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[Oli]

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O’Leary’s squeeze

13 August 2006 By Eamon Quinn
Michael O’Leary talks about his plans to ‘put the squeeze’ on Aer Lingus in Dublin as it prepares for its initial public offering next month.

Michael O’Leary talks about his plans to ‘put the squeeze’ on Aer Lingus in Dublin as it prepares for its initial public offering next month.

After executing a policy u-turn, Ryanair chief executive Michael O’Leary said he would have as many as 20 planes based at Dublin Airport servicing direct routes to Europe by the end of next year.

O’Leary also said that he would mount a new campaign against the government in the run-up to the election to press for another - and third - terminal at Dublin Airport which will be free of the airport’s control.

Ryanair also plans to keep raising its baggage tax until most travellers stop checking in luggage completely.


What are your immediate plans for Dublin?

The fleet size is currently 107. Fifteen planes operate out of Dublin and the additional three [planes] will bring us up to 18 this winter.

Three extra aircraft – it’s not that ambitious, is it?

We are going to take 30 aircraft deliveries this winter so, what Dublin is getting is 10 per cent of them. It is not getting 40-50 per cent. We could put more aircraft into Dublin but they would not fit. We will probably put more aircraft into Dublin when Pier D opens at the end of 2007 and we get more places to park the aircraft.

And more by next summer?

Subject to being able to park the aircraft early morning and late evening. The way it stands we could put another couple of aircraft in.

So those could go into schedule next summer before Pier D gets built?

Yes, next summer. We are working with the airport to see whether they can take more aircraft. Thinking about October 2007,we can go from 15 to 20 aircraft, I would imagine.

What routes are you not serving which you could serve next summer from Dublin?

Currently, we are doing about 110 destinations out of Stansted and doing 48 out of Dublin. So you could effectively do any one of 60 destinations we service out of Stansted out of Dublin.

For instance?

We would do frequency build as well. We are not really interested in routes which, say, have only two [flights] a week.

We want to get those up. We are only interested in daily routes. One of the routes we could link up to is places in Austria such as Graz and more destinations in Italy such as Pescara and Palermo. We don’t serve those ex-Dublin and we could.

What’s the biggest hub for the airline?

By a distance, Stansted, where there are 40 aircraft.

Second is Dublin with 15 aircraft.

The three [extra craft] brings it up to 18. Hahn [in Germany] would be third with eight aircraft and Barcelona fourth.

What are the next airport hubs?

I have no idea. There are about eight airports pitching for us. There are a couple in Germany, a couple in Spain, one in France, one in Italy, one in Britain and one in Scandinavia.

We will pick two of those; the decision will be made next month or in October.

You have done a u-turn. Did you not hold out as you built up in Germany and you are now belatedly focusing back in Dublin when you said that you would not do this until you got a new deal out of Dublin airport?

That’s true. We got a second terminal at Dublin airport. We are not going to get a second [competing] terminal at Dublin airport. The government made a decision that it was going to break its own promise on a competing terminal and award the second terminal to the board of the Dublin Airport Authority (DAA).

A u-turn? What phrase would you use?

U-turn is fine. We could hold out on the point of principle that we are not going to grow out of Dublin and create a business there for Aer Lingus.

Or we can decide that, well, we are not getting a second terminal at Dublin Airport now and let’s stick it to Aer Lingus.

Has Aer Lingus done a little bit better than you expected?

No. They have stuck in there out of Dublin. Aer Lingus has withdrawn from almost all of Britain. They used to operate 15 destinations to Britain. They are now down to seven.

For a couple of years under Willie Walsh they switched capacity away from Britain into continental Europe because we were refocusing to grow Europe [out of Dublin].

In the next 12 months, we will wipe them out in Europe.

I don’t mean wipe them out in the sense of move them off it.

But we created a niche for them. They weren’t able to compete with us in Britain, so they switched capacity into Europe.

Now, we are adding capacity into Europe and we are now going to destroy that market for them as well.

In 2008, there will be Pier D but the terminal won’t be built for another year. Will British Midland be squeezed? What does Dublin Airport look like in 2008?

We will grow by another 20 per cent over the next 12 months in terms of passengers.

By 2008 with Pier D, we could be up from18 aircraft to maybe 25 aircraft at that stage ex-Dublin.

Aer Lingus would have the same aircraft as they have at the moment. I think they get another one or two long-haul aircraft but on the short haul they are going nowhere.

There are no growth opportunities.

The idea that everyone else will be squeezed out - I don’t think they will. Anyone who has largely been squeezed out is gone. What you are left with is niche players, the principals of which are British Midland out of Heathrow.

There is no way they are going to go. They are managing the yield, putting on smaller aircraft and increasing the fares and going for yield in Heathrow.

The next big customer here is Aer Arann [at Dublin Airport] who fly turbo props to airports which neither ourselves nor Aer Lingus can get into or out of. They are too short . So, they can’t be squeezed out nor would they be. The only ones left are the charter airlines or the flag carries like Lufthansa - flights from Frankfurt - or CityJet/Air France from Paris and KLM.

That stuff. I do not think anyone else is going to be squeezed out. It is only that all the growth at Dublin Airport in the next two years is going to come from us.

But the squeeze is on Aer Lingus is your argument?

The squeeze is on their fares.

There is going to be a lot of growth on Aer Lingus European routes in the next 12 months but we are going to capture all the growth in market yield. As in Britain, Aer Lingus traffic will be pretty static.

