Ryanair's low-cost acquisition of Buzz yesterday brought it back to the top of the league in Europe's no-frills airline business. When the deal is finalised in April, Ryanair will be bigger than EasyJet, but the decision to order 100 more Boeing 737-800 suggests the airline's ambitions lie beyond the current horizon of the budget travel market.
Ryanair chief executive Mr Michael O'Leary said last night the airline would carry 24 million passengers in the year to the end of March 2004, with four million of those travelling on the Buzz network. For Buzz, acquired from KLM for less than €5 million, that represents a doubling of passengers on its network next year.
Although Buzz is believed likely to lose €30 million in the current year on sales of €140 million, Ryanair is confident that it can turn a profit from the network within 12 months.
Despite the obvious benefits that will come from a ready-made expansion from the Ryanair hub at Stansted in London, this is an ambitious target for what is the airline's first acquisition.
But Mr O'Leary is not known for half-heartedness and can be expected to initiate an immediate and severe cost-cutting plan at Buzz.
In a brief statement outlining details of the transaction, Mr O'Leary said Buzz suffered from two structural cost problems: the use of "expensive congested airports" and an "inappropriate" fleet. "Ryanair can and will resolve both problems within 12 months," he said.
Pending quarterly results on Tuesday, Mr O'Leary was not answering questions late yesterday about the finer details of the transaction. But he said: "Ryanair will significantly rationalise Buzz's operations by closing a number of high-cost unprofitable routes and operating the remaining routes at increased frequency, lower fares and much lower costs."
Buzz has 21 routes from Stansted and Ryanair will focus on high-growth routes into smaller airports. In diverting services away from airports such as Charles de Gaulle in Paris, it will free up Stansted slots for further route development.
In addition, the likely withdrawal of a service into Frankfurt am Main will stimulate demand on Ryanair's existing route into Hahn near Frankfurt.
Buzz will operate a fleet comprising six Boeing 737-300s and six BAe 146s this summer. While these carry less passengers than the new 737-800 aircraft ordered from Boeing, a key condition of the acquisition is that KLM will take back the six BAe planes at the end of March 2004.
Replacing these planes with more efficient 737s will generate further cost savings, but only in the second year after the takeover. This suggests that cost-cutting will be deep when Ryanair sets to work in April to secure profits in the first year.
Mr O'Leary said the Boeing deal is designed to help bring the airline to 29 million passengers in the year to the end of March 2005. A US government guarantee on 85 per cent of the debt on the orders would enable the company secure a AAA credit rating on the debt, said Mr O'Leary.
