Fare killer Ryanair lets go of its American dream

Bloomberg

For at least a decade, Ryanair Holdings Plc CEO Michael O’Leary dreamed about coming to America, bringing the Irish carrier’s insanely low fares to the other side of the pond. Expand west to the largest aviation market. Price the cheapest seats at $10. Offer business class up front for those willing to pay.
A leader among ultra low-cost airlines, Ryanair had global ambitions.
The trans-Atlantic routes have long been the province of the largest full-service carriers, which fill their premium cabins with the rich and famous and famously rich. As one of Europe’s biggest airlines, any move by Ryanair into that world could have further upended fares by adding more capacity to an already crowded field. Yet O’Leary always found a reason not to pull the trigger.
“I don’t believe long-haul, low fares, no-frills works,” he said in 2008. “Because there’s always going to be 10 or 15 percent of the market in long haul who will pay whatever it costs for a business-class service.” Despite periodic teases of new U.S. flights, Ryanair never moved to acquire any aircraft model beyond the Boeing 737s it flies exclusively.
In 2015, Ryanair made noises again, this time causing a stir when it said board members had approved plans to move ahead with trans-Atlantic flights—a logical progression given the airline’s steady growth. That led to a reversal three days later (a delay the company blamed partly on St. Patrick’s Day observances) when directors quashed the notion with a terse statement. “In the light of recent press coverage, the board of Ryanair Holdings P.L.C. wishes to clarify that it has not considered or approved any trans-Atlantic project and does not intend to do so.”
But now it’s 2017, and probably too late for different reasons. Much has changed over the Atlantic in recent years amid a sharp decline in jet fuel prices. The trans-Atlantic market now sees a surge of low-cost flying from the likes of Norwegian Air, WOW Air, WestJet Airlines Ltd., and Air Canada’s discount Rouge unit. Air Canada itself has bolstered international flying, too. Even JetBlue Airways Corp. is mulling whether to cross the ocean.
For now, Ryanair has shelved its trans-Atlantic plans and is scouring growth opportunities closer to home. The Dublin-based carrier, which carries about 116 million passengers annually, has its sights set on 200 million by 2024 with almost 400 new Boeing aircraft on order.
“As there is plenty of capacity and growth opportunities for Ryanair in Europe, we are solely focused on European growth currently,” Ryanair spokesman Robin Kiely said.

Expensive aircraft
For years, O’Leary cited an inability to acquire a fuel-efficient aircraft for Atlantic routes. Ryanair was unlikely to get a price from manufacturers it would like, he explained in a 2014 interview with Bloomberg, due to the market popularity of new, more fuel-efficient aircraft like Boeing Co.’s 787.
The CEO also cited the torrid growth of the three large Middle Eastern carriers, Emirates, Qatar Airways Ltd., and Etihad Airways. Emirates flies between the U.S. and Italy and plans to begin a new route from Athens to Newark, N.J. in March, two routes which have drawn fierce condemnation from U.S. carriers complaining that the Gulf carriers are state-supported.
Even setting all that aside, flights to America were still a strategic stretch for Ryanair. As with Dallas-based Southwest, Ryanair’s competitive advantages stem from short flights, which allow for more daily flight segments per airplane. Crossing the Atlantic would put a significant crimp in that.
“They wouldn’t be able to replicate their massive short-haul cost advantage on long-haul flights,” said Seth Kaplan, a managing partner at trade journal Airline Weekly.

And even with the cost benefits they enjoy over full-service carriers, low-cost airlines like Ryanair and Spirit Airlines Inc. confront a revenue disadvantage for another reason: the longer the trip, the more that frills matter. “Some customers who are willing to put up with spartan service on two-hour flights aren’t willing to put up with it on seven-hour flights,” Kaplan said.
Investor demands
This is one reason Allegiant Travel Co.—the world’s most profitable airline by operating margin—struggled to make money serving Hawaii from the U.S. mainland, Kaplan said. Allegiant ended the service last year.
Moreover, Ryanair is now a mature player in the aviation world, with investors who rely on measured, steady growth. Two years ago, when the market got word Ryanair might have put North America on its radar, the stock price reacted quickly, and not well.
Fielding a new aircraft type to fly against global behemoths would prove expensive—the virtual opposite of the business maxim of sticking to one’s knitting. It seems Ryanair has decided once and for all to finish that sweater.