Friday, February 26, 2010

Michael O'Leary & me

Michael O’Leary & I have something in common, we’re both minority shareholders in Ryanair. But only Michael gets to use our company as his own private plaything.

I bought Ryanair shares 7 years ago, in Feb/Mar 2003, at an average price of €3.14 (excluding dealing charges & stamp duty, and adjusted for the subsequent “2 for 1” stock split). The shares closed this week @ €3.50 – a gain in 7 years of just over 11%.
In those 7 years, the share price has generally bumped along within +/- 10-20% of the original purchase price.

So, allowing for inflation in the intervening years, I’m losing money on my Ryanair investment, given that the company has never paid a dividend.

In the same period, Ryanair has grown significantly in size – it carried 19.5m passengers in calendar 2003 and this had risen to 65m in 2009 – an increase of approx. 330%.

Based on this volume growth, Michael O’Leary is feted as a business genius and is a darling of the media – "he gives good head" lines.

There’s a saying in business that “volume is vanity, profit is sanity”, and, on that basis, Michael certainly does vanity very well. But I, and my fellow shareholders, would be much better served if Michael turned down the volume and concentrated on the profit side of the growth equation.

Frankly, I start to worry a bit about a business model where, it seems, that extraordinary volume growth is required to produce relatively pedestrian profit growth. It’s beginning to feel like one of these circus guys spinning plates – we all applaud as he adds more and more plates, but at some point it’s all going to spin out of control and they’ll come tumbling down.

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