Ryanair Holdings is the largest airline group in Europe and the third largest globally by total passengers carried (184 million in FY24). The company operates four distinct airline brands: Ryanair, Buzz, Lauda, and Malta Air. Despite their different branding, all these airlines follow the same business model: ultra-low-cost transportation with minimal frills. Most bookings are made through ryanair.com.
History of the Business
Ryanair was founded in 1984 by Tony Ryan, the owner and operator of Guinness Peat Aviation, the world's largest aircraft lessor at the time. It was established to challenge the dominance of Aer Lingus and British Airways in flights between Britain and Ireland. Initially, the airline struggled to find its footing. In the early 1990s, Ryanair modelled its operations after Southwest Airlines in the US. This approach involved eliminating most, if not all, addons to offer the lowest possible cost of air travel. This meant doing away with business and first-class seating, in-flight entertainment, and complimentary meals. The model was specifically designed to compete with the costs passengers would face when traveling by train or bus. Over the years, the group has refined this model while maintaining its core objective: to provide the lowest possible cost for transporting passengers from one point to another.
Current Business Model
The profitability of a low-cost carrier ultimately depends on cost control and operational efficiency. To better understand Ryanair's competitive advantages, it’s helpful to examine some specifics of its operations.
Efficiency, in this context, means maximizing the amount of time planes spend generating revenue—i.e., in the air. Ryanair achieves this by optimizing turnaround times. For instance, the airline charges fees for checked baggage to reduce loading times. Additionally, customers are charged for airport-issued boarding passes, encouraging them to check in online and minimizing time spent on administrative processes. Boarding planes via stairs, rather than jetways, ensures that most passengers have completed boarding formalities 15– 20 minutes before stepping onto the aircraft.
Thanks to these measures, Ryanair has the fastest turnaround time in Europe. On average, each Ryanair plane flies 4.2 times per day, compared to 3.7 times for EasyJet and 3.8 times for Wizz Air. This feat is especially admirable given that Wizz Air and EasyJet operate less than half the planes of Ryanair. Naturally, efficiency and costs are closely linked. The more efficiently Ryanair operates, the greater the base of passengers and flights over which it can spread its fixed costs.
In addition to efficiency-driven gains, Ryanair also reduces operating costs through other measures. For example, the airline avoids major international airports in large European cities, such as Heathrow (London), Charles de Gaulle (Paris), and Istanbul. These airports charge 2–3 times higher fees for landing, baggage handling, and hangar services compared to smaller, outer-city airports like Stansted or Gatwick.
Ryanair, along with Wizz Air, has the lowest cost per available seat kilometer (CASK) in the industry, at just €4.5 cents. However, Wizz Air’s low-cost structure relies on a fully leased fleet. This capital structure erodes its ability to compete during periods of stagnation.
Industry
The net return on capital in the airline industry has been negative since 1996. This is a result of airline seats becoming commoditized, with huge capital expenditure requirements usually financed with debt. This means that most profits, alongside debt, are reinvested back into equipment and maintenance. Eventually, during a natural calamity like the pandemic, in times of irrational competition, or during a recession, heavily indebted airlines are unable to reinvest. This leads to stagnation in revenues, while costs continue to rise, further deteriorating profits and credibility. Ultimately, the airline cannot raise capital to fund its lossmaking operation and defaults.
This occurrence is more common than we think. Between 2000 and 2023, at least 60 European airlines have gone bankrupt. Most defaulters continue to operate under the ownership of previous creditors.
Apart from Wizz Air, I believe there are no other airlines that compete within the same domain as Ryanair. KLM, Air France, Lufthansa, and British Airways are more focused on higher-income passengers who want more service options. EasyJet, another low-cost carrier, operates out of core airports (Heathrow, etc.), which makes its cost per passenger reasonably higher. Based on financial discipline, EasyJet is likely the best-run out of its competitors. Wizz Air is under pressure from lease repayments and plane groundings due to Pratt & Whitney engine issues.
Competitive Advantage
Ryanair's competitive advantage comes from its shared economies of scale. Being the largest airline in the continent, Ryanair enjoys plentiful cost benefits from economies of scale. The airline is the second-largest customer of airplane manufacturer Boeing. This has previously given management an upper hand in bargaining for new aircraft prices and prompter delivery times. Additionally, in most of its airports, Ryanair is the largest driver of passenger volume. This gives the company greater bargaining power for gate and ATC fees. These cost advantages from economies of scale are passed on to the customer in the form of lower ticket prices. Lower ticket prices drive passenger volume, which further strengthens the company's ability to lower costs. With every turn of this cycle, the cost advantage continues to widen against its competitors.
As of H1 2025, Ryanair has the lowest fares in Europe, with the average seat + ancillary services fare of €72 per passenger. Wizz Air has a seat + ancillary services fare of €91. No other airlines in Europe can match these fares, with legacy carriers usually having an average all-in fare of more than double Ryanair's. Competing airlines usually choose to compete on other factors such as in-flight entertainment, meal services, and business/first class.
Owing to the shared economies of scale business model, Ryanair's cost per passenger (ex-fuel) has grown at a slower pace than EU inflation levels—from €29 in 2015 to €34 in 2024. This represents a 1.6% CAGR in costs, while average annual inflation has been 2.5% in the same period. Apart from the shared economies of scale advantage, Ryanair's financial position is a key competitive advantage. Ryanair owns 95% of its fleet on its balance sheet and operates with a €600M of net cash. The company has always maintained a policy of purchasing planes out right. Because of its financial position, the company was able to retain more than 85% of staff during the pandemic. Additionally, they were also able to afford flying pilots on empty aircraft to maintain their licenses. Owing to this, Ryanair hit the ground running after the pandemic. It has been one of the few major carriers that has grown both passenger volume and operating profits since pre-COVID levels.
Valuation
Profitability is attributable to the sustainable growth in passengers every year. Based on the incoming batch of new planes, the company expects to transport 300 million passengers by the end of the next decade. This appears to be a reasonable assumption, given that the orders with Boeing have already been placed. Over the last decade, the business has earned an average operating profit of €10.5 per passenger. This number could grow marginally over time, with inflation. With 5% annual growth in passengers and a €10.5 operating profit per passenger, the equity valuation at a 15% discount rate would be worth USD 21 billion in equity value. Given a 10% discount rate, this business would be worth USD 35 billion.
These appear to be reasonable assumptions, following the growth in both passenger and profitability trends over the last two decades. The rise in operating profit per customer could be an optionality within the valuation, based on inflation levels of both costs and ticket fares.
Catalyst
Coming out strong after the pandemic, Ryanair has gained a significant lead against competitors. Additionally, while competitors continue to raise expensive debt to fund aircraft purchases, Ryanair owns 95% of its fleet on its balance sheet. This gives the airline more flexibility in times of uncertainty to act opportunistically and grow. As the shared economies of scale advantage continues to strengthen, Ryanair will naturally emerge as the lowest-cost provider in a commoditized industry. This will further boost market share gains and with it, profitability. At ~12x Forward P/E, we get a high quality, net-cash business that has proved to be the lowest cost producer in a commoditized industry
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