline groups are comfortably the largest in Europe but O'Leary's view is that Lufthansa is artificially propped up by state support in a way that unfairly protects it.

While no deal has been done yet between the German government, Lufthansa is likely to receive a substantial aid package of some kind in the coming weeks. It is also negotiating with the Belgian and Austrian governments for similar supports, where two airlines it owns, Brussels Airlines and Austrian Airlines, are based.

Several other big European carriers have already tapped funds unavailable to the likes of Ryanair. France has already agreed to funnel €7 billion in cheap loans to Air France while the Dutch government will provide between €2 billion and €4 billion to KLM, which is joined with Air France since a 2004 merger, of which the French and Dutch governments each hold 14% stakes.

Deutschland Bundesregierung plant offenbar Direkteinstieg bei Lufthansa | Merkel und Spohr 2015
Ryanair's position on state aid is in stark contrast to its great rival LufthansaImage: picture-alliance/dpa/B. Roessler

Crisis equals opportunity?

Quite what the European aviation sector will look like once the crisis has passed is hard to envisage. O'Leary has suggested that large airlines propped up with state aid will simply use the crisis to drown out competition in a post-COVID world.

But Ryanair has proven adept in profiting from a crisis itself in the past.

After the September 11 attacks in 2001, the airline sector faced a similar level of crisis as today. O'Leary responded with massive seat sales, which proved successful. His current instinct is similar to the one he had back then - that passengers will be eager to fly as soon as they are allowed to, as long as the price is right.

Few European airlines came into the crisis as well-insulated as the Irish low-cost carrier. In its results on Monday, it posted a €1bn post-tax profit for the year to March 2020. Despite the fact that groundings were already in place by March, that figure is 13% higher than the previous year, an illustration of just how profitable Ryanair is in "normal" times. And things were hardly normal in 2019 either, what with Boeing's problems.

That has helped it build cash reserves of €4 billion, a handy tool with which to deal with the mammoth cost of having to keep 450 airplanes on the ground.

While such a situation can't go on forever, if Ryanair manages its current plan of having up to 50% of its original target back in the air for the July-September quarter, it will already be well on the way to emerging from the clouds of a crisis that many other airlines may never slip out from under.

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