Ryanair's O'Leary welcomes recession

Published on Monday 3 November 2008 20:39

RYANAIR chief executive Michael O'Leary has welcomed the impending recession as good news for passengers and the airline alike – in reducing both fares and competition.

O'Leary repeated his now familiar "doom to most rivals" mantra yesterday as he unveiled half-year profits to September, cut by nearly half to 170 million.

He scrapped previous warnings of a full-year loss after dramatic cuts in oil prices.

The Irish airline chief said average fares would be reduced by an average of 15-20 per cent over the next six months.

But he also predicted the economic downturn would bankrupt up to six European airlines by Christmas and ultimately leave Ryanair with just three rivals on the continent – British Airways, Lufthansa and Air France-KLM.

Ryanair pointed to potential casualties as including SAS, which is a known Lufthansa takeover target, and Austrian Airlines.

O'Leary said: "We need a recession. We have had ten years of growth. A recession gets rid of crappy loss-making airlines and it means we can buy aircraft more cheaply. We think interest rates should stay high and politicians should let the economy right itself normally."

O'Leary said he thought the recession would be "deep and dark" and could last for 18 months.

Analysts said Ryanair remained in a strong position compared to many airlines but O'Leary's predictions were an oversimplification. John Strickland, of JLS Consulting, said: "We are certainly seeing consolidation, with (Danish airline] Sterling the latest to go bust last week and Alitalia still teetering on the brink, but there will always be a range of main and niche market players.

"Ryanair has a very wide geographical base, which spreads the risk, and a phenomenal amount of cash in the bank."

However, Richard Havers, a former airline executive, said: "Ryanair may currently be in a much better position than many other airlines, but I do not think things are nearly as rosy as O'Leary is saying.

"The idea that a recession is a good thing for Ryanair might just be his 'Ratner' moment.

"A small change in load factor (proportion of seats filled] could lead to Ryanair's business model unravelling very quickly if it has to continue to chase lower and lower fares, making it difficult to control yield."

Ryanair will seek to underline its commitment to expansion in Scotland tomorrow with the delayed start of 11 new routes from Edinburgh.

Its reputation has been dented by the launch being put back by six weeks from September because of a strike by aircraft makers Boeing.

Some passengers have also contacted The Scotsman after experiencing delays and difficulties in receiving full refunds for flights cancelled as a result.