Just two months ago Ryanair CEO Michael O’Leary was adamant: Getting into the longhaul business was a “great distraction” from the company’s core business and would be terrible mistake. Today, however, he’s apparently singing a different tune. Reports out of London have the airline keen to bid on the assets of Alitalia, including the fleet, crew and engineers. This news comes after O’Leary loudly denounced the Air Berlin asset sale as a rigged process. And none of it makes much sense.
Here’s O’Leary in his own words calling out the bad idea of going long-haul (1:25ish in):
I think that would be one of the great mistakes we would make. If we get distracted, let’s set something up in Argentina, let’s set something up in Alaska, blah, blah, blah. All of a sudden no one in my operation wants to go to Luton four times a day. They all want to go long-haul or something else. That’s where you lose the discipline that we have.
Europe is plenty big enough. I only have 15% of the European short-haul market.
So, what gives??
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Were it just an asset play – buy the frames cheap and lease them out – then Ryanair likely wouldn’t need the engineers and crew. Also, the engineers and crew are likely the most expensive part of the deal given the union challenges they face. Perhaps they could get away with dropping just the cabin crew union (the one that rejected the most recent restructuring attempt) but even that is a risky play.
There’s always the crazy idea of simply integrating the new assets into the existing Ryanair portfolio. But perhaps “crazy” doesn’t do that idea sufficient justice. Ryanair operates a uniform fleet of just over 400 737-800 aircraft. Mixing in twin-aisle jets, and Airbus single-aisle planes would destroy many of the cost efficiencies the company has. And O’Leary does legitimately seem keen to not do that. More than anything, his focus on cost controls is incredible.
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Perhaps there is another angle, one that lines up with the Air Berlin “bid” noise.
Getting to bid on the assets means necessarily getting a look at the books to see how things have run in the past and how the company has managed the fleet, crew, scheduling and more. In other words, it is a great competitive advantage to better understand the costs the competition faces. That’s tremendously valuable information for Ryanair to get a look at. Then it can low-ball a bid number that would never make sense to sell at and move on.
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Or just the mention of Ryanair considering a bid could make others bump up their numbers a tiny bit. A little higher on the expense side for a tire fire is still good news for Ryanair.
Yeah, I’m terribly cynical, but I struggle to believe there’s a real chance that the company wants a long-haul operation, Italian union challenges, Airbus aircraft or anything else associated with Alitalia.
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