Ryanair (RYA) has become the first major airline to bite the bullet from the grounding of Boeing’s 737 MAX jets and scale back its growth plans.
Despite the growth dent, the market has responded somewhat positively to Ryanair’s announcement with its shares up 1.6% to €10.25.
SUMMER GROWTH SCALED BACK
The low-cost Irish airline said it expects to get only 30 of the 58 jets it ordered from Boeing by May 2020, meaning it has to scale back its anticipated growth next summer from 7% to 3% by lowering its number of flights.
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Ryanair said full year passenger numbers to March 2021 will probably drop accordingly by around 5m, from 162m passengers to 157m.
Airlines usually draw up their schedules six months in advance, so the increasing delays to the rollout of the 737 MAX will have a big impact on airlines.
This is far from an ideal situation for Ryanair, particularly given because summer is the airline's peak period where it tends to make the majority of its annual earnings.
But the rise in the share price could be because the airline is tackling the issue by looking to make itself leaner, moves that could act as a defence mechanism for future profits.
CUTS AND CLOSURES AHEAD
Ryanair chief executive Michael O’Leary said as a direct result of the Boeing delays, the company is starting talks with airports to determine which of its underperforming or loss-making bases should receive cuts or closures from November 2019.
This should in theory cushion the impact of lower growth next summer.
The airline added its growth should return to normal levels by summer 2021, by which time it should have received all of the 737 MAX aircraft it has ordered.
Issues over the Boeing aircraft haven’t affected Ryanair’s rivals EasyJet (EZJ) and Wizz Air (WIZZ) however, both of which are Airbus customers.
