O'Leary's Ryanair Close to Catching Southwest in Market ValueBy
Ryanair surges after raising profit forecast for 2015
Irish carrier ranks fifth globally among airlines by value
Ryanair Holdings Plc Chief Executive Officer Michael O’Leary likes to credit Southwest Airlines Co. founder Herb Kelleher for teaching him all his tricks.
Thirty years after Ryanair was founded -- and 23 since O’Leary honed in on Southwest’s discount model as the route to success -- the student may be on path to outstrip his teacher.
Ryanair shares surged Wednesday, bringing their gain for the year to 47 percent, after the Dublin-based carrier raised its profit forecast. The company now is valued at 18.8 billion euros ($21 billion), making it the world’s fifth-most valuable carrier and putting it within hailing distance of Southwest, ranked third at $25.1 billion.
With an eye to reinventing the then-struggling Ryanair, founder Tony Ryan sent a 26-year-old O’Leary to Dallas in the early 1990s to meet Kelleher. Key takeaways from his stay -- which included late nights spent picking Kelleher’s brain over bourbon and cigarettes -- included the importance of fast turnaround times, an obsessive focus on costs and the logic of using one type of aircraft to simplify maintenance and training.
From one aircraft and 5,000 passengers, the Irish airline now has grown into Europe’s biggest discount carrier, with a goal of carrying close to 104 million people by the end of this year. That’s more people than the combined 2014 passenger total carried by its low-cost rivals EasyJet Plc and Air Berlin Plc.
For the most part, Ryanair has stuck to what it’s good at, becoming famous (and infamous) for teaching Europeans geography by shipping stag parties, families and small-business owners to previously unknown airports across the continent. While that strategy paid off, in recent years the carrier has sought to refine its image to appeal to a broader clientele. O’Leary, now 54, has flicked at the idea of adding long-haul routes, though he envisions doing so through a stand-alone unit with its own name and branding.
Remarkably, investors have awarded Ryanair its hefty market value even though the company has a fraction of the revenue of full-service carriers such as Delta Air Lines Inc., a sign that money managers see the low-cost model as the surest route to growing profits in the industry.
In Europe, full-service carriers, many of them formerly state-owned national airlines, are struggling to adapt. Deutsche Lufthansa AG’s unions have engaged in repeated strikes to contest the German company’s plan to move flights to a low-cost unit, while Air France-KLM Group’s Air France arm is pushing pilots to accept cost reductions or face cuts in intercontinental flights.
Air France-KLM is Europe’s biggest airline by traffic, which measures passengers multiplied by the distance flown, and has annual sales of about 25 billion euros, which dwarfs Ryanair’s 5.7 billion euros. Air France-KLM’s market value? Just under 2 billion euros.
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