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Ryanair and easyJet:
which is the better model? Jan/Feb 2017 Download PDF

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Financial market perceptions of Europe’s two largest low cost carriers have changed dramatically in the last three years. easyJet was on a roll from 2012 to 2015 significantly outperforming Ryanair to reach a peak market capitalisation in May of that year of nearly £7bn. Four years on from its inclusion in the FTSE 100, its market cap has halved from the peak and the shares are under threat of relegation from the index.

Ryanair meanwhile has seen its share price steadily rise, more than trebling from below €4 in 2012 and now boasts a market capitalisation of €16bn. Does this start to reflect Michael O’Leary’s mantra that the “lowest-cost provider [in a commodity market] will always win”?

One of the reasons behind the disparity in performance is that Ryanair has been playing catch-up. Europe’s largest ULCC had been somewhat surprised by the effectiveness of easyJet’s product innovations (notably the introduction of allocated seating in 2012) and its moves “up-market” into targeting business demand.

From 2014 Ryanair initiated its “Always Getting Better” strategy — which involved allocated seating, free extra bag, lower hold-bag fees, removal of extreme penalties, and a revamped website. It also started adding services into “primary” airports.

At the same time it ratcheted up its growth rate. As shown in the chart Ryanair has built its run-rate of the introduction of capacity from 2%pa through much of 2014 up to 12% for the twelve months to Jan 2017. The rate of increase in the number of passengers booked has grown considerably faster, peaking at 17.5% for the year to end March 2016. As a consequence it has seen significant increases in load factor — registering an astounding 94% for the twelve months ending Jan 2017 (up by 12 percentage points in the last three years) with 118m passengers up by 15% year on year.

easyJet has also increased its rate of growth over the period but only by a few percentage points from 3%pa to 7%pa for the twelve months ended January. Its load factors are also up but by only 2pts, and in recent months the rolling twelve month increase in booked passengers has not kept pace with the increase in seat capacity. Over the last year it carried 75m pax (up by 6.9%) at a load factor of 91.5%.

One major feature of Ryanair’s expansion in the last three years has been to increase off-season capacity at a significantly faster rate, flattening seasonality and no doubt increasing aircraft utilisation. The winter period capacity for the current financial year looks set to be only 14% lower than the summer’s had been. Three years ago it had been 30% lower. In contrast easyJet has maintained winter capacity at around 20% below that of the summer.

Fleet orders

Both carriers continue to target growth at a rate that is well above average. Ryanair should end March 2017 with 383 737-800s in its fleet. It has a further 93 of the type on order, to be delivered over the next two years, and 100 737 MAX-8s (+100 options) for delivery from 2019. By 2024 it is planning a fleet of 585 aircraft. It is currently targeting capacity growth of around 9-10% pa for the next two years.

easyJet meanwhile has a fleet of 264 A319s and A320s with orders for 32 A320ceos and 130 A320neos (+100 options). It currently seems to be planning to have 358 aircraft in its fleet by Sept 2021, and also looks set to increase capacity by around 9% a year in the medium term.


A second major reason behind the disparity in the financial markets' sentiment towards the two results from the British referendum vote to leave the EU. This itself has two significant effects: financial and economic disruption from the sudden fall in the sterling exchange rate; and regulatory uncertainty.

easyJet was hit hardest: its share price dropped by 40% in the immediate aftermath of the result of the referendum and has since trended down. In contrast, while Ryanair’s share price also initially dropped by 30%, it has since recovered to pre-referendum levels.

Both carriers are heavily dependent on travel to and from the UK. Of easyJet’s overall capacity 53% originates or is destined for British airports, while 30% of Ryanair’s capacity involves routes to, from and within the country. easyJet as a UK based airline is naturally more dependent on cash inflows in Sterling, but in its first quarter interim management statement in January highlighted that it expected the foreign exchange impact would lead to a worse-than-expected £105m adverse result on profits for the current financial year to September 2017.

The regulatory aspect is a problem for both carriers, and the resolution depends entirely on how Britain approaches negotiations with the EU for access to the single aviation market when it exits the Union in two years time (for a full discussion on the problem see Aviation Strategy September 2016). The subject is apparently relatively high on the political agenda.

The worst case scenario would be that the UK goes back to bilateral relations with each of the EU28 and EEA countries. If that were so, UK based airlines would no longer be viewed as “European” airlines and may have to prove majority UK ownership and control to be able to fly within the UK. At the same time, UK airlines would not be able to fly between points in other countries in the EEA, while non-UK airlines may not be able to access routes into the UK from countries other than their country of registration. 

easyJet is in the process of identifying where else in Europe to establish a “European” AOC — and according to press reports sees Portugal and Austria as possible targets. (It already has a long established Swiss AOC for its operations out of Geneva.) In this process it possibly has an advantage in that founder Stelios with a 44% stake in the company has dual UK and Cypriot citizenship.

Ryanair in turn may need to apply for a UK based AOC to continue flying domestically and routes out of the UK to non-Irish destinations. However, its treatment as an EU airline (ie one that is substantially owned and operated by EU nationals) may also come under question: not only does it have a sizeable number of US investors, but also its UK share ownership is significant. It may also have to start introducing a process to disenfranchise non-EU shareholders.

