It might have been delivered by two chief executives, but the excitement around the news that Ryanair plans to spend around €17 billion on buying 200 new 737 Max aircraft from Boeing was tempered by the fact that it is not going to start taking delivery of the planes until 2019.
However, you could argue that the most signficant thing about yesterday’s announcement was that it was almost all about the long term.
At a time when some European airlines are not terribly confident about the next five months, Ryanair is telling us what craft it will be buying in five years and more or less how much it will be paying for them.
Not terribly different
On the face of it, the new plane will not be terribly different. At a joint press conference featuring Ryanair chief executive and Boeing’s Ray Conner, the aerospace giant’s chief called it a “ new variant” of the 737-800 model that the Irish airline now uses exclusively.
The key changes are that it will have eight more seats, 197 compared to the current number of 189, and it will burn 14 per cent less fuel.
As the Max 200 will require the same number of cabin crew and pilots as the 737-800, it will involve no extra running expenses. That may not seem terribly dramatic, but in order to stay in business, airlines have to earn more in revenues than it costs them to fly their planes.
So a craft that allows them to sell more seats while cutting what they spend on fuel gives them an obvious head start in achieving this.
Ryanair's chief financial officer, Howard Millar, says that 4 per cent more seats combined with 14 per cent less fuel amounts to direct savings of 18 per cent. "This is a structured change, what we have done is locked in our biggest capital and operating costs right out into the next decade," he says.
His chief executive, Michael O’Leary, calculates that on the basis that each craft flies six times a-day, 364 days a-year and is on average 80 per cent full and that each passenger spends an average of €60 per trip, every individual Max 200 will deliver €1 million a-year “straight to the bottom line”. It is, he says, the plane Ryanair has always wanted.
His figures add up. Excluding fuel, on the basis of the extra revenue delivered by the additional seats and assuming the load factor is 80 per cent, it works out just over €2,500 a-day per craft or €180 million a-year across a fleet of 200.
While Ryanair will begin taking delivery of the new Boeings in 2019, the final batch will arrive in 2023, so the full impact of all of this will not be felt until its 2024 financial year. The order is actually for 100 craft, with an option to buy a further 100.
O’Leary made it clear that the airline intends buying all 200, and explained that the option element of the deal is there to allow it some flexibility on when and where it may need some of the new craft.
Once they have all arrived, Ryanair will have a fleet of 520, at that stage virtually all of them will have been purchased over the previous 10 years.
In short, what the airline has done is decided on what size and shape its fleet, and thus its business, will have, midway into the 2020s. Millar agrees that it is unlikely to be announcing any more big purchases for some time and repeats that this is a “structural change”.
