DUBLIN, IRELAND — Earlier this month, Irish budget airline Ryanair made an announcement about a $40 billion deal for an additional 300 Boeing 737 MAX-10 aircraft. 

This purchase will expand its fleet to 675 planes by 2028, positioning it among the largest in Europe. As of September of last year, Ryanair was the leading airline in Europe (and fourth globally) in terms of scheduled seats. However, the question arises, is Ryanair oversaturating the regional market?

Ryanair justifies its order for the extra, more fuel-efficient MAX-10s, as these aircraft can accommodate 20% more passengers than its current mainstay, the Boeing 737 NextGen, which constitutes about 80% of its existing fleet. The MAX-10 is also projected to consume 20% less fuel. This fuel efficiency will be crucial as Ryanair increases its passenger target from 225 million by March 2026 to 300 million seven years later.

Based on data from Visible Alpha, jet fuel, at €22 per available seat, is predicted to consume 44% of the low-cost carrier’s operating costs. Ryanair will report its full-year results later this month, with analysts forecasting that the fuel cost could rise to €25 per seat in the next three years. Nevertheless, Ryanair still outperforms its competitors in overall costs per passenger, with its costs being at least one-third lower.

This improved cost efficiency should sustain a steady increase in earnings per share. Even when carrying 225 million passengers, Ryanair is already a regional behemoth. Its market capitalization of €19 billion nearly matches the combined capitalization of its next two biggest competitors, Lufthansa and British Airways owner IAG. Despite having a large and growing fleet, its capital expenditure should reach a peak soon, potentially resulting in a consistent free cash flow of about €2 billion.

However, the growth of the fleet may be misleading. Without apparent acquisition targets, Bernstein suggests that Ryanair could transform into a high-yielding cash generator. The company, which currently does not pay a dividend and hasn't bought back shares since the onset of the pandemic, might change this stance. Ryanair, once a brash newcomer, is gradually maturing into a comfortably established airline.