Flushed with a 44% rise in annual profits, Ryanair's foray into Germany is beating expectations as it eyes up its next target markets, which could include Eastern Europe.
The Irish low-cost carrier, which opened 22 new routes and bases at Brussels Charleroi and Frankfurt Hahn airports in its financial year to March, made a net profit of €150 million ($140 million) on revenues of €624 million. Passenger numbers rose by 38% to 11.1 million with load factors up four points to 81%.
The carrier is particularly pleased that it has proved wrong those who doubted Germans would take to the low-cost formula. "Ryanair's overnight success in the German market has surprised even ourselves," says chief executive Michael O'Leary. Ryanair expected to carry 1.5 million passengers in the first year of a 10-destination operation that started in mid-February, but now believes that number will be closer to 2 million.
"The bottom line is that the appetite among Germans for low-cost travel is just as great as among the British, Irish or in any other nation in Europe," says Tim Jeans, sales and marketing director. Ryanair had already seen evidence of this from traffic levels on its more established routes to Germany. For example, it is carrying 35,000 passengers a month on its London Stansted to Hahn route, making it the third busiest on its network, while the Stansted to Hamburg Lubeck route is running at 20,000 passengers a month, says Jeans.
On its Hahn routes Ryanair has seen "very similar profiles of traveller" as it does at its other main hubs, "reflecting the correctness of our view that the one-size fits all model in Europe can work", he says, and that there is no need to differentiate the product between the UK, Ireland, Italian or German markets.
Ryanair's policy of concentrating on secondary airports "does not appear on the face of it to be an issue at all", he says. In addition, they also open up new catchment areas compared to hub airports such as Frankfurt Main, with Luxembourg only a 70min drive from Hahn, and Cologne just 90min away.
John Mattimoe, an analyst at Dublin-based Merrion Capital believes Ryanair learned lessons from the relatively sluggish" launch of the Brussels Charleroi base for the start-up at Hahn. The main lesson was to "compete more aggressively on fares at a much earlier stage", he says. Not only did Ryanair launch with huge fare offers, but was blessed with massive publicity from a court case with Lufthansa over whether it could call Hahn, which is 80km (50 miles) from the city, Frankfurt Hahn. The court ruled in favour of the low-cost airline.
Ryanair's growth will be faster than expected for the next two years at 30-35% a year, above its target of 20-25%, before "steadying back" to 25%. "Our growth is only limited by our ability to keep capacity growing," says Jeans. "We have to grow our fleet and operation at a speed at which we can safely expand."
Ryanair's ambitions are to launch German domestic services and it is examining transporting its model to France, the Iberian peninsula, Italy and Scandinavia. More opportunities may arise further east. "The next big untapped market is Eastern Europe, it offers massive potential to grow," says Jeans, particularly with the enlargement of the European Union into these countries scheduled to take place from 2004.
Poland, for example, has a population of 41 million people, who only make 12 million journeys by air a year, a much smaller proportion than say Ireland or the UK. Although Ryanair has no firm plans yet for this region, "we are at least looking at the opportunities", he says, and the first talks with airports have already been held.
Just days after Ryanair's results were announced, Lufthansa, for so long largely dismissive of the challenge posed by low-fare carriers, unveiled a series of fare cuts on several domestic and European routes. Other low-fares challengers in the country are Germania and a revamped DBA under easyJet's wing.
Source: Airline Business
