How Ryanair Has Weathered the 2020/21 Aviation Sector Downturn
As a result of the global pandemic, Ryanair saw their traffic collapse from 149m to just 27.5m. This was mostly due to the risk of contagion during travel, international border restrictions and a decline in real consumer spending power over the last 2 years. More customers being able to go on holiday, an increase in savings and the easing of travel promised the airline sector an influx of revenue. The vaccine rollout program and the lifting of travel restrictions is clearly reflected in Ryanair’s current valuation (as of early October 2021).
Earlier this summer, the airline predicted that the easing of European government travel restrictions on intra-European traffic would allow the ‘majority’ of customers to be permitted to travel. This is allowing Ryanair to recapture its dominant market share in European aviation market. Prior to COVID, it carried more passengers across the continent than any other airline, pioneering the ‘no-frills’ model of flying. This achievement is more remarkable given that it only serves 38 of the 44 countries on the continent, and was recently ranked by Which as the least liked short haul carrier for the sixth year in a row.
Ryanair’s charismatic CEO, Michael O’Leary, recently pointed to a surge in summer bookings and noted “a strong rebound in pent-up travel demand”. In late July 2021, its share price rose by 4% to €16.36, above its 2019 peak price of €16.10! By October, it enjoyed shares priced at over €17.
Although Ryanair’s stock price declined in late July, overall, they have been rewarded with a rapid rebound in airline travel that is predicted to last right into winter.
As COVID-19 restrictions lifted, Ryanair invested their resources during the pandemic into hiring 2,000 new pilots. They also worked with airports across Europe to secure traffic recovery schemes, allowing the airline to continue opening new routes.
It’s also opened a total of 8 new bases (Billund, Riga, Stockholm, Corfu, Rhodes, Chania, Zadar & Zagreb.) For winter 2021 it opened 11 new routes for the UK alone (including 4 from Birmingham, 2 from Bristol and 2 from Bournemouth); part of a move to capitalise on struggling airports and their cheap landing slots.
This long-term strategic thinking is a great indicator of Ryanair taking the initiative from this crisis to build valuable foundations for the future, amidst the collapse of its competitors (Norwegian Air in particular has faced severe challenges).
However, the recovery for short haul flying has seen competitors like British Airways seek to reclaim their market share. The flagship carrier, after initially announcing its decision to sell its short-haul landing slots at Gatwick, may now return to the major London airport.
The firm solidified its market dominance in 2002, after taking advantage of the post-9/11 aviation sector downturn to purchase 100 Boeing 737-800s at discount prices (thus allowing rapid expansion to take advantage of the early 2000s boom in budget air travel). Despite COVID, it announced another large order, this time for the upgraded Boeing 737-8200 models. This will allow further cost reductions thanks to per seat fuel consumption being 16% lower than the previous generation of the aircraft. The new aircraft also have more seat capacity, and perform better on both air and noise pollution measures.
Like the post-9/11 order, the latest purchase has proved to be another bold move, given that the aircraft had to be rebranded and altered to ‘Gamechanger’ after the previous ‘Boeing 737 Max’ brand name was tarnished by two fatal crashes and a subsequent grounding of the entire global fleet.
However, by September this deal collapsed, with O’Leary stating that Boeing had a “more optimistic outlook on aircraft pricing” relative to Ryanair’s expectations. Analysts suggested this was an intentional public fallout, orchestrated by Ryanair in order to create negative PR for Boeing, thus (perhaps) further driving down the price of the controversial aircraft for the next round of negotiations.
By Madeleine Campion, a member of the Money Maze Ambassador Programme. Madeleine went to the Dragon School in Oxford and then attended boarding school in Uppingham. She is currently studying Business and Marketing at Edinburgh University. She's also been a member of the 100 Women in Finance network for 2 years and is particularly drawn to how the show is innovating the world of podcasting.
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