Ryanair acquires majority stake in Laudamotion; goes on offensive versus Lufthansa and opens the door to Airbus operation

In a move that has been met by initial surprise across the industry, Ryanair Holdings has entered into a binding agreement with Mr Niki Lauda to support his plan to develop and grow start-up carrier LaudaMotion GmbH. The new Vienna-based commercial passenger airline was formed earlier this year from an executive operation of the same name after the former Formula Motor Racing champion secured ownership of the former NIKI operation after the airberlin collapse.

Under this agreement Ryanair will acquire an initial 24.9% stake in LaudaMotion, but this will rise as soon as possible to 75% subject to European Union Competition approval. It will allow the European budget carrier to go on the offensive to the dominant Lufthansa Group operations in the Austrian and German markets. Interestingly, it could also enable Ryanair to start utilising Airbus aircraft across its network alongside its current exclusive Boeing 737 fleet.

LaudaMotion, an Austrian AOC holder recently acquired many of the assets, including Airbus A320 aircraft, of the former NIKI airline he originally established, and will shortly start a range of scheduled and charter services from Germany, Austria and Switzerland primarily to Mediterranean leisure destinations.

These include flights from Basel to Heraklion and Palma; Dusseldorf to Ibiza, Malaga and Palma; Vienna to Brindisi, Chania, Ibiza, Kalamata, Malaga, Palma, Paphos, Pisa and Thira; Zurich to Corfu, Fuerteventura, Heraklion, Ibiza, Lamezia Terme, Lanzarote, Olbia, Palma and Rhodes; and from Berlin, Cologne, Frankfurt, Graz, Hannover, Innsbruck, Linz, Salzburg, Stuttgart to Palma.

The NIKI assets were initially awarded to the Lufthansa Group by airberlin’s insolvency administration, following bankruptcy proceedings in Germany. However, the European Commission expressed competition concerns around the proposed transaction.

After this initial sale fell through, a second round of bids saw International Airlines Group (IAG) awarded NIKI’s assets for a sale price of EUR36.5 million. IAG would have incorporated up to 15 of NIKI’s A320s under a newly formed subsidiary of its Spanish LCC Vueling, based in Austria, but failed to deliver a completed deal after being met by a legal challenge from consumer advocacy group.

Niki Lauda latterly secured the insolvent airline for a reported EUR47 million, around EUR4 million more than a revised IAG offer. Ryanair had expressed interest at the initial sale stage with a consortium comprising Zeitfracht and Nayak, but later rescinded interest in NIKI and chose not to bid. Ryanair said at the time there was “insufficient clarity” about Lufthansa aircraft leases to NIKI which it “couldn’t resolve in time”.

While Ryanair is set to be the majority investor in LaudaMotion, Niki Lauda will continue to chair the Board of the airline and oversee the implementation of his strategy to build a successful Austrian low fares airline. Ryanair says it will “provide financial and management support” to LaudaMotion as well as six wet-lease aircraft for summer 2018 to enable LaudaMotion to complete an extensive 21 aircraft flying programme.

Ryanair says the cost of this expectant 75% investment in LaudaMotion (if approved by the EU) will be less than EUR50 million although it will also provide an additional EUR50 million for start-up and operating costs during the first year of operation. They expect the airline to reach profitability by the third year of operation if their plan to grow the business to a fleet of at least 30 Airbus aircraft is successful.

“I have always stood up for competition and have opposed monopolies. Therefore I am thrilled that in the partnership with Ryanair, LaudaMotion will be able to establish itself as a strong competitor and to grow quickly and sustainably.


Niki Lauda, Chairman of LaudaMotion

LaudaMotion will certainly benefit from this partnership with access to the Ryanair fleet and financial resources allowing it to grow more rapidly and in a more sustainable manner, as it seeks to compete in markets dominated by Lufthansa and its affiliates. Some analysts had already questioned how the airline would survive in an independent form.

There are considerable financial and operational risks in restarting an airline, and these may not necessarily be offset by the value in the brand. Moreover, the reasoning can be obscured by considerations of sentiment. As a recent CAPA – Centre for Aviation analysis questioned: “when viewed from a purely rational standpoint, it is not obvious why NIKI should be worth more to its new owner as a small stand alone operation than it would have been to IAG, which surely could have generated synergies not available to Mr Lauda.”

The investment will provide Ryanair with a springboard to grow operations in Germany, Austria and Switzerland. It is only the fourth largest operator in the German market with a 7.6% share of system seats in the current winter schedule, while its presence in Austria and Switzerland is negligible at 0.6% and 0.2%, respectively. Its German network currently extends to 14 destinations, while its Austrian operation consists of just two points and Switzerland just one.

CHART – Ryanair currently serves 14 destinations in Germany (top) and just two destinations in Austria (middle) and just one in Switzerland (bottom) Source: CAPA – Centre for Aviation and OAG (data: w/c 19-Mar-2018)

Ryanair’s CEO Michael O’Leary recently stated that the airline planned to commence operations from Vienna Airport in 12 to 18 months. Having previously described the airport as “too expensive” for LCC growth, he said: “There’s new management in Vienna Airport, they’re making some very progressive moves towards finally introducing some new route incentives and some traffic growth incentives and those are very interesting.”

But it is Germany where Ryanair will see the biggest opportunity for development. Lufthansa has long been the dominant carrier in its home market, and that position has been strengthened by the collapse of airberlin. The share of the market from its mainline business alone (excluding Eurowings, Germanwings and other Group members) exceeds 34.5% currently and surpasses 55% at a Group level, even if low-fare competition is increasing.

The LaudaMotion investment is a rare rare action from an airline that has previously looked to grow organically. Ryanair did previously acquire low-cost rival Buzz from KLM Royal Dutch Airlines and had attempted on more than one occasion to acquire Aer Lingus.

This arrangement will see Ryanair and LaudaMotion operate under their own brands. Although new to the commercial market, LaudaMotion actually has a long pedigree from the legacy of Mr Lauda’s former ventures – Lauda Air and NIKI – and is own personal fame. In an interesting remark in a statement to support the agreement Mr O’Leary said: “The LaudaMotion AOC will support a fleet of Airbus aircraft which is something we have hoped to develop within the Ryanair Group for some years.”

It is uncertain what exactly the Ryanair boss meant by this comment which will have certainly caught the attention of the Airbus sales team in Toulouse. It wasn’t an off the cuff remark but part of a planned statement so that adds to the ambiguity. Whether it will see some Airbus equipment painted in Ryanair colours in the future and flown on specific routes within its expanding network under the LaudaMotion AOC is unclear.

The return of the NIKI operation into the arms of its founder provides a clear emotional motivation behind Mr Lauda’s deal, and he will now recover the purchase price and more through the sale of a majority stake to Ryanair, while still retaining control over the airline’s development. The question must be considered is when did Ryanair and Mr Lauda first open talks over the deal and could these be a reason the low-fares giant didn’t take part in subsequent rounds of bidding.

As CAPA concluded in its analysis: “Rationality, rather than sentiment, should really be the driver in making decisions to resurrect an airline.” The latest news certainly helps support Mr Lauda’s strategy, but then again, nobody ever suggested the airline business was a rational one.