Chief Executive Michael O'Leary is back in the news, with more thundering declarations. He says he is, again, envisioning serving long-haul routes, of course at ultra-low fares. And his plans are on a grand scale—perhaps as many as 15 transatlantic city pairs flown by 30 or 50 or twinjets. Some may wonder whether we should trust him in light of other sweeping pronouncements he has made that never came to fruition.
But in this case, we should probably take him seriously. After all, Ryanair's route system will not expand forever and two-digit growth rates are now a thing of the past. In the next few years, the Irish carrier expects to surpass 100 million passengers per year. And it certainly plans to remains as profitable as it is now, earning as much as €500 million ($693.9 million) per year, all while mainstream European airlines endure weak yields.
In the long term, if O'Leary wants Ryanair to further expand he will need to enter new markets. He already operates medium-haul services to North African destinations, catering to leisure travelers. But this will not be enough if he wants turn his airline into a genuine global player. So, in principle, opening transatlantic routes is a logical step, assuming the low-cost model can be adapted to 7-8-hr.-long flights. And that is the key question.
In the past several years, low-cost startups tried hard but failed to create long-haul, discount operations. Today, we all watch Norwegian Air andto see if they can establish a new economic model. Their success is far from certain. On long flights, fuel can amount to nearly 50% of direct operating costs, and savings resulting from the no-frills model are relatively modest. In other words, it is back to basics. In order to reduce expenses, aircraft need to spend more time in the air. And that is where the experiment falters; time zones are the enemy.
To extend the parameters of the usual return-flight-per-24-hr. mode—for example, between London and New York—an operator would need to create unprecedented flight schedules and may have to offer 3 a.m. departure or arrival times. Would customers tolerate such inconveniences? Possibly, because very low fares are a potent lure. But airlines would first have to overcome the thorny matter of airport curfews. Although next-generation commercial transports' noise emissions are significantly lower than they used to be, local residents have won the war and, with very few exceptions, nighttime aircraft movements are now banned almost everywhere. If these rulings prevail, Ryanair's aircraft may have to remain on the ground at night, negating an economic gain.
Years ago, when the U.K.'s Cranfield University first evaluated the merits of long-haul, low-fare operations, their economists warned that the need for dense markets, feed traffic and myriad difficulties tied to time zones “all combine to cast doubt on the widespread establishment of the [low-cost] business model for long-haul flights.” However, British pioneer Freddie Laker's Skytrain, between-New York John F. , proved successful in the early 1980s.
Eventually, Skytrain failed in the absence of direct sales (no Internet) and because powerful legacy carriers in the U.S. and in Europe ruthlessly counterattacked Laker's initiative to maintain what was still the airline industry's lucrative pathway.
Can O'Leary become the modern day Laker? If he cannot, within the next 5-10 years Ryanair will probably reach the zenith of its potential. And that scenario seems to be the most likely.