Ryanair Holdings is closing in on a series of agreements that could see the discount giant take control of an even bigger swathe of European short-haul travel.
The Dublin-based company is seeking deals with carriers including Norwegian Air Shuttle, Aer Lingus, Alitalia SpA and Deutsche Lufthansa under which its flights would help feed passengers onto their long-haul services.
Ryanair would be open to adding frequencies in order to provide sufficient connectivity and could ultimately replace many short-haul services operated by network carriers, encouraging them to focus exclusively on intercontinental routes, Chief Executive Officer Michael O’Leary in an interview.
"The upside for us is in persuading the legacy carriers to stop trying to compete with us on short-haul because it feeds their long-haul,” he said. “Work with us on short haul, you lose less money, I’ll have less competition."
Ryanair is seeking to seal accords in time for its summer timetable, with the arrangements likely to see passengers book flights to their end destination via the long-haul carriers’ websites, but fly European sectors on the Irish company’s jets. Baggage would be transferred automatically, though the agreements are likely to stop short of code-share terms, in which airlines sell tickets on each other’s flights as if they were their own.
‘Not Some Scam’
“There’s nothing but upside for the legacy carriers in this, except you’ve got to persuade them it’s not some scam,” O’Leary said in Brussels after a meeting of the A4E airline lobby group.
European airlines are grappling with shrinking margins after the low oil price prompted a capacity splurge that’s sent ticket prices tumbling. Ryanair said this week that its fares have slumped 16 percent this winter and are set to continue falling, making it even tougher for full-service carriers to compete on marginal routes.
Shares of Ryanair traded 1.2 percent lower at 14.27 euros as of 9:33 a.m. Friday. They fell 3.8 percent Monday when the company disclosed the price decline and an 8 percent drop in fiscal third-quarter earnings.
O’Leary cites Aer Lingus’s short-haul business in Dublin to illustrate how the feeder plan would work. The carriers compete directly on 28 services, he said, and while Ryanair wouldn’t seek to take over “trunk routes” a deal would allow the IAG SA unit to forgo unprofitable peripheral operations while connecting to the 85 destinations offered by its discount rival, including Birmingham and Edinburgh.
The CEO said he has offered a similar arrangement to Alitalia on routes from Rome and Milan.
“It’s a demonstration of how we can feed a legacy carrier,” he said. “If we can do it in Dublin, why can’t we do it in Italy, why can’t we ultimately do it in Germany with Lufthansa? This is absolutely the way forward for the industry.”
With Ryanair aiming to carry 200 million passengers by 2025, up from 117 million last year, O’Leary said that at least 10 percent of the total, or 20 million clients, are likely to derive from feeder deals. He added that the carrier is ready to expand its fleet by converting options for 100 more Boeing Co. 737 Max 200 jets into firm orders later this year in a deal worth $11.3 billion before discounts.
O’Leary said his airline hasn’t completely given up on offering long-haul flights of its own, while reiterating that the plan is low on his list of priorities given the record order backlogs at plane-makers Boeing Co. and Airbus Group.
“When Boeing and Airbus have 80 or 100 spare slots for long-haul aircraft that they desperately want to shift at a low cost, we’ll jump on it,” he said. “But we’re not going to kill ourselves at the moment when their order books are full out to 2020-2021.”
Ryanair has also been concerned about American opposition to low-cost flights into the U.S. operated by Norwegian Air Shuttle ASA, O’Leary said, while adding that the Scandinavian carrier appears now to have established key principles that other airlines can benefit from.
Ryanair is separately offering partners the ability to sell tickets via its own web portal as the CEO looks to boost the company’s on-line presence and make it what he calls “the Amazon of travel.”