Reeling from COVID-19, Europe's airlines are unveiling a survival strategy centered on shrinking their schedules in the years to come. They are canceling aircraft orders, shrinking schedules, and are beginning to exit airport gates from London to Rome in an industry-wide rush to downsize.

That's that flight plan that Ryanair's CEO Michael O'Leary laid out in a video announcing results for the June quarter (its Q1 2021), followed by a conference call with analysts on July 27. On screen, the famously outspoken O'Leary set a new standard earnings-call-casual, sporting a baggy checked shirt unbuttoned halfway to his waist, and peering over wire rim glasses balanced near the tip of his nose. O'Leary's presentation came in two basic parts: First, an accounting of the tough measures Ryanair is taking to minimize the sweeping damage from the pandemic, steps that have amazingly lowered its cash burn to zero, and second, his blueprint for making the airline that transports the most passengers around Europe a lot bigger––by Fortune's estimates, as much as one-third bigger than pre-COVID a half-decade from now.

Ryanair's flights, said O'Leary, were virtually all grounded from mid-March to the end of June, dropping the number of passengers carried for the quarter from 42 million to just 500,000. Revenues cratered 99% from 2.2 billion to €128 million ($168 million)*. During the meltdown, O'Leary is launching an extraordinary attack on costs to preserve cash. Total expenses dropped 85%, from just over €2 billion to €313 million ($2.62 billion to $410 million). Those deep reductions held the loss for the quarter to just e185 million. Relative to pre-COVID sales, that's lowest among the airlines Ryanair's size (FY 2020 revenues: €8.5 billion or $11 billion) or larger.

But the campaign isn't mainly stanching the next quarter's losses. It's the centerpiece of his broad strategy for the future: Driving the expense base to levels that create an enduring competitive advantage that enables Ryanair to soar in the recovery while rivals remain stuck on the tarmac.

For all his optimism on how Ryanair will thrive post COVID-19, O'Leary foresees a return to normal that's grindingly slow, both overall and for his airline. He's now predicting that Ryanair will fly around 40% of last year's passengers in July, rising to 60% in August, and 70% in September, and remain at that level at least through March of 2021. That trajectory would bring total traffic to just 60 million for FY 2021, down 60% from 149 million in FY 2020 (ended in March of this year). And the outlook's worsened since May, when O'Leary predicted 75 million passengers for FY 2021, and a return to 80% of the regular schedule starting in October.

O'Leary warns of substantial risks that Ryanair's numbers won't reach even those downsized-estimates. "The best we can come up with at the moment is 60 million in passenger traffic assuming there are no other widespread lockdowns as a result of the second wave of COVID-19," he declared on the conference call. Besides citing the danger posed by new spikes, O'Leary cautioned that European governments are imposing sudden and "arbitrary" restrictions on air travel to other nations on routes that are really safe, and that those "badly managed overreactions" could greatly slow a recovery.

On the call, the 59-year old CEO, who's headed Ryanair since 1994, bashed the British authorities for recently requiring that all people flying from Spain to the U.K. undergo a 14 day quarantine, quashing traffic between the two countries. "The U.K. government panicked" over an outbreak in Catalonia, he charged, when "they should have controlled arrivals from maybe Catalonia, not on a national basis with no scientific basis." He also skewered Ireland for requiring that arrivals from the U.K. go into two-week quarantine, while passengers from 15 nations on a "Green List" face no constraints. Both Israel and Morocco, he noted, have been imposing bans or restrictions on short-notice that have pummeled air travel from Europe for brief periods. For O'Leary, the uncertainty around the course of these state-mandated clampdowns––in his view, unjustified by the health risks––means that "even the 60 million will be a challenging figure."

Ryanair's edge has always been its big advantage on costs, as shown by its numbers for FY 2020. The Irish carrier spent an average of €31 ($41) to transport a passenger, excluding fuel. According to Ryanair, that's 26% lower than the figure for number two, budget carrier Wizz Air of Hungary. By contrast, per passenger costs were €87 ($114) for Norwegian Air Shuttle and €101 ($132) for Lufthansa. That edge enables Ryanair to charge average fares of €37 ($48.50) on what in normal times were its 2400 daily flights to 242 airports from Aberdeen to Marrakesh and Lisbon to Tbilisi.

The 149 million customers lured last year by those no-frills bargains made Ryanair Europe's top-ranking carrier measured in total passengers, beating Luftansa (145 million), IAG, uniting British Airways and Iberia Airlines (118 million), EasyJet (96 million) and Air France KLM (88 million). In revenues, Ryanair at e8.5 billion ranks fifth, and but its €1.13 billion ($1.48 billion) in operating profits equals two-third the number at Lufthansa and 43% at IAG, though the Irish carrier's sales are less than a quarter of Lufthansa's and lower than one-third of IAG's. Ryanair also has the best margins, boasting return-on-sales of 13.3% in FY 2020, almost triple the number for Lufthansa, and 30% above IAG.

A strategy beyond COVID

As O'Leary never tires of proclaiming, it's the super-low cost base that puts Ryanair first in customers and margins. Driving the expense even lower is the ticket to expanding post-COVID while rivals retreat. That strategy is based on O'Leary's view of how the industry will evolve post-COVID. He observes that European airlines are already planning reductions in schedules that will last for years, and that the big shrink will continue. A number of carriers have already left the skies, including Flybe serving regional airports in the U.K. and France, Germanwings, a low-cost carrier owned by Lufthansa, Level of Austria, operating budget flights for IAG, and the German operations of SunExpress, a Lufthansa-Turkish Airlines venture that served resort destinations in the Mediterranean.

