Ryanair buys 100 Boeing 737 MAX jets, sees fare price war

NEW YORK (Reuters) - Ryanair Holdings Plc, Europe's largest low-cost carrier, signed a deal on Monday to buy 100 Boeing Co 737 MAX jetliners for up to US$11 billion (S$13.9 billion), launching a new version of the single-aisle plane that will allow it to squeeze in more passengers.

The Irish airline also secured options on 100 more of the modified 737 MAX 8s, dubbed the 737 MAX 200 because it can seat up to 200 passengers, bringing the value of the deal to about US$22 billion, if all the options are exercised.

Ryanair's chief executive officer, Michael O'Leary, said he aimed for the airline to carry 150 million passengers a year by 2024, up from an earlier target of 120 million and up from the about 82 million passengers it carried in 2013. He said Ryanair intends to exercise all the options because the 200 new planes are key to achieving its target growth.

Ryanair already is the largest airline in Europe, and O'Leary said the new Boeing planes will further cut Ryanair's operating costs, allowing it to take market share from legacy carriers such as Lufthansa, SAS, British Airways and Alitalia.

"It means that we're going to expand and grow very strongly in Europe, both in new markets and in going in and taking traffic away from incumbent carriers," he said at a press conference in New York where he and the chief executive of Boeing Commercial Airplanes, Ray Conner, signed the deal. "I hope it will hasten in an era of a new price war in Europe over the next 10 years, which like all the old price wars, Ryanair will win."

O'Leary said the new planes, which will have two additional doors, will seat eight more passengers than the 737-800 models currently in Ryanair's fleet. The planes reduce fuel consumption by about 18 per cent compared with current models, and with the additional seats the cost would be about 20 per cent lower, O'Leary said.

O'Leary said the extra seats would generate about 1 million euros (S$1.6 million) of additional revenue per plane per year, most of which will go to the bottom line. Ryanair will pay a "modest" premium for the planes, O'Leary said, but the extra cost "is truly justified by the seats and engine economics."

Conner characterised the premium as "huge," but neither executive would detail pricing.The 737 MAX 8 has a list price of US$104 million, but airlines typically negotiate steep discounts.

O'Leary said he had pressed Airbus and Boeing for 10 years about a larger single-aisle plane, believing that the 200-seat size is the "sweet spot" for low-cost carriers. The Airbus A320 has 180 seats compared with 189 for the 737-800, and it couldn't be reconfigured to add the additional capacity that Ryanair sought, he said.

Airbus did not immediately respond to a request for comment. Last year Ryanair placed a US$15.6 billion order for 175 Boeing 737-800 jets.

O'Leary said in July he would keep that order, even as he studied the higher-density MAX version. Reuters reported on Friday that Ryanair was in advanced talks to order at least 100 MAX jetliners.

Boeing shares rose 2.8 per cent to US$128.18. Ryanair's stock closed down 0.1 per cent to 7.483 pounds (S$15.185)

Boeing's Conner said low-cost carriers could eventually make up 35 per cent of the market for single-aisle airplanes.

Boeing's chief 737 competitor, Airbus Group's A320, also is getting refreshed with new engines. O'Leary said the new MAX jets would not allow Ryanair to offer transatlantic service, because the range is not sufficient to reach enough U.S. cities.

Ryanair has a plan to operate a long-haul service as a subsidiary, but needs 30 to 50 long-haul aircraft to make it work.

"The availability (of those jets) just isn't there for another four or five years," O'Leary said.