For Ryanair, March presented another opportunity to advance its long declared plan of driving expansion in Central and Eastern Europe (CEE). The airline announced it will open a base at Vilnius Airport in Lithuania on October 30 with two aircraft, at a cost of $200 million as part of a plan to grow traffic out of the airport by 16%.
The airline is predicting the plans will deliver 1.5 million passengers per annum once they have been rolled out. And while CEE presents welcome opportunities, how does Ryanair’s encroachment affect rival, and regional, low-cost carrier (LCC), the Hungarian Wizz Air?
Since its inception in September 2003, Wizz Air has grown to the extent that it is now operating 65 aircraft out of 116 airports in 38 different countries. A total of 22 of its 24 bases are in CEE. Its last full-year results for the period ending March 31, 2015, showed it carried 16.5 million passengers, up 18% year-on-year, generating an underlying net profit of €146 million off revenues of €1.23 billion.
However, and somewhat surprisingly for two such big rivals, they seem remarkably relaxed about one another. Ryanair CMO Kenny Jacobs tells Routes News the airline is increasing the number of routes out of Wizz Air’s home airport at Budapest to 19 as it targets a 16% increase in passenger numbers to 1.8 million within the next two years.
He adds: “I won’t go as far as to say we’re parking our tanks on their lawn, but we will be going head-to-head more in the next two years. We welcome all competition whether it is low-cost competition or legacy competition.”
Jacobs says Ryanair is in a strong position to take on any airline in Europe, particularly after a strong winter following a number of changes by the airline. Fewer aircraft were grounded during the traditionally slow season while network changes to more primary airports proved effective.
Getting scheduling out earlier helped drive Ryanair’s bookings and the decision to focus more on the business travel market during the winter has also paid off, he adds.
Meanwhile, Jacobs says as the benefits of low-cost oil begin to trickle through, so more low fares are available throughout the winter which has resulted in ensuing sales stimulation. He adds: “It has been a wonderful time for consumers since the run-up to Christmas to get low-cost fares.
“We have now started to get more of the benefits of cheaper fuel prices. Last year we were getting a bit more and in the coming financial year we’ll be getting €430 million in savings because of cheaper fuel. A lot of that will be passed on to the customers in cheaper fares,” he adds.
He also believes that as airports become more familiar with Ryanair’s business model, the airline will be able to work with more secondary airports in CEE to further drive its growth.
Jacobs says: “Airports are realising the world is changing and that they need more airlines, whether that’s low-cost or scheduled operators. We want the lowest charges at airports; if you have low charges we’ll bring you volume, which is better for the airport and the local economy."
“We need an airport that gets us; it is a very different time now and if you’d spoken to Ryanair four years ago there was a large list of airports that we said we wouldn’t fly to but that’s changed now. There’s only one airport we wouldn’t fly to now and that’s Heathrow,” he adds.
Jacobs also admits last year’s well publicised announcement that the airline was planning on setting up a transatlantic long-haul operation has been dropped allowing it to again focus on its core market.
He adds: “It was a great story that kept on giving us media coverage but we do short-haul very well. By 2024 we’ll be targeting 180 million customers that will give us about 22% market share in Europe, and we’re not going to get distracted from that.”
However, he adds with many European legacy carriers now focusing on their long-haul programmes, there is an opportunity for new partnerships to be put in place, and conversations are already happening with Norwegian. Jacobs says: “Whether you’re Alitalia or Norwegian we’ve got a pretty good way of connecting short-haul traffic to long-haul destinations.”
He argues much of the growth will also be driven by the anticipated delivery of new aircraft to Ryanair, adding: “We’ve been constrained over the last two years by not having the capacity but we’re now getting meaningful delivery of the 350 aircraft that we have on order.”
This is not to say that he is entirely unconcerned about Wizz Air. Instead he believes that as Wizz Air looks to grow its route network further west, it will encounter more serious issues than Ryanair has done so in heading east. Jacobs adds: “It will be harder for them as they must expand to the west where the airports and marketing are more expensive. It costs more for them to come west than it is for us to go east.”
But overall he believes the main losers in any increased competition between the two airlines will not even be from the low-cost sector. “The future is more about the low-cost group of airlines taking on the legacy airlines as we’re taking 50% of the market share in the next two years,” he adds.
Wizz Air CEO József Váradi agrees that any increased competition between the two LCCs in the region will lead to losers elsewhere – the region’s legacy airlines. Many of these, he points out, are still facing financial issues and failing to make money in today’s market, despite the positive outlook.
“They haven’t added a single bit to their capacity despite all the growth in the region; all the growth has been generated by LCCs. This market is in need of very low-cost fares and the LCCs can deliver it,” he says.
“The more we push and the more Ryanair pushes the line, the more pressure there is on legacy carriers and we will see what happens with that. We both understand this reality better than anyone else; we have a strong business and competing with anyone including Ryanair will be fun. It is perfectly logical from their perspective to keep on growing.”
He agrees falling fuel prices have begun to have an effect in the market, although he believes many airlines have simply become more “bullish” in adding capacity, rather than accepting that in less favourable conditions they would be struggling to break even. This has led to many failing to put their houses in order.
Váradi argues that it is the LCCs’ ability to compete on cost as it seeks greater penetration of CEE that will prove the undoing of many of the rival legacy carriers. “We are focused on delivering this business at a lower cost than our rivals,” he says. “This is the best way of defending ourselves [from rival airlines] and this is the best way to stimulate the market.”
Váradi also believes it is the best way of running the business which in its third quarter for the period ending December 31, 2015, recorded a 17.3% boost in revenues to €310.5 million with an underlying net profit after tax of €17.2 million, an almost four-fold increase on the same period of 2014.
He adds Wizz Air remains well on track to meet its predictions of 18% capacity growth in the 2016 financial year while the underlying net profit for the year should be €190 million to €200 million. Váradi says: “At the moment we are growing capacity on our routes of about 20% – that’s already our highest growth rates in the industry.”
Like Ryanair, Wizz Air is also aware of the difference that the delivery of 110 Airbus A321neo aircraft (starting in 2019 and offering a 10% cost reduction compared with the A320s currently in use) will make. Váradi says: “This is a superb aircraft. It beats any of our competitors including the big airlines.” And given how both LCCs are operating in the region and their optimism for the future, it is certainly the traditional giants that will need to keep an eye on them.
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