The big flag carriers are also slashing capacity. Air France KLM is scrapping one-fifth of its flights in 2021, and Al Italia is scuttling short-haul routes to focus on long-range destinations. On the call, O'Leary denounced the €11 billion ($12.9 billion) in state aid being awarded by both France and Germany to Air France and Lufthansa, subsidies that he brands "illegal" and promoting "unfair competition." At the same time, competitors––including EasyJet and Norwegian––are delaying or canceling orders for new jets, potentially constraining their capacity to grow as traffic rebounds. As most carriers downsize their operations, an increasing number of takeoff and landing slots will sit idle. Ryanair hopes to fill many of those slots as they become available, enabling it to expand at airports previously at full capacity.

O'Leary reckons that the only way the European carriers can generate business as the crisis ebbs is to offer bargain fares. "We'll see lots of stimulus from low fares," he says, "and that's a good thing, because it will get a lot more people flying who've been locked down, and lift the entire market." The flag carriers will be able to offer those ultra-low prices, he says, because they're flush with government cash. On the other hand, the independent carriers that are forced to match the steep discounts will close down, following the Flybes and Levels.

To reign as the lowest-cost carrier in skies raining deep discounts, Ryanair needs to downshift its expense base to a plane that's not just lower, but substantially lower. That's been his chief quest during the four month lockdown. The key part of the 85% reduction in Q1 was the shrinkage in labor costs. Since flights fell close to zero, the vast bulk of its 17,000 pilots and cabin crews across Europe went on furlough. Governments provided the workers with unemployment benefits. In Spain, for example, the government replaced a part of lost wages directly. The U.K. topped off reduced payments from the airline. All told, Ryanair lowered its "staff costs" from €272 million ($356 million) in Q1 of 2019 to €69 million ($90 million), a drop of 75%.

On labor, O'Leary harbored two long-term goals: First, keep almost the entire workforce of 17,000 employed, and second, substantially lower pay levels over four years, positioning Ryanair to triumph in the raging fare wars ahead. In exchange for preserving jobs, Ryanair succeeded in securing reductions of 20% from its pilots, by far the highest-earners, and around 10% on average from cabin crews. "We don't break out the total reduction in the labor cost base," says Eddie Wilson, CEO of the largest subsidiary o the Ryanair group. "The pilots are the chunkiest part of the total, and they took the biggest reduction." He does confirm that the overall savings are well over 10%. Wilson adds: "We need to hold on to those people so that we can ramp up quickly and gain market share when the market rebounds."

Low oil prices should provide a tailwind. "We'll see an oversupply because of weakening demand," says O'Leary. "We think oil will be modestly in somewhere around $40 for the next 2 to 3 years." If flying returns to 2019 levels in that span, Ryanair would lower its jet fuel bill by half, or over €1 billion ($1.31 billion).

Doubling down on the MAX

A cornerstone of O'Leary's strategy is securing big deliveries of Boeing's long-delayed 737 MAX. Put simply, O'Leary is counting on a fleet of MAXs to provide the extra seats that Ryanair aims to fill as traffic rebounds and rivals continue to hunker down. "Ryanair will be one of the few airlines that can grow," he says. "We're one of the few that has has major deliveries coming in 2020, 2021, and 2022." Ryanair is a single-aircraft carrier. All of its 470 planes are 737s. That's a major reason that like fellow 737 denizen Southwest, it's able to hold maintenance costs so low. Ryanair has 210 MAXs on order. O'Leary's hope is that Boeing will get final approval from the U.S. authorities to re-launch the MAX in September, and that it Boeing can deliver Ryanair 40 MAXs by Christmas.

The MAX's long struggle to relaunch hasn't shaken his faith in the aircraft. "We're committed supporters of the MAX," says O'Leary. The MAX, he says, offers 4% more seats than Ryanair's current 737s, and save 16% in fuel costs––and is hence crucial to driving down costs per passenger. While many airlines are cancelling orders for the MAX. O'Leary is using his position as one of the few buyers to push Boeing for a better deal. Of the 210 on order, about one-third are "options," meaning that Ryanair can either buy the planes or walk away. That position should gives Ryanair strong leverage in the negotiations.

O'Leary also expects that as rivals retreat, Europe's airports will be swamped with empty gates. He expects that by next summer, airports will be offering big discounts on rent to fill the unused slots, and that Ryan as just about the only carrier that's expanding, can secure great deals."There will be airports that have lost significant capacity who will be engaging in incentives to get someone like Ryanair to deliver them growth where others are cutting back," he explains. Savings in airport charges that were the biggest expense in Q1 of last year would further bolster his go-low crusade.

For O'Leary, the best-case outlook is that Ryanair returns to its pre-COVID level of 150 million passengers a day sometime in the summer of 2021. But he also predicts that the overall market will remain a lot smaller than last year. Hence, if that scenario plays out, Ryanair will gain a heap of market share. Last year, O'Leary set a goal of reaching 200 million passengers by 2024, a giant increase of 34% over last year. He's no longer setting a specific number. But by this writer's estimates, all the factors, lower labor costs, renewed MAX deliveries, and dropping airport rents are falling into place to build the runway. So achieving 200 million is highly doable. If Ryanair gets there, it will lift its current leading market share from 15% to something like 20%, a feat seldom seen in an old-line industry.

In the pandemic economy, few stories are more intriguing than those about nimble players in industries pounded by the pandemic that are laying plans to prosper from the carnage. It's hard to think of a flight plan that's more audacious––some would say outrageous––than O'Leary's, or one that will be more fun to watch.

*All conversions from Euros to dollars are made using the current exchange rate.