Ryanair is in full swing. Europe’s largest budget airline reported a 34% rise in profit after tax to 1.92 billion euros ($2.09 billion) for the 12 months ended March 31. For the complete 12 months, revenue rose 25% to 13.44 billion euros ($14.65 billion).
Although the Dublin-based company’s shares fell in morning trade, Ryanair shares have still performed significantly higher over the long run than its two most important European rivals, Britain’s easyJet and Hungary’s Wizz Air.
Since February 2020, just before the pandemic grounded planes across the continent, Ryanair shares have risen about 14%, while Wizz Air shares have fallen almost 55% and easyJet shares have fallen almost 72%.
CEO Michael O’Leary is clearly doing something right. To explain what that’s, let us take a look at what Ryanair has done in a different way than the larger of its competitors, easyJet.
Low costs and no layoffs
Both firms began the pandemic well financially: profitable, growing and – especially within the case of Ryanair – with a robust balance sheet. However, COVID-19 has spared nobody.
In Year ending September 2020With a lack of 1.27 billion kilos (1.6 billion US dollars), easyJet was within the red for the primary time and briefly cost the Luton, England-based company its place FTSE 100 index. Ryanair, within the 12 months to March 2021A profit of 1 billion euros ($1.09 billion) collapsed right into a lack of 815 million euros ($888 million).
However, Ryanair had two major benefits within the recovery phase as travel restrictions were lifted in 2021 and 2022.
The first, and doubtless most vital, is that Michael O’Leary, who has run Ryanair since 1994, is a master at protecting corporate wallets.
“Where Ryanair always seems to have an advantage is in cost management – it has a good reputation for keeping costs under control, such as by using more efficient aircraft to reduce fuel consumption, and by getting customers off quickly and then “back in the sky for the next flight,” said Dan Coatsworth, investment analyst at AJ Bell Assets.
To get an idea of what this looks like on the balance sheet: Ryanair’s pre-tax profit in 2024 was slightly below 2.13 billion euros (2.32 billion US dollars). 16% of total sales. In the last one from easyJet Full 12 months resultsAs of September 30, 2023, pre-tax profits were £455 million ($577.9 million), representing about 5% of annual sales of £8.17 billion ($10.4 billion).
This higher profitability gave Ryanair the headroom and confidence to tackle more debt through the pandemic – in 2021 it amounted to 2.28 billion euros ($2.49 billion) in comparison with 910 million kilos ( $1.16 billion) at easyJet – knowing that the corporate could repay the debt, which each firms have now done.
This in turn contributed to the second advantage of Ryanair’s recent success: O’Leary’s decision to not lay off staff through the dark months of lockdown, in contrast to outgoing easyJet CEO Johan Lundgren, who made the undoubtedly difficult decision to put off 30% of his staff to take over employees laid off in 2020.
O’Leary himself identified how this paid off, allowing Ryanair to quickly expand flights once travel picked up, while others struggled to fill vacancies.
“Our decision to work with our unions and agree pay cuts to minimize job losses and keep crews engaged during the two years of the COVID crisis has been confirmed in recent months, as many European airlines, “Airports and handling companies have had difficulty restoring jobs lost during the coronavirus pandemic,” O’Leary said in July 2022, as reported in Travel weekly.
Taken together, Ryanair’s lower costs and staff retention enabled it to get well more quickly than easyJet, which in turn meant that Ryanair has since been capable of expand its fleet rather more quickly, further extending its lead.
The Irish company currently has 584 aircraft, a lot of them fuel-efficient Boeing 737 “Gamechangers”, significantly greater than the 475 in its fleet in 2019. In comparison, easyJet had a fleet of 343 until the top of Marchonly barely above the 331 vehicles in 2019.
Finally, Ryanair’s improved growth prospects and profitability allowed it to avoid the rights issues that easyJet was forced to undertake in quick succession – a £419 million ($532 million) share placement in 2020 and a £1.2 billion ($1.52 billion) rights issue in 2021 – which Coatsworth said hurt its share price. “A significant increase in the number of shares on issue results in dilution for existing investors and weighed on the share price as both fundraisings were done at a market discount,” he explained.
What is easyJet doing to catch up?
Despite easyJet’s difficult years on the stock markets, Lundgren leaves the corporate in a competitive position. By September 2023, he had brought easyJet out of net debt with net money of 41 million kilos ($52.1 million). The budget airline also reduced its off-season losses within the half 12 months ended March 30, 2024 in comparison with the identical period last 12 months, indicating a financial recovery.
Against this background, the EasyJet boss has set himself a high goal £7-10 profit ($8.9-$10.27) per seat through 2028 – twice as much as 2019.
While Lundgren is actively increasing the “add-on revenue” – separate fees for extras corresponding to seat selection and baggage allowance – for which O’Leary made Ryanair famous, Lundgren has concurrently strategically differentiated easyJet by expanding its package travel segment. In its last full financial 12 months, the corporate recorded 77% customer growth in package holiday bookings, generating greater than 1 / 4 of the group’s pre-tax profits.
While easyJet’s model differs from Ryanair’s and relies less on having the most cost effective ticket in the town and more on having premium airports closer to city centers and offering cheaper schedules, it stays competitive with the Irish company .
Whether Lundgren’s successor will have the ability to maneuver on and fill the void is one other query.
