Ryanair’s CEO Michael O’Leary has said that rival airline Norwegian is bound to go bust sooner or later, claiming that the company is “doomed.”
He claims Norwegian is “saddled with enormous debt”
We’re seeing the emergence of four or five large airlines across Europe and Ryanair is by far the largest in passenger number terms, and you’ve seen in our numbers this morning that we’ve delivered 11% traffic growth … on the back of 5% lower airfares,”
In the past number of years, airlines in Europe have been going bankrupt and airlines are buying other airlines (IAG/Iberia bought Air Europa yesterday). Many people predict four to five main groups will remain in the end:
International Airlines Group (British Airways, Iberia, Aer Lingus, LEVEL, Vueling, Air Europa)
Air France/KLM Group (mixed with Virgin Atlantic and Alitalia, but possibly not Alitalia)
Lufthansa Group (Lufthansa, SWISS, Eurowings, Brussels Airlines, Austrian, possibly Alitalia in the future)
Asked whether he thinks Norwegian is going bust, O’Leary referenced Norwegian’s decision to sell aircraft this year.
“They’re now resorting to selling the aircraft to raise 50 million bucks, which wouldn’t pay the fuel bill for a week. Norwegian is doomed, the business model doesn’t work and they’re saddled now with enormous debts. It’s only a matter of time before it goes bust.”
Ironically, a few weeks ago Norwegian reported net profit coming in at 1.67 billion Norwegian krone, which is 28% higher than the same quarter a year before.
2019 has been a huge loss for many airlines especially in Europe. Thomas Cook, Aigle Azur, Adria Airways, XL Airways France, Air Europa was bought yesterday, Alitalia has whatever financial issues.
Ryanair’s CEO believes Norwegian "won’t be far behind them.”
The biggest problems for Norwegian are the ones with their aircraft. 737 MAX 8 groundings and engine problems on the 787.
However, they have been struggling lately and have postponed deliveries of Airbus aircraft.
Despite this, the Ryanair CEO wants a picture of Norwegian going out of business soon which would lead to travellers not booking tickets on Norwegian flights (and maybe book with them). That if something, are going to worsen the situation.
Unfortunately Norwegian is saddled with debt which, in of itself, is not unusual for a carrier with a large capital expenditure budget. The tricky bit for Norwegian is the cost of that debt leverage which, as it is against a short term un-proven and, as yet, un-profitable business model is extremely high!
Margins in the airline industry are extremely small. The ability of carriers like IAG or RYR to purchase Norwegian and re-capitalise the debt to a quarter or even less of the cost of what Norwegian is currently paying makes the difference between profit and loss.
IAG pulled out as they can now wait for the company to fall and then cherry pick assets at a low stock value without taking the routes (most duplicated) or the infrastructure (not needed).
Sadly I also think the writing is on the wall for the carrier as the investors are currently very nervous about the continuing losses after the lucrative summer season.
Time will tell I guess.
Anyways, IAG has just brought Air Europa so they’ve got their hands full with that one for a while I guess.
Those are some pretty bold claims from Ryanair’s CEO. Hard to deny Norwegian’s gains in 2019 compared to 2018. I’m not sure what to think of all of this but it definitely seems like he is posturing and setting the stage for things to come.