Cost differentials

How sustainable is Ryanair’s cost advantage? In its latest investor presentation the company puts its non-fuel unit costs at €28 per passenger, slightly down on the prior year period. This is in comparison with easyJet at €55 per pax. Two cost categories account for €20 of the difference: staff costs; and airport and handling costs. Two others, ownership and maintenance, and sales and marketing account for the remainder.


easyJet and Ryanair operate different employment practices. Ryanair operates a mixture of contract and outsourced quasi-self-employed arrangements all designed to minimise tax and social costs, and maximise flexibility. It is still largely non-unionised, although the Ryanair Pilot Group which claims to represent more than 50% of Ryanair’s pilots has been striving to be recognised by the company since its formation in 2012.

easyJet in contrast has taken a more traditional approach. It accepted union representation over ten years ago (with pilots represented by the UK’s BALPA, Germany’s Vereinigung Cockpit, France’s SNPL, Italy’s ANPAC and Swiss ALPA all under the umbrella of the European Cockpit Association), and offers local employment contracts which, for example, allows it to operate in France. (Ryanair closed its base in Marseilles in 2010 when the French Authorities tried to force it to employ pilots under French contracts.)

How long Ryanair will be able to keep the cabin crew differential is unclear. Last summer various Ryanair bases in Germany were raided as part of an investigation into possible tax fraud arising from the status of its pilot employment practices — or what Vereinigung Cockpit, who seems to be trying to recruit from the Ryanair corpus, refers to as “bogus self-employment”. As Ryanair expands its operations in Germany this may become more of a problem.

Airport charges

It should be no surprise that easyJet’s airport and handling charges are a higher proportion of total costs than those of Ryanair. easyJet has taken the decision strategically to attack legacy carriers head on with operations in expensive airports and those less effectively able to ensure quick turnarounds — Paris Roissy Charles de Gaulle and Paris Orly for example combined account for 5% of its operations. Its main base at London Gatwick — accounting for 12% of total capacity — has more expensive landing charges than Ryanair’s London base in Stansted (which accounts for 9% of Ryanair’s operations). But it is also able to generate higher yields.

Ryanair however has been developing services at primary airports. As part of the AGB strategy it recognised that easyJet had been able to generate higher revenues at higher cost airports and still be competitive. Having gone into Brussels Zaventem in 2014 (Brussels Charleroi is still the company’s fifth largest base with 2.7% of capacity), Madrid, Rome Fiumicino, and Athens Spata, it will start a base at Frankfurt am Main in March, with only two aircraft but directly in Lufthansa’s home base.

This move into more mainstream airports will undoubtedly increase costs (but should also have a positive impact on revenues). However, Ryanair now operates from 85 bases and covers over 200 airports (half of which it describes as “primary”), and the establishment of routes into primary airports will have a marginal impact rather than represent systemic change.

Ownership costs

Another main difference between the two carriers relate to aircraft size. Ryanair operates its 737-800s with 186 seats, easyJet has a mixture of 156 seat A319s and 180/186 seat A320s. easyJet is retrofitting the older A320s to the higher seat density, while some of the new A320 deliveries are replacing older A319s, and its average aircraft size is likely to increase from around 165 in 2016 to around 175 by 2019. Ryanair’s 737 MAX-8s will come with a higher capacity of 197 seats, but its average aircraft size is probably only going to increase to 190 seats per aircraft by 2024.


As both expand strongly over the next few years, faster than may be warranted by economics, there is likely to be continual downward pressure on pricing.  But the endgame is not yet a battle between the two.  

They are similar, but have differing models. Ryanair can move into easyJet markets (and exit if it doesn’t work) but easyJet can’t get close to Ryanair’s cost level. Ryanair has also shown that while not necessarily being an innovator it always learns; and is showing a successful strategy as a second mover or late adaptor.

RYANAIR PER SEAT DATA Produced by GNUPLOT 5.0 patchlevel 5 0 10 20 30 40 50 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 € per seat 12 months rolling average Revenue Costs Costs ex fuel Profit Revenues Costs Costs ex fuel Profit
EASYJET PER SEAT DATA Produced by GNUPLOT 5.0 patchlevel 5 0 10 20 30 40 50 60 70 80 90 2008 2009 2010 2011 2012 2013 2014 2015 2016 € per seat 12 months rolling average Rev/pax Costs per seat Ex Fuel RTM Op Profit Revenues Costs per seat Costs ex fuel Op Profit
FLEET PLANS Produced by GNUPLOT 5.0 patchlevel 5 0 100 200 300 400 500 600 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Units Ryanair easyJet U2min U2max U2min Ryanair easyJet Min committed Max committed

Source: company presentations

LCC GROWTH Produced by GNUPLOT 5.0 patchlevel 5 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2014 2015 2016 Yr-yr pct chg rolling 12 month average Ryanair easyJet Ryanair Seats easyJet Seats Ryanair passengers easyJet passengers Ryanair seats easyJet seats 2017
EUROPE'S TOP 2 LCCs: SHARE PRICE PERFORMANCE Produced by GNUPLOT 5.0 patchlevel 5 4 5 6 7 8 10 12 14 16 18 20 25 2012 2013 2014 2015 2016 2017 € (logscale) RYA.L : Ryanair GBPEUR=X : EUR/GBP Ryanair easyJet

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