DUBLIN (Reuters) - Having been at the financial controls since Ryanair’s (RYA.I) traffic has climbed from under 1 million passengers a year to over 90 million, Howard Millar is confident no upstart can repeat that performance.
“That (low-cost) train has left the station a long time ago and I think it will be increasingly difficult for start-ups to gain any traction,” he told Reuters on the sidelines of an annual aviation finance gathering in Dublin.
Millar, who stepped down last month as chief financial officer after nearly 23 years at the company, where he will still have a role as a non-executive director, said he cannot see either the continent’s established giants or a newcomer having the opportunities Ryanair had when he joined.
Instead the sector will be dominated by a handful of all-powerful carriers, with Lufthansa (LHAG.DE) , Air France-KLM (AIRF.PA) and British Airways owner IAG (ICAG.L) focusing on long-haul, conceding the short-haul market to Ryanair and its nearest rival easyJet (EZJ.L).
A new player would struggle to get financing or planes as cheaply as Ryanair and would struggle to compete with its huge economies of scale and market presence, he said.
And the so-called legacy carriers will ultimately have to concede that they can’t retroactively transform their cost base and will therefore have to focus on lower volume, higher margin businesses.
“These guys are in such a straitjacket that they don’t have that opportunity. They have tried all kinds of things ... but none have made any money or reduced their cost base.”
When Millar joined Ryanair as financial controller in 1992 it was still struggling to compete on its services between Ireland and Britain against Aer Lingus AERL.I and British Airways.
But the then deputy chief executive Michael O‘Leary, a fellow accountant, was already busy reinventing the airline as a low-cost carrier modelled closely on U.S. pioneer Southwest Airlines (LUV.N), just as the internal European aviation market was being opened up to competition.
Huge success followed, but its disdain for frills became an apparent disdain for customers, due to practices such as charging passengers for not printing their own boarding passes and being unduly strict on hand luggage allowances.
Ryanair only became alarmed two years ago when it saw its profits falling at the same time as easyJet’s (EZJ.L) were soaring.
“I think we became overly rules focused ... we put a series of rigid rules in place that were enforced even when common sense didn’t apply,” Millar said.
Following a pledge by O‘Leary to stop “unnecessarily pissing people off,” Ryanair has since changed such practices while shifting its focus to also include trying to attract more business traffic.
As a result Ryanair’s share price has climbed by 50 percent in the 16 months while easyJet’s shares are up 30 percent.
But Millar insists that unlike improvements at Southwest, the changes at the airline have still not added to the cost base.
“Our cost price was 29 euros last year and its going to be 29 euros this year as well ... not one of the customer experience improvements has impacted the business.”
Ryanair says this 29 euros cost per passenger, excluding fuel, compares with 52 euros at easyJet and 62 euros at Norwegian Air Shuttle (NWC.OL).
Millar, who has left the airline with 280 new planes on order and the highest credit rating in the airline industry, also said he had no regrets about another legacy -- leaving 90 percent of fuel needs hedged to March next year at $93 per barrel -- close to double the current price.
Hedging gave certainty on the cost base to investors and those setting ticket prices a year in advance.
“It’s not a regret at all... We’ve been using this strategy since the early 90s and it’s worked incredibly well for us. You can’t run a long term business on short term decisions.”
($1 = 0.8610 euros)
Editing by Greg Mahlich