It's often said the only thing that keeps Michael O'Leary awake at night is the idea of one of his aircraft crashing. It's not quite true. There is a second event that has the potential to jolt O'Leary out of his slumber in Gigginstown House and that is the idea of not being able to fill his planes, even with ground-floor prices.
While O'Leary has always waved away any suggestion that Ryanair, of all airlines, could become a victim of overcapacity, such an outcome, along with a possible accident, has the potential to do long-term damage to Ryanair as a financial entity, whatever about as a brand.
In its filings with the US Securities and Exchange Commission (SEC), Ryanair itself refers to the danger of overcapacity, of being unable to fill seats while having to pay for the fixed cost of owning aircraft.
"If growth in passenger traffic and Ryanair's revenues do not keep pace with the planned expansion of its fleet, Ryanair could suffer from overcapacity and its results of operations and financial condition (including its ability to fund scheduled aircraft purchases and related debt) could be materially adversely affected,'' the airline told investors in a recent filing.
While much of this is standard boiler-plate risk factor material, the sheer scale of Ryanair's planned expansion brings the overcapacity issue back to life, even though nobody at this point believes it's an imminent threat to Ryanair's business model.
By the end of the year Ryanair will tie up a deal for 200 new narrow-body aircraft, the largest in the company's history. At list prices short-haul single-aisle aircraft like those Ryanair will purchase cost about $70m (¤47m) each. If Michael O'Leary purchased them at list prices, which he won't, he would be committing himself to spending, over several years, about $14bn. The sheer scale of the Ryanair order is such that it is likely to impact upon the actual volume of imports Ireland as a national economy officially registers.
The order is so large at 200 aircraft that it almost doubles the entire size of Ryanair itself. For example, by next March Ryanair will have 232 aircraft, so putting another 200 on top of that, albeit with delivery dates several years from now, means that Ryanair is going for broke in terms of trying to dominate the skies over Europe and possibly further afield.
So which of the two leading manufacturers is likely to be helping Ryanair achieve such stellar ambitions? O'Leary told the Sunday Tribune there is a chance that Ryanair will "blow up" the relationship with Boeing, but most observers of the aviation sector think this highly unlikely. At present, Ryanair is an all-Boeing airline with 196 Boeing 737-800s. The 737 is the workhorse of the industry, beloved of not just Ryanair, but that other giant low-cost operator, Southwest Airlines.
Ryanair's entire growth strategy is based around the Boeing 737-800, the most modern variant of the aircraft. It's a single-aisle aircraft that can seat up to 189 passengers and Ryanair operates no other aircraft type. The benefits of this one aircraft type strategy are enormous and possibly very difficult to quantify in precise terms.
But there are four chief advantages – staff costs/training, maintenance, spare parts and fuel.
Being an airline with just one aircraft type delivers substantial savings for Ryanair in terms of pilot training. The pilots only have to work on one aircraft type, only have to use one aircraft simulator type and only have to be trained on one aircraft type. Cabin crew likewise only have to be trained to work with one aircraft type.
The airline's maintenance teams only have to be versed in the configuration and performance on one aircraft type, again lowering costs. Spare parts only need to be acquired for one aircraft type also.
The final and arguably the biggest benefit of the Boeing 737-800 is fuel efficiency. Ryanair has installed winglets on most of its recent 737s and this is believed to reduce fuel burn per hour flown by 4%. Newer models of the 737, the ones Ryanair would likely purchase, would be another 2% more fuel-efficient than the competitor aircraft, the Airbus A320.
For Ryanair and Michael O'Leary to throw away all these apparent advantages and spurn a deal with Boeing would be a big surprise. No, scratch that, it would be the biggest surprise the Ryanair boss has ever pulled (except his initial Aer Lingus bid of course). While O'Leary is trying desperately to convince people that Airbus is still in the game in some way, few observers believe this. Ryanair's whole model is based around having just one aircraft type. Its part of the Ryanair credo, as precious to the airline as charging for food onboard and not having a first-class cabin.
Its US equivalent, Southwest Airlines, also remains a Boeing closed shop with a fleet of 737s, although EasyJet surprised the low-cost world a few years ago by doing a deal with Airbus.
O'Leary told the Sunday Tribune recently he may not do any deal with Boeing and may instead stop all growth, build up cash and pay shareholders a special dividend. But, as he admits himself, he would prefer growth, rather than cash conservation.
That means a deal is on. But is there any way Airbus can muscle in on the action. Most observers believe not. On last week's BBC Panorama programme a bitter-sounding John Leahy, Airbus commercial director, said he could simply not do a deal with O'Leary based on the kind of discounts O'Leary requires. Discounts of 40% have been done before, but if O'Leary is looking for a larger cut off the price, it could leave Boeing dangerously close to taking a loss on the transaction at a time when the company is in severe difficulties of its own.
Either way Ryanair is buying planes at the bottom of the cycle and Boeing will have to be a price-taker rather than a price-maker. Apart from the obvious reason that it needs Ryanair as a piece of retained business, it is also going to be making a lot less narrow-body aircraft in future.
The construction and sale of 737s is what allows Boeing to make investments in other aircraft types like the new and much delayed 787 Dreamliner for instance. It can offer O'Leary an attractive deal, but it cannot entirely break the bank. Nevertheless, when your future orders books are being cut back, it would be nice to have a new piece of business that builds out the order book after 2012 when things start to look rather skimpy for Boeing.
While Michael Cawley, another senior Ryanair executive, recently said Airbus still could not be counted out of the race, the sheer size of the extra costs involved in running two fleets must surely make a deal between Ryanair and Boeing as near a certainty as one can get.
However, the sheer size of Ryanair's order creates complicating factors. For example, the Ryanair order will be highly visible around the aviation world and any sense or indication that Ryanair seriously took Boeing to the cleaners could damage the entire 737 line from a Boeing point of view.
It could mean that other large buyers like Southwest could start pushing down prices too and that would be a serious challenge to a cash-strapped Boeing. Southwest currently has more 737 planes than Ryanair does, so Boeing is effectively trying to balance the pricing demands of its largest US customer with those of its largest European customer.
The problem, of course, is more than just trying to buy the planes. Ryanair needs to find markets to deploy them into. Currently it has 32 bases and 800 routes and this existing network will mop up large amounts of the new capacity. But there will also be a need for new markets to the east and north of Ryanair's current footprint. Scandinavia is still not Ryanair-saturated and large markets like Turkey are sure to be exploited in the period ahead.
Either way the new aircraft could make the airline unassailable in most of its major markets, regardless of whether Boeing or Airbus get this large-scale order.
With the airline about to almost double in size and Michael O'Leary about to cut the deal of the decade on aircraft, it must be scary stuff from an Aer Lingus or EasyJet perspective. Those rivals will all be expecting O'Leary to do a Boeing deal and Ryanair's true commercial heart looks unlikely to change despite the recent talk of all options being open.