Ryanair seizes ailing Buzz in challenge to easyJet

Battle of the no-frills rivals grows with bargain £3.2m takeover as Irish airline plans 250-strong fleet for 50 million passengers

Ryanair, the no-frills Irish airline, announced the surprise takeover of its low-cost rival Buzz yesterday for the distinctly bargain basement price of £3.2m. The deal will extend the battle for supremacy in the low-fares market between the Dublin-based Ryanair and easyJet, which became Europe's biggest cut-price airline last year after buying Go.

But the takeover flies in the face of Ryanair's stated strategy. Michael O'Leary, the chief executive, had repeatedly said he was not interested in buying a rival carrier.

Buzz was launched three years ago by the Dutch flag carrier KLM and operates to 21 destinations from Stansted airport. It has a fleet of 12 aircraft and last year flew two million passengers. But, unlike the highly profitable Ryanair, Buzz is still heavily loss-making because its fleet is costly to operate and it flies to expensive, congested airports.

Mr O'Leary said yesterday the timing of the takeover was "opportunistic" and admitted: "The last thing we need is the distraction of an acquisition." But he said he expected to move Buzz into profit within a year and double passenger numbers to four million. This will take Ryanair's passenger numbers to 15.5 million compared with the 17.2 million flown last year by easyJet.

Ryanair said it would close Buzz's most unprofitable routes and increase frequencies on others. Ryanair also intends to return the six BAe146 jets in the Buzz fleet to KLM and replace them with its Boeing 737-800 aircraft, which are much bigger and cheaper to operate. Industry analysts said as many as a third of the destinations flown by Buzz from Stansted could be shut. These include routes to Amsterdam, Paris, Geneva, Dusseldorf and Frankfurt.

Almost simultaneously, Ryanair announced a $1.3bn order for a further 22 Boeing jets. It has 125 Boeing 737-800s on order, with a list value of $7.5bn, and options to buy a further 125. The 189-seater 737-800 has a list price of $60m (£36.5m) but Ryanair is thought to be paying $35m for each aircraft.

Ryanair said the turnaround of Buzz would be easy to manage because both airlines had Stansted as their UK base. But a spokesman for easyJet said: "Believe me, it won't. Ryanair might be buying Buzz with its small change but the disruption to the business will be huge. The execution risk looks to be much greater than the upside."

Under the agreement with KLM, Ryanair is paying €23.9m (£15.6m) for Buzz but because the airline has €19m (£12.4m) of cash in its balance sheet, the net cost will be only €4.9m or £3.2m. It will have to integrate Buzz's booking system and merge the yield management systems. Ryanair will also have to combine the air operating certificates into one.

Ryanair said the huge jet order with Boeing would create 3,000 jobs in the airline and turn it into Europe's biggest scheduled airline with 50 million passengers a year by 2008. The airline also said it would be giving away 100,000 seats for just £1, not including airport taxes, for travel mid-week and on Saturday afternoons from February to early April.