Ryanair invests €1 billion in Italy after boarding tax cancellation

"We owe to your government our decision to invest in Italy, thanks to the positive consideration put forward by us to stop the application of a new 250 percent embarkation tax foreseen from September 1, 2016. One billion euro will be pumped into the 21 major Italian airports ranging from Rome to Milan and another further 23 regional airports that Ryanair intends to develop to support new routes into Italy in 2017. The large investment will favor the growth of tourism in Italy by up to 35 million passengers - equal to over 10 percent."

This brief concise statement was made by Michael O'Leary, CEO of Ryanair, at a recent press conference held in Rome. "Minister Delrio,” said O'Leary, “has challenged the airlines to respond with growth plans, if its government had acted to improve the competitiveness of Italian airports, and Ryanair is delighted to be the first airline to announce this investment record."

Ryanair has warmly welcomed the initiatives taken by the government of President Matteo Renzi to cancel the increase of €2.50 in city tax from September 1, 2016, and the modification of airport guidelines by Minister Graziano Delrio, which allows Italian regional airports to compete on equal terms with Rome and Milan airports, provided they comply with EU MEIP standards. These initiatives have enabled the development of tourism in Italy, especially in the area of more employment.

In figures, this means 2,500 new jobs will be created by Ryanair at Italian airports in 2017, and 3 million new passengers per year (10% growth in 2017) will be transported. In addition, 35 million customers will fly to/from Italian airports with Ryanair in 2017.

The air carrier has anticipated some of the 44 new routes planned to/from Italy in the next year. At the moment the plan is not complete, but some routes have already been announced during the press conference. From the airports of Rome and Lourdes, Ryanair will link Nuremberg, while from Malpensa a flight to Gran Canaria will be introduced. From the base of Bergamo, flights to Edinburgh, Luxembourg, and Vigo will start, and from Pescara, just reactivated, to Copenhagen and Krakow. Ryanair will also introduce the Bologna-Lisbon and the Bologna-Eindhoven routes, and from Treviso will connect Krakow and Bari, flying out of Liverpool. Finally, Sicily’s Trapani Airport will be connected with Prague and in Palermo with Bucharest.

The case of Pescara and Alghero

The commitment of the carrier does not stop there. Ryanair has in fact reiterated the desire not to close the base of Pescara, as previously announced, in the wake of the change in airport guidelines of Minister Graziano Delrio, which will allow regional rival airports to compete with those of Rome and Milan, provided that compliance with EU standards shall be ensured.

The question linked to the airport of Alghero, however, still remains open. The carrier claimed today to be in talks with the airport, and O'Leary said he was confident "to seal an agreement with them when, in early September, [they] will conclude the privatization project in progress, which could allow the base to Alghero [to] re-open in late November."

The views of ENAC

According to President of ENAC (Italian Civil Aviation Authority), Vito Riggio, the development of air transport is a primary objective to assist the economic growth of the entire national system. He said that we live in a time when the reference is no longer national, but especially for air transport, and the rules that govern it, is that of Europe, while respecting equitable competition and passenger rights.

The development plans, such as those of Ryanair and other carriers operating in Italy, are for the opportunity for ENAC to grow and further commit to safety and quality.

Economic difficulties: Ryanair prepares the price war

"Ryanair puts too much faith in Western and Eastern Europe: preparing a price war with no holds barred."

This is the point of view of Euromonitor International which, following the announcement of the new Italian investments by Ryanair, launched an analysis of the low-cost business model and foresees a further lowering of tariffs with respect to what occurred this current year - a tactic that would have an undeniable positive effect on load factor, however, reducing profitability significantly. Euromonitor already points to the latest figures for the first quarter of 2016, highlighting a modest increase in sales by 2 percentage points, compared to a strong growth of past passengers from 28 million in 2015 to 31.2 million this year.

"The areas on which the company is investing specifically,” said Nadejda Popova, senior travel analyst at Euromonitor International, “are beset by persistent economic difficulties, as well as geopolitical tensions and terrorist threats. Should the situation even worse and the fear factor to arrive at further hamper consumer confidence, these factors, together with the devaluation of the currency, could force the company to continue to decrease rates, with a tactic similar to that used by his rival, EasyJet."

The fuel challenge

Another challenge that Ryanair will have to face is that the volatility of fuel prices. The sharp drop of recent years has already forced the carrier to monitor its hedging strategies in an effort to prevent any mid-term losses. The company says Euromonitor has nearly covered its fuel needs for 2017 and 2018, but any downward price fluctuations may still have a negative impact on its accounts.

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