RyanAir: Performance Over Time and Benchmarking
A recent piece by The Economist (The parable of Ryanair) describes how Michael O’Leary (RyanAir CEO) has changed the script recently compared to the generally combative posture he was known for for many years. The piece argues (and the interviewee underwrites) that this has to do with the company’s newfound place as “Europe’s biggest airline, worth almost as much as the owners of British Airways, Lufthansa, AirFrance and EasyJet combined”. The statement may come as a surprise to many and is therefore worth testing / showing quantitatively.
How does RyanAir compare today vs. its main European competitors? In this article we look at RyanAir’s growth in the past 10 years and compare the company with its peers on various metrics.
RyanAir Performance Over Time
RyanAir has consistently grown revenue, at an average rate of 9.9% per year since 2011. Revenue in fiscal year 2020 was more than double (+134%) revenue in 2011. Growth has been entirely driven by volume (doubling the number of passengers as we show below), while revenue per passenger remained practically flat in the EUR50–60 range.
RyanAir’s Net Profit expanded quickly until 2019, when higher fuel costs combined with crew strikes across different markets had a significant impact on profitability. In 2020, staff costs (“increased pilot pay and higher crew ratios as pilot resignations slowed to zero”) and maintenance costs (“due to older aircraft remaining longer in the fleet as a result of the Boeing MAX delivery delays”) climbed even higher, combined with a one-off €353m hedge ineffectiveness charge. Net profit margin increased from 11% in 2011 to a peak of 24% in 2016, having since shrunk back to 8% in 2020.
RyanAir’s growth has been supported by passenger numbers, which grew at an average rate of 8.4% per year since 2011, reaching 206% of 2011 levels in 2020 (note all figures are presented based on RyanAir’s fiscal year ending in March, hence Covid impact on 2020 results is negligible). This compares favourably with global air traffic which grew at just 5.9% per year over the same period.
Naturally, RyanAir’s fleet has followed the number of passengers carried, standing at 466 aircraft as of March 2020 vs. 272 in March 2011. RyanAir runs a highly efficient fleet by owning only Boeing 737 planes — this significantly reduces operating costs such as maintenance and training. The company is known for opportunistically acquiring aircraft in bulk at a discount. Just 4 months after the 9/11 attacks, RyanAir ordered 100 Boeing 737s, betting on a strong rebound of tourism. More recently, the company ordered 75 units of the Boeing 737 Max, a model surrounded by controversy following two fatal incidents in 2018/19.
RyanAir vs. European Aviation Peers Today
Based on 2019 figures, RyanAir is indeed the European leader by number of passengers carried, albeit with a narrow advantage of 2 million vs. Lufthansa. RyanAir’s advantage in traffic numbers is not surprising given its focus on short-hauls and exclusive use of the high-density Boeing 737–800s (capacity of 189), as well as the steady addition of numerous new routes enabled by its Point-to-Point system (in contrast with peers’ Hub-and-Spoke strategy).
However, due to its low-cost business model, RyanAir ranks far behind its peers in revenue per passenger at just EUR56 vs. nearly 4x as much for AirFrance KLM or Lufthansa. Despite notoriously charging for add-ons such as hold luggage and other features that other airlines might offer as part of the base price, the total revenue RyanAir generates with each passenger is still significantly lower than its peers, even when compared to low-cost competitor EasyJet.
As a result, in absolute terms RyanAir lags far behind its larger European peers with just 23% of Lufthansa’s revenue for 2019.
Despite its smaller size as measured by revenue, today (as of 04-January-2021), RyanAir is worth far more than its main listed peers — in fact it is indeed, as stated in The Economist, worth more than IAG, Lufthansa, Easyjet and AirFrance-KLM combined. Although the company is the leader in passenger numbers, one might question how its valuation can be so high if they are not generating as much revenue from each passenger, resulting in their clear scale disadvantage vs. peers. The crux of the explanation is twofold: growth and profitability, both of which we discuss in the next 2 charts.
Firstly, RyanAir is the clearly the fastest growing airline among its peers, with an average growth rate of 9.0% per year between 2011–2019, triple that of its largest competitor Lufthansa and also above its low-cost rival EasyJet albeit by a lower margin. While past results are no guarantee of future performance, RyanAir’s valuation tells us that the market is most likely expecting the company to continue outperforming its peers.
Secondly, RyanAir’s efficient business model means it has the highest net profit margin in its peer set. As the company breaks it down in the chart below, RyanAir enjoys a material advantage in cost per passenger even vs. its direct low-cost peers.
Conclusion
The purpose of this article is not to explain in depth the factors behind RyanAir’s success, but instead to objectively look at their historical performance and current scale relative to European aviation peers.
While it could still be considered a “challenger” in absolute revenue terms, RyanAir has clearly grown into an incumbent among European airlines given its share of total passenger traffic. Furthermore, its current valuation suggests the company is poised for further growth and to play an even larger role in the market.
