After snapping up Buzz for a bargain price, Ryanair has warned staff that it plans to impose its own aggressive low-cost business model on the smaller rival.
Ryanair claims to have paid KLM a net figure of €5 million ($5.4 million), given that the €24 million purchase price includes Buzz cash reserves of €19 million. Despite his suspicion of growth through acquisition, chairman Michael O'Leary said that the deal was simply too good to miss. It also ensures Ryanair's dominance at London Stansted,
It is clear that Buzz was becoming a significant drain on KLM, with O'Leary putting annual losses at €20-€30 million. He believes this can be turned round to a c10 million profit next year, with passenger numbers doubling from the current 2 million thanks to lower fares. There will also be major savings on marketing.
O'Leary makes it clear that the Buzz workforce will have to accept a radical restructuring or face the prospect of Buzz being closed down. The Buzz brand will disappear in April once the deal is complete, but O'Leary says the question of whether to integrate Buzz into Ryanair will be put on ice for a year or two. The decision will be revisited once Buzz has fully switched to a Boeing 737 fleet.
Buzz will also continue to fly with its own UK air operator's certificate, potentially giving access to destinations beyond the European Union that Ryanair does not have rights to serve from the UKas an Irish carrier.
O'Leary says there are three basic problems with Buzz: "It flies to expensive, congested airports; it has surplus staff; and it has the wrong aircraft." Ever since it launched in January 2000, Buzz was hindered by the fact that it inherited a fleet of eight BAe 146s from parent KLM uk, and just two Boeing 737-300s. Buzz management was confident that the 146s would be replaced as leases expired but this never materialised. The 146s will be returned to KLM after the summer season as part of the deal. "It is a good business as long as you take away the structural inefficiencies that were imposed upon them," says O'Leary.
"At least" 100 of Buzz's 500 staff will be made redundant, O'Leary says, while routes to airports such as Paris Charles de Gaulle, Frankfurt and Amsterdam Schiphol will be cut and services switched. The base planned for Bournemouth in the UK is to be axed too. O'Leary estimates restructuring costs will be less than a "couple of million euros".
The British Air Line Pilots Association (BALPA) has voiced concerns about the takeover, and is pushing Ryanair, a non-union company, for recognition. BALPA has won recognition from easyJet and Virgin Atlantic in recent years.
The Buzz deal safeguards Ryanair's position at its main Stansted hub. The carrier has around 45% of frequencies from Stansted, London's main low-cost airport, compared with 26%for easyJet through its purchase of Go. Buzz could have given easyJet the chance to mount an equal challenge at the airport.
With Buzz on board, Ryanair is edging closer to matching easyJet in terms of passenger traffic. On current standing, both groups each have a third of Europe's low-cost market. However, easyJet still has an option to buy Munich-based DBA from British Airways, pending agreement with the pilot union.
Meanwhile, Ryanair plans to keep growth on track this year with new bases at Milan Bergamo and Stockholm Skavska. It is also talking to six more potential "low-cost" airports.
O'Leary is "very confident" that a European Commission competition investigation will clear an earlier deal between Ryanair and Belgium's Charleroi airport. "Yes, we are paying below market levels, but Charleroi has repeatedly tried to get other carriers ...into the airport," he says. The complaint was made by Brussels Airport.
COLIN BAKER LONDON
Source: Airline Business
