Ryanair Talks Tough On Compensation As 737 MAX Woes Cloud Growth Target
The "significant reputational hit" caused by the grounding of Boeing's 737 MAX airliner will have to be reflected in the compensation that the plane-maker pays Ryanair, the airline's CEO, Michael O'Leary, has said.
Michael O'Leary said that as part of those talks he has made an offer for the larger, 230-seat MAX 10 model, but he does not expect Boeing to engage on that until the MAX returns to service.
Ryanair is a top buyer with 210 on order, but the grounding has forced it to effectively freeze growth this summer. O'Leary said that his target of flying 200 million passengers a year by 2024 could be delayed by up to two years.
Due to the MAX delays and struggles of smaller rivals, there has been a fall in capacity in Europe, which O'Leary said looks set to provide a "reasonably benign" environment for fares in the coming year.
This week, Ryanair reported a third-quarter profit after tax of €88 million and that average fares were up 9%. Ancillary revenue from pre-booked seating and other options jumped 21%.
"If we are growing slower, there is probably upward momentum on our fares and yields and less capacity pressure in Europe," O'Leary said on a conference call with analysts, but warned against "irrational exuberance".
"We could have a bumper year next year but that's certainly not built into any of our forecasts," he said.
O'Leary also forecast that Ryanair's loss-making subsidiary Lauda will "settle down" and see higher fares and profit levels typical of other parts of the group within a year or two.
Ryanair's planning revolves around the timing of the delivery of the 737 MAX, which was grounded in March 2019 after two crashes which killed 346 passengers and crew.
O'Leary said that he aims to have 55 of them flying by the summer of 2021, which is a year later than originally planned, but added that the airline would be "doing well" to get 50.
A target to fly 200 million passengers by March 2024 "will run one or two years later than that depending on the timing of deliveries," he said.
Boeing's delivery rate will likely be "slower than it has been historically," O'Leary said, forecasting that it would take up to two years for the manufacturer to get back to producing more than 50 of the jets per month.
By 2023 and 2024, Ryanair plans to have approximately half of its scheduled MAX deliveries to replace older planes as the airline shifts from growth of 8%-9% to closer to 4%-5%, moving from a "land grab" to "more controlled growth", O'Leary said.
Addressing his plans for compensation from Boeing, O'Leary said that he wants not just to be refunded for lost traffic and lost ancillary revenue, but also a discount due to the "significant reputational hit" the MAX had suffered.
He said that talks are going well, but numbers cannot be finalised until Ryanair gets confirmed delivery dates for its 210 MAX200 jets.
Regarding the airline's offer for the larger, 230-seat MAX 10 model, he said, "To be fair to them, I don't think the new management team is in a position to be able to talk to us about a new order...We understand that, but we have an offer in and we expect to be at the head of the queue."