Ryanair still eyeing up Cyprus Airlines
Ken Odeluga August 22, 2014 12:05 AM
<p>Seasoned Ryanair investors are used to CEO Michael O’Leary’s quixotic communications strategy, so the latest example of it is probably no great surprise. Having last […]</p>
Seasoned Ryanair investors are used to CEO Michael O’Leary’s quixotic communications strategy, so the latest example of it is probably no great surprise.
Having last month suggested the no-frills airline was not particularly interested in acquiring loss-making Cyprus Airways, today (Thursday 21st August) it emerged O’Leary was on his way to Cyprus for talks with the flag carrier.
Ryanair was among nearly 20 companies which last month submitted non-binding expressions of interest in the airline, now controlled by the Cypriot government. The process is a preliminary step towards any eventual binding offer.
It now appears the Irish carrier’s CEO has changed his tone.
Referring to the bidding process O’Leary said at a news conference in Dublin today: “We are engaged in the process and hope something will come of it. It’s a very political process down there.” He stressed any deal would be small relative to Ryanair’s overall growth strategy.
Ryanair’s tentative plan in the event that it did acquire the airline: Cyprus Airways would keep its brand and operate under a separate air operator’s certificate.
Keeping Cyprus Airways’ operator’s certificate separate is important: it’s a regulatory safety matter which can impact an airline’s freedom to operate and its reputation with governments. Obviously an airline’s financial status is sensitive to the prospects of its operator’s certificate.
The Irish airline is expected to propose a boost of the airline’s passenger numbers to 3m per year from 600,000 currently, down 50% from peak, O’Leary said.
Cyprus Airlines needs a deal more than Ryanair does
Of course, Cyprus Airways needs to make the deal more than Ryanair.
Recently, it’s been selling assets in an effort to keep operating, including highly-prized slots at London’s Heathrow airport.
Any buyer of Cyprus Airlines will have to contend with European Commission scrutiny because the Cypriot carrier is being investigated by the EC for its €31.3m capital raising in 2013 and a €73m rescue package from the Cypriot state.
An additional complication for any buyer of airlines at the moment is that the industry, particularly the low-frills industry, has seen better times.
O’Leary himself said around the time Ryanair’s first-quarter profits were released he had “zero visibility” on how yields would develop during the second half of this year, but he expected “a much softer pricing environment as many competitors are lowering fares, partly in response to Ryanair’s strong forward bookings.”
Ryanair’s first-quarter 2014 net profit more than doubled to €197m compared with forecasts of €157m and €78m made in Q1 last year.
The Irish airline also upgraded its profit forecast for the year to March 2015 to be between €620m to €650m, compared with between €580m and €620m expected previously. It said it expects a 5% jump to 86m in total passengers carried during the whole financial year.
Interestingly, the airline said in July it was going to raise an unspecified amount of debt within 12-18 months.
Overall, an acquisition of Cyprus Airlines does not look like it would be a very material risk for Ryanair if the deal passes due diligence and goes through.
Ryanair’s cash position is solid, if trending marginally lower over the last three years as widely expected.
The stock has been in an orderly descent from all-time highs of earlier in the year. I would expect €6.43, €6.35 and €6.26 to provide a degree of support. The stock closed today at €6.80.