Ryanair’s shares are up 14% since 2020, while low-cost rival easyJet’s are down 72%—what is CEO Michael O’Leary getting right?

Although the Dublin-based company's shares fell in morning trading, Ryanair's shares significantly outperformed its main European rivals, Britain's easyJet and Hungary's Wizz Air, when viewed over the long term.

Since February 2020, before the pandemic grounded planes across the continent, Ryanair shares have risen almost 14%, while Wizz Air shares have fallen almost 55% and easyJet shares have fallen almost 72%.

CEO Michael O'Leary is clearly doing something right. To help explain this, let's take a look at what Ryanair did differently to its bigger rival, easyJet.

Low costs and no layoffs

Both companies entered the pandemic in good financial health: profitable and growing, especially in Ryanair's case, and armed with a strong balance sheet. However, Covid-19 has spared no one.

in Year until September 2020easyJet entered the red for the first time, with a loss of £1.27 billion ($1.6 billion), briefly costing the Luton, England-based company its place in the market. FTSE 100 index. Ryanair, in the year l March 2021saw profits of €1 billion ($1.09 billion) collapse to a loss of €815 million ($888 million).

However, Ryanair had two major advantages during the recovery phase, as travel restrictions were lifted in 2021 and into 2022.

The first and perhaps most important is that Michael O'Leary, who has run Ryanair since 1994, is an expert at tightening corporate finances.

“Where Ryanair always seems to have an advantage is cost management – ​​they have a strong reputation for keeping a lid on costs, such as having more efficient aircraft to reduce fuel consumption and being quick to drop off customers and then load for the next flight,” said Dan Coatsworth, investment analyst at AJ Bell. : “Back to Heaven.” luck.

To get an idea of ​​what this looks like in the accounts, Ryanair's 2024 pre-tax profits of €2.13 billion ($2.32 billion) were roughly €2.13 billion ($2.32 billion). 16% of total revenues. At last easyJet Full year resultsending September 30, 2023, pre-tax profits were £455 million ($577.9 million), representing about 5% of its annual revenue of £8.17 billion ($10.4 billion).

This higher profitability gave Ryanair the scope and confidence to take on a higher level of debt during the pandemic – reaching €2.28 billion ($2.49 billion) in 2021 compared to easyJet's £910 million ($1.16 billion) – knowing it could You pay it back. Which is what the two companies have done now.

This in turn has contributed to the second feature behind Ryanair's recent success: O'Leary's decision not to lay off staff during the dark months of lockdowns, in contrast to easyJet's outgoing CEO Johan Lundgren, who made the undoubtedly difficult decision to put 30% of its shares in reserve. Redundant workers 2020

O'Leary himself pointed to how this has paid off, by allowing Ryanair to quickly ramp up its flights once travel starts to pick up, while others struggle to fill vacancies.

“Our decision to work with our unions and agree pay cuts to minimize job losses and keep crews on board through two years of coronavirus has been vindicated in recent months, as many European airlines, airports and handling companies have struggled to restore jobs cut during the pandemic,” O’Leary said. He said In July 2022, as reported in Travel weekly.

Combined, Ryanair's lower costs and staff retention enabled it to recover faster than easyJet, which in turn enabled it to grow its fleet much more quickly since then, adding to its lead.

The Irish carrier now has 584 aircraft, many of them fuel-efficient Boeing 737 “Gamechangers”, well above the 475 aircraft in its fleet in 2019. By comparison, easyJet had a fleet of 343 aircraft. By the end of Marchonly slightly higher than the 331 vehicles it had in 2019.

Finally, with better growth and profitability prospects, Ryanair has been able to avoid the rights issues that easyJet was forced to do in quick succession – a £419 million ($532 million) stake in 2020 and a £1.2 billion ($1.52 billion) rights issue ) in 2021 – which Cotesworth said reached the last share price. He explained, “The significant increase in the number of issued shares leads to the weakening of current investors and affects the share price, as the two fundraising operations were conducted at a discount in the market.”

What is easyJet doing to catch up?

Despite easyJet's tough few years on the stock markets, Lundgren leaves the company in a position to compete. By the year to September 2023, it had moved easyJet out of net debt territory with net cash Worth 41 million pounds sterling ($52.1 million). The low-cost airline also narrowed its off-season losses during the half-year ending March 30, 2024 compared to the same period last year, indicating its financial recovery.

With this in mind, the easyJet boss has set a lofty goal: Profit £7-10 ($8.9-$10.27) per seat by 2028 – double 2019 levels.

Strategically, while Lundgren has been growing the “ancillary” revenues – separate fees for extras such as seat selection and baggage allowances – that O'Leary has made Ryanair famous for, Lundgren has simultaneously differentiated easyJet by expanding its segment offering Her holidays. In the last full financial year, the company recorded 77% growth in the number of customers booking holidays, generating more than a quarter of the group's pre-tax profits.

While easyJet's model differs from Ryanair's, relying less on being the cheapest ticket in a city, and more on having premium airports closer to city centers and offering more convenient flight schedules, it remains competitive with the Irish carrier.

Whether Lundgren's replacement will be able to step forward and fill the gap is another question.