Comment: Ryanair turns on the 'fasten the seatbelt' sign

Michael O'Leary anticipates a bumpy ride ahead, writes Fearghal O'Connor

Ryanair chief executive Michael O'Leary Pic:Getty

If this morning’s Ryanair AGM was a Boeing 737, a familiar message would have crackled across the tannoy: “Ladies and gentlemen, the Captain has turned on the fasten seatbelt sign. We are now crossing a zone of turbulence. Please return to your seats and keep your seat belts fastened. Thank you.”

Captain Michael O’Leary would still be wearing his characteristic grin but his knuckles would have turned just a shade whiter as he flicked off the autopilot switch and gripped the steering column in anticipation of a bumpy ride ahead.

For the last three yearsRyanair’s growth has been phenomenal. It powered through the 100 million passenger mark on its way to its target of carrying 160 million passengers by 2024.

But this morning, at the Radisson Blu Hotel at Dublin Airport, O’Leary said that he remains cautious on the outlook for the sector. The Ryanair chief executive said that achieving the airline’s guidance for the current financial year will depend on avoiding material adverse events and that he sees “downward pressures”. Although forward bookings are rising strongly, Ryanair is “just about” on track to achieving this guidance, he said.Brexit will lead to slower growth, for example, and instead of 10 per cent growth in Britain, its biggest market, this will fall to five or six per cent.

O’Leary’s comments come hard on the heels of Its announcement in recent weeks that it was cutting back on its capacity at Dublin.

The last time Ryanair started making pessimistic noises was three years ago. Two profit warnings followed in autumn 2013, prompting a complete rethink of strategy to a more customer-oriented approach. The plan worked incredibly well and Ryanair’s model has strengthened as a result. But such a radical transformation was a once-off opportunity.

In effect, Michael O’Leary was delivering a message this morning that will resonate in the boardrooms of every other airline: if things carry on as expected, everything will be fine, if somewhat more constrained than before. But if there is any unplanned shock for the industry – a very high-profile terrorist attack, a rapid rise in oil prices, an Icelandic volcano or any of the other myriad of things that can impact the industry – then all bets are off and aviation could be pushed into one of its periodic cyclical downturns.

And if Ryanair, with its incredible low cost discipline and ability to drive fares lower over a sustained period, were to feel the pinch under such conditions, it is likely that its competitors across Europe and the wider sector would face a very difficult time indeed.

Examples of this growing caution in the sector can be seen elsewhere. Last week, IAG chief executive Willie Walsh toldBloomberg Television that the airline group is considering reining in its plans for buying new aircraft because the outlook for growth has “softened”.

“Without doubt all airlines, including airlines within IAG, are reassessing their requirements for new aircraft,” said Walsh. “I don’t think we’re going to see growth rates that were anticipated.”

The world’s two biggest plane makers, Airbus and Boeing, have racked up their lowest tally of aircraft orders in six years.

The International Air Transport Association (IATA), not an organisation prone to talking down its own sector, has also sounded a cautious note in recent days. While passenger demand has broadly grown in line with the average of the past 10 years it “faces some potential headwinds, including lingering impacts from the series of terrorist attacks and the fragile economic backdrop,” said its director general Alexandre de Juniac.

“The environment in which aviation operates is dynamic—even volatile. Speed is of the essence. As an industry we must be prepared for rapid innovation in order to manage shocks and take advantage of opportunities as they arise," he said.

In today’s world shocks are not in short supply. Michael O’Leary’s cautious comments this morning are one more sign that the aviation sector is belting up as it hurtles towards gathering storm clouds ahead.

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