Ryanair, the highly successful Irish low-cost airline that now claims top spot among European carriers, is targeting expansion in Central and Eastern Europe, particularly in Hungary and Romania – a move that threatens a “head-to-head fight” with Wizz Air, its Budapest-based rival.
“We want more of the Romanian and Hungarian markets… so it’s going to be more Ryanair and Wizz going head to head,” Kenny Jacobs, Ryanair’s chief marketing officer, tells bne IntelliNews in an interview. “It’s going to get harder [for Wizz], given our scale, our cost advantage, and our fare advantage: it’ll be an interesting scrap in the coming years.”
Jacobs was in Budapest on March 3 to announce the opening salvo in the Ryanair offensive: new, daily flights from the Hungarian capital to Berlin and Nuremberg, starting next October; increased frequency on existing routes to Brussels Charleroi and Rome Ciampino; and an extension into the next winter season of flights to Billund (Denmark), Gran Canaria and Malaga, Spain.
This translates into 19 routes from Budapest (20 during the summer), a combination expected to produce 1.8mn customers in the year to April 2017. “That’s 16% growth [in passengers], with our market share in Budapest up from 16% to 18-19%,” Jacobs declares – numbers which rank Ryanair second, behind Wizz (with 28%) at the capital’s Liszt Ferenc International Airport.
The headline figures for Romania are stronger still – albeit from a smaller base. “Our growth in Romania in the coming year will be 100%, from 800,000 to 1.6mn customers,” he predicts. Ryanair will establish bases in Bucharest (three aircraft) and Timisoara (one aircraft) towards the end of the year, as well as pioneering a twice weekly service from Craiova to Valencia, Spain.
Noting the size of the Romanian diaspora, especially in Italy, Jacobs indicates further investment is in the pipeline, “which means other airports and higher frequencies come into the mix”.
But while the expansion of capacity can be taken for fact, the growth numbers are projections, and despite resolute talk in the past, the results have not always been up to the rhetoric.
In early 2012, in the wake of the collapse of Malev, the Hungarian flag carrier, Michael O’Leary, Ryanair’s combative chief executive, stormed into Budapest to announce that 32 flights would be launched to fill the void, with passenger predictions soaring to a heady 2.4mn. Yet within weeks, the controversial Irishman cancelled 13 routes before a plane had taken to the skies amid rancour and backbiting with Budapest Airport management over handling procedures.
Fast forward to today, and Jacobs admitted that Ryanair’s growth in Budapest in the past year was a paltry 2% – well behind the 12% increase in Budapest’s total passenger throughput of 10.2mn in 2015. “For us, it absolutely is [under-performing]… but we will do it [the 16% growth].”
Sweetness and fight
Jacobs told the subsequent press conference in Budapest, “our high-class problem has been we have not had enough aircraft.” That, however, is about to change: to augment its current fleet of 330 Boeing 737s, Ryanair is taking delivery of 350 new, improved and slightly larger aircraft over the next eight years.
The enhanced fleet, together with an ongoing passenger “sweetness” policy (dubbed ‘Always getting better’ – this is designed to ameliorate the negative fallout from O’Leary’s fierier statements on airline culture), all supported by the lowest fares, will drive numbers to where Ryanair wants them, Jacobs insists.
And this includes expansion of routes to rival Wizz on their competitor’s home turf. “Wizz have done a good job, but they’re not near us on fares or costs. We are on average costs of €29 per passenger, and Wizz is next best at €39,” Jacobs says. Furthermore, as Wizz “max out” in Central Europe, and need to penetrate the more expensive Western airports, their cost base will become “even more challenging”, he argues.
Yet Wizz Air disputes these claims, and it may not be quite so straightforward for Ryanair to win more custom.
Even if the Irish carrier indeed offers lower fares, anecdotal evidence indicates that, despite the ‘sweetness’ offensive of the past three years, there is lingering animosity among potential passengers to the abrasive statements from an ‘unreformed’ O’Leary.
In addition, there are signs that Wizz Air has built up significant customer loyalty among its clientele. As David Kirkby, a retired English businessman and frequent flier between London and the Hungarian capital tells bne intelliNews: “I have preferred Wizz for years and long ago joined their club to get automatic discounts. The planes are generally new, the staff are much more polite and helpful than the competition, the planes fly at convenient times, and fares are usually the cheapest after leaping beyond the initial headline prices.”
Asked to comment on claims by Ryanair that its ticket costs were 28% cheaper than Wizz Air, and its costs per passenger (excluding fuel) 34% lower, the Budapest-based carrier responded that it would “continue to offer competitive low fares” to passengers and remained “focused on every controllable cost item of this business”.
Wizz Air, which bills itself as the biggest low-cost carrier in the ‘central-east European region’, with a 42% market share of the budget market, said it “welcomes competition” and would “stay committed” to its core region – as evidenced by projects to open new bases in Iasi, Romania, and Kutaisi, Georgia, this year.
Wizz Air noted its CASK (cost per available seat kilometre – a key efficiency indicator in the aviation business) was cut by 7% in the latest quarterly report as a result of lower fuel costs. Furthermore, Wizz stated that its ex-fuel CASK “went down 2%, to 2.3 euro cents in the same period”, making it “among the few airlines in Europe, if not the only one, that has actually achieved a lower ex-fuel cost”.
Most importantly, Wizz Air said that in its third financial quarter, “while our ex-fuel CASK was declining, Ryanair’s was increasing and by our calculation, our CASK was 5.8% lower than that of Ryanair.”
All of which makes for exciting reading for airline analysts, but deftly avoids a direct comparison to Ryanair’s claims – a comparison which will, presumably, be left to the customer.