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Ryanair truce with online travel agencies keeps O’Leary on flightpath to €100m payday

Chief executive has walked back before from trenchantly held positions

Ryanairs group CEO Michael O'Leary. Photograph: Olivier Hoslet/Shutterstock/EPA

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Joe Brennan
Sat Feb 3 2024 - 06:15

Michael O’Leary, who built Ryanair into Europe’s largest airline lampooning airports, politicians and suppliers standing in his way, hasn’t thrived for three decades in the cockpit without challenging another sporadic obstacle: himself.

The vociferous Ryanair chief executive this month signed his first-ever flights booking deals with online travel agencies (OTAs), Loveholidays and Kiwi, marking a tentative truce with companies in an industry he has previously decried as a bunch of “pirates”.

Ryanair had engaged for years in legal battles with Kiwi for screen-grabbing of the carrier’s website without authorisation to obtain fares.

The new agreements require the OTAs to ensure bookings and payments go through Ryanair’s website, giving it control over the customer contact and ensuring no overcharging by the middlemen.

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It follows a sudden move in December by a number of major OTAs, including Booking.com, with which Ryanair remains in a long-running legal fight, to stop selling the airline’s tickets.

Whether O’Leary was a fan or not, these have typically accounted for an estimated 10-15 per cent of bums on Ryanair seats, the company disclosed this week.

‘Ryanair has a long history of having deeply entrenched positions against particular strategies, tactics or industry practices which it later abandons with a swift reversal of course’

—  Liberum analyst Gerald Khoo

The unexpected dropping by OTAs led to Ryanair reporting weaker-than-expected quarterly results this week and warning that its net profit for its financial year to the end of March would come in at the lower end of its previous guidance, to €1.85 billion to €1.95 billion.

Gerald Khoo, an analyst with London-based brokerage Liberum, said the new deals mark another case of a Ryanair “pragmatic pivot” – even if O’Leary insists that any OTAs that sign deals with it will be tied to strict conditions.

[ Ryanair full-year passenger traffic hits 12.2 million in January ]

“Ryanair has a long history of having deeply entrenched positions against particular strategies, tactics or industry practices which it later abandons with a swift reversal of course,” said Khoo in a report this week on the carrier.

“The ability to continually adapt, including doing the previously unthinkable, has underpinned Ryanair’s growth into its current market leadership position.”

O’Leary – who hasn’t allowed decades in the corporate world dampen his penchant for speaking in certainties – has bumped into himself walking back down on plenty of occasions from the tops of hills he vowed to die on.

[ European airfares will rise this summer, says Michael O'Leary ]

Having once had an aversion to buying brand new aircraft, O’Leary placed his first order with Boeing for 20 planes in 1998, a year after Ryanair floated, and followed up, famously, with a transformative order for up to 155 Boeing 737-800 aircraft to take advantage of an industry in crisis following the 9/11 attacks.

O’Leary, who turns 63 next month, has also long drifted away from a focus on cheaper, secondary and regional airports around Europe.

He’s had to in order for Ryanair to become a company that’s on track to carry a record 183.5 million passengers in its current financial year. Since 2016, it has been flying into more primary than far-out airports.

Having once said he’d rather cut off his own hands than negotiate with trade unions, O’Leary carried out a historic volte-face in late 2017 – following a summer marked by disruptive strikes across much of Europe – by agreeing to recognise pilot and cabin crew representative bodies.

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About a decade ago, O’Leary began a concerted effort to moved Ryanair away from its cheap and nasty, customer-is-always-wrong ways.

“It was the realisation in 2013 that people are willing to pay a higher fare to EasyJet or Aer Lingus or BA just to avoid us,” he said in an interview with the Sunday Times four years later.

“To be fair, most people had been telling me for two or three years before that, ‘Look we have to soften this.’ But I was, ‘No, I’m right, I know what I’m doing. We’ve been right for 25 years.’”

Two profit warnings from Ryanair in 2013 and a failed, questionable third attempt by O’Leary to take over Aer Lingus the same year – which ended up being blocked by Brussels even after he had pledged to effectively offload half of its short-haul routes – gave board members more leverage at the time to challenge the CEO.

“The company is already operating in a well-penetrated market, and cannot maintain 10 per cent annual growth as it used to when it was a smaller airline

—  AllianceBernstein analyst Alex Irving

Meanwhile, O’Leary’s declaration two decades ago that Ryanair is “never paying a dividend as long as I live and breathe” hasn’t aged well. The carrier declared in November that it was paying a maiden dividend of €400 million – payable in two instalments in 2024, the first later this month – and that it would be pursuing a dividend policy of handing over about 25 per cent of net earnings to shareholders in future.

The airline has distributed €6.74 billion to shareholders between 2008 and 2020 by way of share buy-backs and ad hoc dividends. But the commitment to a regular payouts is a major development and central to what AllianceBernstein analyst Alex Irving describes as a metamorphosis under way at Ryanair, transforming from a revenue growth stock into a cash return one.

Irving said Ryanair should achieve a targeted 225 million passengers by 2026 with the fleet of Boeing 737 Next Gens and Max-8200s on order.

“Following this, expect a significant growth slowdown – and nowhere to allocate its excess cash,” he said. “The company is already operating in a well-penetrated market, and cannot maintain 10 per cent annual growth as it used to when it was a smaller airline. A new order for Boeing MAX-10s, through to 2033, will mean growth of 3-4 per cent.”

Ryanair’s shares hit an all-time high of within a few cents of €20 a share on Friday, having ascended by a third over the past 12 months, as investors ignored the profit warning to focus on the bigger picture.

O’Leary, whose 3.9 per cent stake is now worth about €880 million, told analysts on a call this week that summer bookings and seat pricing are running in advance of where they were this time last year and “another year of strong profitability” is on the cards for year to March 2025.

Goldman Sachs analysts estimate Ryanair will generate more than €6 billion of in free cash flow – or money left over after running costs and investment – over the next three years, giving plenty of scope for shareholder payouts.

They reckon Ryanair will be a €3 billion net-profit company (more than double the record €1.45 billion delivered in 2019) by the time O’Leary’s latest contract expires in 2028.

The consensus call among analysts is that Ryanair’s stock will rise to over €25 over the next 12 months – breaching the €21 level that it must exceed for 28 consecutive days to trigger a €100 million stock-based bonus.

The alternate flight path to the massive pay-day – of Ryanair posting a net profit of €2.2 billion – is also in sight in the next financial year, according to the current market consensus. How much longer will O’Leary stick around for after that?

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