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Flights of fancy
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Flights of fancy

Oct 5th 2006
From The Economist Global Agenda

Ryanair’s €1.5 billion bid for Aer Lingus, if successful, would give the world’s biggest low-cost carrier some transatlantic routes. But travellers will have to wait for no-frills flights between Europe and America

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THE boss of Ryanair, Michael O’Leary, is notoriously careful with the company’s money. As a consequence, Europe’s leading low-cost carrier offers flights at rock-bottom prices while enjoying bumper profits. So the Irish airline must have good reason for its bid of €1.48 billion ($1.88 billion) on Thursday October 5th for Aer Lingus, Ireland’s recently privatised flag-carrier.

Ryanair has already built up a 16% stake in Aer Lingus and has promised to keep it working separately from Ryanair’s own low-cost operations, even running rival services on the routes where they now overlap. And the Irish flag-carrier looks like a good fit. Aer Lingus’s former boss, Willie Walsh, remodelled it as a low-cost carrier before leaving to run British Airways last year. And although profits fell in 2005, passenger numbers are growing. One of its biggest worries, competition from Ryanair, will lessen if the deal goes through.

Ryanair would have much to gain. Some suggest that Ireland’s government set too low a price for Aer Lingus at an initial public offering in late September. Aer Lingus's board seems to agree. It rejected the bid, saying it undervalued the airline. So Mr O’Leary may simply have sniffed a bargain. He would also get his hands on a number of useful new short-haul routes in Europe. More intriguing, he would get control of transatlantic routes for the first time. According to Mr O’Leary, the long-haul routes would remain a full-service operation. But might he have ambitions for mass budget transatlantic travel, in the spirit of Sir Freddie Laker’s Skytrain which rose and fell in the 1970s?

If that were his aim, Ryanair faces several obstacles. Other airlines already offer some pretty cheap fares across the Atlantic compared with the state-run monopolies that Sir Freddie first took on. And though deregulation of air travel in Europe has allowed low-cost carriers to blossom, transatlantic flight is still tightly controlled. Despite years of negotiations, an “open skies” agreement between Europe and America that would truly liberalise transatlantic air traffic—which would allow a rapid expansion of low-cost carriers—still looks a long way off.

The low-cost way of doing business would also need some modification. It would be harder to achieve the quick turn-around on long-haul flights that cheap carriers need. The lack of frills that the luggage-light traveller tolerates on a short haul may not appeal on a long flight. And the elaborate spoke-and-hub operations that the big full-service airlines use to get travellers to their transatlantic flights would not mesh easily with the budget airlines’ simple (and cheaper) point-to-point service. But the transition is not impossible. It may not be just coincidence that Dermot Mannion, Aer Lingus’s boss, previously worked for Emirates. Emirates, a long-haul carrier based in Dubai, doesn't charge low fares but it has a cost structure relatively similar to Ryanair. It is fortunate that its wage costs are low and like low-cost carriers it works its planes hard.

Travellers are periodically offered hope that low-cost long-distance flying may be possible. Oasis Hong Kong is set to begin flying between London and its base for £75 ($141) one-way, excluding taxes. MAXjet offers business-class luxury to America at bargain prices, and is set to be joined by Silverjet early next year. Zoom, which currently offers cheap full-service transatlantic flights from Canada, is planning to launch a limited low-cost service linking Britain and America in 2007. But these will hardly cater to the masses nor force rivals into a bout of cost cutting.

Speculation that Ryanair is set to join this growing band may be premature. Aer Lingus could slip from its grasp or anti-trust regulators may impose unacceptable conditions on the deal. Even if he wanted to, Mr O’Leary may conclude that the barriers to low-cost transatlantic travel are too high. Opening up the Atlantic airways to the impecunious traveller would to take a big battle. But Mr O’Leary rarely shies away from a fight.




Vive Le YYZ
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