This deal will help both parties:
- Ryanair can grow further. They currently do not have any aircraft on order after the last was delivered in December 2012
- Boeing can fill a lot of open slots for the B737NG until the B737MAX arrives. I wrote about that earlier…
Rynair’s outspoken boss Michael O’Leary is (until today) not positive about the B737MAX, naming the aircraft a “dog’s dinner of a design”. Ordering new-built NG’s now means that Ryanair faces (for example) Norwegian as a competitor who then flies the B737MAX. The B737MAX is advertised by Boeing as burning 13% less fuel than the B737NG.
What does that mean? Knowing how Michael O’Leary likes to do deals one could imagine that he demands a purchasing price for the NG’s that is lower by the amount the NG’s are costing more in operating cost as they burn more fuel.
From the latest company presentation (Q3 2013) I got the following information:
- Fuel is hedged at approx. $1000/ton
- The $ is hedged at 1.32€
- The cost per pax ex fuel is 27€
- Revenue per pax is 51€
- Load factor is 81%
For the average sector length I found several information (not directly from Ryanair) indicating it should be something like 1165km or 629nm.
Now I calculated the fuel burn for a 629nm sector with 153pax (81%*189 seats). Fuel burn was calculated at 8,951lbs or 4,060kg. Fuel costs are then $4,060 or 3,075€ per flight. Per passenger this is $26.53 or 20.10€.
Total costs per passenger and flight is then (27€+20.10€)=47.10€. Ryanair therefore makes a profit of 3.90€ per passenger – not bad!
Now what would happen if Ryanair would switch to the B737MAX? Fuel burn would be 13% less, about 17.50€ per passenger in other words: profit per passenger would be 2.60€ or nearly 53% higher! Here you have the answer why both the A320neo and the B737MAX are (and will be) so popular with Low Cost Carriers in particular.
If MOL wants to have the fuel burn difference as a lower purchase price upfront we simply multiply the number of passengers one aircraft carries over a year, multiply that with 2.60€ and with the number of years the aircraft stays in service with Ryanair typically. You can get answers here and I found out that seven years is a good number.
The summary of the Q3 2013 presentation says that with the current fleet of 305 B737-800NG Ryanair will carry about 79million passengers this year. Per aircraft this is 259,000 passengers. For seven years this is 4.713m.€ or $6.13m. worth of fuel costs versus a B737MAX. We can expect that this is the “extra discount” that MOL demanded from Boeing compared to the deal that Norwegian got for their B737MAX order last year – and we can expect that Norwegian already got a good deal as they have been the European launch customer for the B737MAX.