Their yields are going to get slashed.

What slice will you have of the Dublin Airport cake?

If Dublin airport this year does 20 million passengers, I think we will account for the guts of eight million. If next year they do 21 million or maybe 22 million, we will account for 9 million of them.

The squeeze is on people’s fares out of Dublin.

The other 30 per cent of the traffic out of Dublin will stay largely because they are all, in their own way, niche players.

And 2008 ex-Dublin?

It’s too far out. Who else is going to add capacity? What will Aer Lingus spend their money on? In 2007, we will take the growth and Aer Lingus’ market share will decline.

Has the announcement of the timing of extra routes anything to do with the Aer Lingus IPO?

Not really. We did the first thing on the European routes last winter and this is simply filling in as we get more aircraft.

Some of those aircraft get allocated to Dublin, some to Shannon.

If we were going to do it around the IPO we would have done it around the time when they announce the IPO. We are not waiting around for an Aer Lingus IPO. Aer Lingus has been talking about an IPO for six years. We will have a lot of fun at the time of the Aer Lingus IPO.

People in this country still look at Aer Lingus as being the big Irish airline when it is really quite a small regional airline now. It is an opportunity when Aer Lingus has to lift its skirts in an IPO prospectus about what their traffic is and their market share. People are going to see how irrelevant it is in this country.

Delivery of aircraft?

We take delivery of 30 aircraft this winter from September through to April out of Seattle. That brings us to 137 planes. Three of those are Dublin bound. The rest are bound for two new bases - the new base in Marseille which starts in November and then new routes at existing bases.

A base typically starts off with three or four aircraft. So, Marseille plus two new bases will take ten aircraft and the other 20 will be allocated to the existing airports, such as the three for Dublin Airport.

When you said 200 extra jobs will be created in Dublin by the allocation of three aircraft. Does each aircraft really account for 70 jobs?

Yes. We run with about five and half crews per aircraft.

Each crew is six people multiplied by 5.5 crews makes 33 multiplied by three aircraft.

There is the 100 of the 200 [jobs] directly in Dublin and the other 100 will be engineers, tele-reservations and the head office staff which we need to grow next year from 42million to 50 million passengers. They all happen to be based in Dublin.

Two of the three first airlines to impose baggage charges are Irish. What does that say?

Flybe were the first to introduce it and Aer Lingus followed Ryanair.

Does it not also say that you have pricing power here [in Ireland]? A charge is a charge.

Not really. If you look at the underlying fares, we expect the yields to be flat again next year.

It is a discretionary charge.

Everyone can travel without the charge. We do not expect to ascribe any increase in yield as a result of baggage charges.

The reality is that we expect the underlying fare this year to be flat, despite the fact that oil prices have increased. If our yield is flat it means that the underlying airfare has fallen and has been compensated for by the baggage charge.

If crude was back at $50 a barrel, you wouldn’t be doing this, would you?

Yes, we would. We are doing it because we are going to save €25 million to €30 million in airport and handling costs over the next 12 months. We want to actively discourage people from bringing bags.

In an ideal world, we would just ban all the bags. If I could get away with it - and I accept I can’t - I would ban all passengers from bringing any checked-in luggage altogether.

We would then check in all our passengers on the website. We would not need check-in desks at Dublin Airport, no baggage staff, no nothing.

The reason we do it, is neither because we have pricing power - because clearly we don’t - nor because it is revenue generating. We want to force people to stop travelling with checked-in bags because we can save another €25-30 million in costs.

We are going to keep putting up the baggage charge until we force people to stop travelling with checked-in bags. In the same way we have forced all of our passengers to use the internet instead of travel agencies over the years with an incentive; well, this is an incentive to force more and more people - preferably all of them - to travel with hand luggage instead of checked-in luggage on flights where the average flight duration is one hour 15 minutes.

What do you need four bloody suitcases for? If you take this to an extreme we will force people to travel with hand luggage only. We don’t care how it (the luggage) gets there.

We don’t want it.

It’s a good bet that crude oil prices will fall from $78 a barrel?

I think that in the short term, prices will rise. All we know in the short term is that it is going to rise. I would not be surprised if this winter it hit $100 a barrel. Medium term, I think in three to five years, you will see it back down below $50 a barrel.

High oil prices tend to discourage consumption and people move away from consuming oil in times of high oil prices and because fundamentally there are no supply problems. You do not see people queuing outside garages around the world. It is like any commodity in a bull market. It rises over time and gets to a peak where everyone expects that at $80 a barrel is the new paradigm price for oil. And then everyone starts to short it and it will back down to $30 or $40 a barrel. It is just a commodity.

In Shannon what part of the market do you have?

We will do 1.5 million passengers this year with three aircraft.

I think we have 50 per cent of Shannon’s total traffic.

What distorts Shannon is all the transatlantic traffic that is not really going to Shannon. If you strip out the transatlantic, which will be gone whenever Open Skies comes in, we have probably 80 per cent of Shannon’s traffic.

Any plans for the run-up to the election?

We will be running ads highlighting this government’s commitment to give us a second competing terminal at Dublin airport during the lifetime of the government and their failure to do so.

[AmikoFrizz]

Quest'uomo è geniale, anche un po' pazzo... certi estremismi sono poco condivisibili, questo è vero, ma finora ci ha sempre azzeccato.
Magari avessimo 2 o 3 MOL italiani... :-)

ciao
af