Ryanair's Transatlantic Dream: An Investor's Nightmare - Barron's

Apr.15.07 | About: Ryanair Holdings (RYAAY)

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

A Ryanair USA Would Face Big Headwinds by Rod Stone

Summary: Irish budget airline Ryanair (NASDAQ:RYAAY) makes its money through extreme cost cutting. It flies to cheaper airports about 60 miles outside of big cities, and turns its planes around in just 25 minutes. Its planned foray into the transatlantic market ('Ryanair USA') leaves Barron's International Trader wondering if its compasses are pointed in the right direction. Ryanair's current staff costs of just 13% of total operating costs are far below competitors like British Airways' (NYSEARCA:BAB) 29%, but harsher transatlantic regulations would require a minimum 12-hour staff rest with accompanying hotel rooms and transportation. The larger planes needed for long distance travel could not be turned around with the same level of efficiency. It may try to boost margins by creating premium-class sections, something it has little experience in, but premium-class-only airlines like SilverJet and MAXJet already offer low-cost business fares, and land at major airports. Despite the allure of the newly enacted "open skies" pact between the EU and U.S., Barron's says Ryanair CEO Michael O'Leary would be well served to recall his late-2005 comment: "Somebody at some stage is going to do a long-haul low-cost airline. Will it be successful? I doubt it."

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