Ryanair/Boeing Max-10: from upstart to member of the establishment

Airline passengers prefer aisle to window seats for ease of movement. No wonder. If Europe’s airline bosses could safely jam more people on their planes, they would. Business is brisk as easyJet affirmed in its interim report on Thursday.

Its low-cost rival Ryanair is not taking this sitting down. Earlier this month, it announced an order for another 300 Boeing 737 Max-10 aircraft to swell its fleet to 675 planes by 2028 — one of the largest in Europe — a deal worth $40bn. Ryanair is already top-ranked in Europe (and fourth worldwide) for scheduled seats as of September last year. But is it saturating the regional market?

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Ryanair says it needs these extra, more fuel-efficient Max-10s. With a fifth more seats than its current mainstay, the Boeing 737 NextGen (about 80 per cent of its fleet), the Max-10 should also burn a fifth less fuel. That thriftiness will matter as Ryanair has expanded its passenger target from 225mn by March 2026 to 300mn seven years later.

At €22 per available seat, jet fuel is expected to eat up 44 per cent of the budget airline’s operating costs, according to Visible Alpha data. Ryanair reports full-year results later this month. Analysts expect that expense to climb towards €25 per seat in three years’ time. Even so, Ryanair trumps its rivals on overall costs per passenger by no less than a third.

This increased cost efficiency should keep earnings per share bubbling along. However, even at 225mn passengers, Ryanair is already a regional giant. Its €19bn market capitalisation almost equals the combination of its next two largest rivals, Lufthansa and British Airways owner IAG. Even with a large and expanding fleet, its capital spending should soon peak. That should result in steady free cash flow of about €2bn.

But the fleet growth could be deceptive. Without obvious acquisition targets, Ryanair could morph into a high-yielding cash machine, thinks Bernstein. It pays no dividend and has not bought back shares since the pandemic began, but all that could change. Formerly a pushy upstart, Ryanair is evolving comfortably into a middle-aged airline.