As winter approaches, the airline landscape is unmistakably similar to Game Of Thrones. For those who were not sucked into the HBO cult hit, it’s fairly self explanatory. Legacy airlines still hold the crown, but low cost carriers are making bold and frequent plays for the throne. With the cold of winter approaching, the fight is more uphill than ever. The quest for airline royalty, better known as survival these days, is a sharp game of luring in support via low fares, while curbing rising fuel costs. In comments reported by the Irish Times, Ryanair CEO Michael O’Leary thinks the game is about to turn final…
Headwinds
Make no mistake, passengers are but a mere part of the airline business. Airlines operate like hedge funds, literally hedging fuel costs via risk departments and financial analysts – and rough times are ahead. Fuel costs are rising, and this will severely limit many upstart airlines ability to discount seats and meet operational cash needs, without long standing deep pockets to weather the proverbial storm in the interim. In addition, O’Leary states that there are simply too many seats available, via too many airlines, and this is making it even harder for airlines to gain marketshare. It’s not just A vs B. They’re prepared to go to war.
“If there’s going to be a fare war, we want to lead this and win it.” – Michael O’Leary.
Ryanair Strategy
First fell Primera, and then shortly thereafter Cobalt. Ryanair CEO Michael O’Leary believes there are more to come, and they have a strategy to make that happen. Ryanair has enjoyed years of billion dollar profits, O’Leary believes these deep coffers will allow the airline to “go low” on fares, despite rising fuel costs, at a rate which no other low cost airline can. Essentially, if everyone is going to suffer, Ryanair plans to launch fares so low, that everyone suffers more. The question will be: can the others withstand the strain?
Doom & Gloom
Aviation analysts are showing growing concern over the future of FlyBe, Norwegian, WOW and Wizzair, just to name a few. The airlines have struggled to gain marketshare in good times with legacy airlines thwarting attempts by price matching low fares, and now with rising fuel costs and lower passengers yields in winter months ahead, a cash crunch is inevitable. For highly leveraged airlines such as Norwegian, the question is just how far creditors are willing to go. Upstart WOW Air recently completed a €60 million bond issuance, which helped to fund the airline for at least another six months. Norwegian earning results are expected today, and FlyBe recently turned in results well lower than forecast. Is the latest O’Leary statement just posturing, or is he an oracle for the low cost future?
Will another airline go bankrupt? If so, which?
HT: ViewFromTheWing
