[Req] How Ryanair justifies cheap seats

FrCrilly

Hi All,

I once had a conversation with an Australian travelling in Europe. He told me that he flew from Poland to Dublin in November 07 with Ryanair, the flight costing in total €35 (all taxes, charges, baggage included). He was quite confused and was wondering how exactly Ryanair makes money.

I have followed Ryanair in the media for years, I have read the Ryanair book (2004) and the Michael O’Leary Biography (2007) and also saw the BBCs Money Show Ryanair episode. From all this, I conclude the below explanation. If anyone with greater knowledge in the area disagrees or knows something that I don’t, I’m all ears.

Thanks in Advance for all responses

My Explanation

Costs: Ryanair bulk buy planes and use cheap back end of nowhere airports where they turn the planes around quickly. This minimises the capital cost of the plane per passenger.

Ancillary Revenues: Ryanair have stripped airline travel to its very basic form ie a passenger sitting on a seat. They then turn cost items (eg food and drink, baggage) into revenue streams.

Off peak season: At off peak season, only a percentage of an airplanes seat capacity are made up of people who actually want to fly somewhere and hence are willing to pay for a seat. Ryanair have found a way to justify flying the plane in these conditions by giving the remaining seats away. Giving seats away has the following benefits:

1. It can generate more of the above ancillary revenues (baggage, food/drink, hotel/car hire bookings).
2. Reduced advertising costs: Everyone knows the airline that gives away free seats. The requirement to advertise is significantly reduced. (My Australian friend will tell everyone in Australia).
3. Revenues from Ryanair’s “Billboard” advertising service (either on the plane itself or on the baggage cabins) will be higher as more people see them.
4. Other companies, usually Financial Services, are willing to pay to use Ryanair’s brand name because of it’s reputation for free seats (eg Credit Cards, Insurance).
5. Some regional governments love all year round tourism and are willing to subsidise Ryanair to deliver. This is probably illegal under EU law but I believe some have got around this problem by paying Ryanair over the top to advertise on their website.

If all the above revenues/savings just about meet the cost of flying the plane out in off peak season, then free seats in off peak can generate huge demand for Ryanair flights during peak season (eg people take out jobs between cities, will buy holiday homes in other countries, companies will expand to other countries between two Ryanair airports) and a lot of people will find themselves in a position where they are willing to pay a lot more for a Ryanair flight. This results in Large Revenues – Low Costs = Huge Profits.

The above is inspired by the Michael O’Leary quote “In the airline business, any idiot can make money during the summer, the trick is not to lose money during the winter”.

Trampas

A plane also makes no money on the ground.

Only makes money in the air

highlydebased

Its not "bulk buying" aircraft generally- In Ryanair's case they ordered well over 100 at least aircraft at below cost prices after 9/11.....in recent years they have made small orders at huge discounts because of their previous relationship with Boeing

The trick is to have the aircraft flying as much as possible- so hence the short turnaround. It does not have to be a small airport for this to happen- they fly to Stansted/Gatwick/Madrid/Malaga etc which are justifiably busy airports and the turnarounds are just as short as they are in..........lourdes!

sceptre

If you think you don't know much, i know even less, I haven't read either of the books you mentioned.

I do know, however, that ancillary revenue probably generated about 500 million in profits in 2007 (a ryanair press release in Nov 07 mentioned 252 million in ancillary profits for six months) and that ancillary revenue makes up about 16% of the total.

Additionally as well as flying into airports with lower landing and handling fees, they're pretty particular (I'm avoiding the word "aggressive") about negotiating even lower charges from these airports.

O'Leary has a reputation for keeping costs low everywhere, including banning people from recharging their phones at work (not that this is a bad thing, it's just most companies don't bother) and getting people to turn off office lights when they leave the rooms. I recall reading somewhere that he went to the drinkie companies and got them to pay for the ice cubes they use on the flights.

The quick turnaround makes a big difference - as Trampas said, planes make no money while they're on the tarmac and if your turnaround is in minutes rather than hours, the plane's generating more money during the day as it's flying more.

Also, don't forget that while there's plenty of publicity about the cheap flights and plenty of people get them, when that allocation is used up, other people are paying higher prices, there are always a few.

chickenhawk

If you get a seat for 1cent the reason behind that is that some people will buy a sandwich or a coffee or rent a car off them while on the plane. So which is better an empty seat or a tenner from someone buying a sandwich. It all counts in the end.

*Kol*

The ancillary money is a huge thing for Ryanair. I have paid a lot of money for excess baggage and also for flights booked at the last minute to Ryanair. There are a lot of cheap fares to be gotten but there ae a fair share of €300 plus fares paid by people who just need to get where they are going especially on the more popular routes into the UK.

FlutterinBantam

One more little snippet, work practices are very important to FR.
Note how the cabin staff escort the inbound passengers to the terminal as FR usually do not use Airbridges,then they board and escort the outbound passengers to the 'plane.

There are many more similar examples.

Might seem small but hugely important in keeping staffing levels down,and therefore, costs.

*Kol*

FlutterinBantam wrote: »

One more little snippet, work practices are very important to FR.
Note how the cabin staff escort the inbound passengers to the terminal as FR usually do not use Airbridges,then they board and escort the outbound passengers to the 'plane.

There are many more similar examples.

Might seem small but hugely important in keeping staffing levels down,and therefore, costs.

Very true. I am surprised they dont have the cabin staff loading the cargos!

FrCrilly

sceptre wrote: »

O'Leary has a reputation for keeping costs low everywhere, including banning people from recharging their phones at work (not that this is a bad thing, it's just most companies don't bother) and getting people to turn off office lights when they leave the rooms. I recall reading somewhere that he went to the drinkie companies and got them to pay for the ice cubes they use on the flights.

I recall reading that O'Leary encourages his staff to steal pens when staying in hotels on business trips. This sounds more like a psychology thing than something that produces practical savings. I asked someone who worked in the Ryanair call centre about it and he said he never heard of that one.

[Thanks for all responses so far].

diverdriver

As Kol says there are plenty of people who pay full price for fares because it's last minute stuff. Bear in mind to that an outbound flight might not make any money but the return may very well pay for both. I just did a random Shannon to Stanstead return same day flight for next monday: €281. Only €27 of that is for the return flight. That's all profit for Ryanair.

Húrin

Also, Ryanair staff must pay for their own training and uniform.