Thursday, 17 May 2012

Ryanair: Waiting in the Long Grass ©

                                                         

Yesterday (Wednesday 16th May) Southwest Airlines announced that it is to defer the delivery of 30 Boeing 737-800s from 2013/4 to 2017/8 to reduce capital spending by $1 Billion and to help it improve its Rate of Return on Capital (ROCE) to 15%.  The Southwest Airlines CEO Gary Kelly stated “Until we hit our return on capital target, we don't plan to grow our fleet, we will keep our fleet roughly flat and maybe slightly down (in) 2012."

The Southwest Airlines delivery deferment will put further pressure on OEM’s in an increasingly competitive market, as a number of high profile carriers have already indicated they will defer orders to concentrate on improving their own financial performance and generating higher returns on capital, these announcements will further strengthen the hand of Ryanair in negotiations for a new order of up to 400 new aircraft with its cash reserves of €3.5 Billion.

                                       
                                                 

The Ryanair negotiating position will be aided by Emirates Airlines, IAG and Lufthansa CEO Statements warning of further industry structural changes through airline failures and consolidation.

Ryanair will no doubt be pleased by the announcement that Boeing will aggressively seek market share through a price war in the A320NEO/737MAX market to retain a 50% share within a year (Wall Street Journal 15th May 2012).

The key for Ryanair will be to remain in the long grass until is approached by OEM’s (Airbus, Boeing) seeking to keep production lines busy through an attractive priced deal. The 2011 Full Year results due out next Monday 21st May may provide a further insight into the issue although an order maybe at least 18-24 months away.

Irish Aviation Research Institute © 17th May 2012