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Ryanair
Business Model
Under a New
Light
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This document summarizes a new approach in
analyzing Ryanairs business model. It is based on one
year of research. This is also based on my experience
with the AirObserver blog, a platform where I have
Ryanair Main Destinations
discussed and analysed the low cost business model
for over a year now. I would nonetheless like to thank
specialists and aviation aficionados that have helped
me to formalize this note.
Source: Ryanair
Annual Report
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Elements commonly admitted as basis for
Ryanairs business success
Most Ryanair business model analyses focus on the
understanding of key historical characteristics of the Main Airports Deserved by Ryanair
low cost airline business model. They often explain
Ryanairs success thanks to the facts listed below.
Unique aircraft type with lower maintenance
costs/crew training costs
High density to increase profitability
Every additional service is charged
Online services only
Small regional airports with direct access to
planes/lower airport fees
Routes through secondary and smaller
airports
Short turnaround and maximum utilization
of aircrafts
Continuous innovative measures to increase
ancillary revenues
Non-unionized labour force
Source: Air DB
I wont develop on them further as I think that
albeit they are important, they are not crucial to
the understanding of Ryanairs success. Moreover,
you should be able to easily find them on the
Internet.
Ryanair Main Destinations
Why Focus on Ryanair?
Many analyses I have read
describe Ryanair as the most
successful airline in the last
twenty years. Indeed, Ryanair is
the fastest growing airline in
Europe. Since 2004, the Irish low
cost airline more than doubled its
number of passengers, from 33M
up to 73M, expected this year.
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The Truth Behind Ryanair Business Model
The element which has never been highlighted in
most Ryanair analysis I have read is the importance of
subsidies in Ryanair business model.
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Questionable Subsidies: Ryanairs Backbone
In France, Ryanair
has received 35M
in public money in
2008
Without public
money, Ryanair would
have declared losses
between 179M and
165M in 2008
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Why Subsidies are so Important in Analysing Ryanairs Business Model?
This is the crucial part of this note. To consider subsidies as a major source of revenue for Ryanair, will
change the way you analyse its business model.
Ryanair does not have the same business model than any other airline. Sure Ryanair needs to fill its planes,
but it does not need to sell seats at a price that covers its costs. In other words, Ryanair can sell at a loss.
Indeed, Ryanair can't sustain such cheap fares just by charging for Coke and nuts alone.
When Ryanair settles a contract with public authorities of a given country, its main engagement is to assure
a certain number of passengers. If Ryanair fails, it doesnt receive public subsidies. Hence for Ryanair, the
most important thing is to fill the planes, the price at which it can accomplish this is only secondary.
Some French Regional Audit Courts reports reveal the truth about its economic model: bringing passengers
into a given airport in order to receive a substantial amount of financial aid.
Paris-Vatry Airport,
France, gave 2M to
Ryanair
Why Do Airports Pay?
Most of the time, airports see Ryanair as an easy way to attract passengers and to increase traffic. Airports
that call on Ryanair are, for the most part, often struggling and view Ryanair as their last chance for
survival. However, for those who have experienced Ryanairs methods, desperation often comes at a price,
a price that could rush them close to bankruptcy as Alghero airport in Italy.
Angouleme Airport, Poitiers Airport, Cuidad Real airport, Garca Lorca Granada-Jan airport and Shannon
are some examples.
Recently, according to Arojournal, a French aviation web site, Ryanair will receive 2 million Euros worth of
subsidies from Paris Vatry Airport. The agreement only covers three months of operations. In
compensation, Ryanair will have to carry 15 000 passengers.
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Ryanair and Airports' Relationships
What if 22% of
Ryanairs revenues
were to disappear
from one day to the Basics of Ryanair's
next? Business model
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A Model Partly Based on Public Subsidies is Questionable
In the last year, I have read a lot on the low cost airline
market and its leader, Ryanair. I gradually gained
valuable knowledge of how Ryanair works,
communicates, and dominates its competitors. Its the
most fascinating case study Ive ever looked at so closely.
Interesting question, but not the matter I wish to discuss. Indeed, some Ryanair "evangelists" will argue that
Ryanair is not alone in receiving public money, national legacy airlines such as BA, Air France KLM or Lufthansa also
do. Rather than giving into their criticisms and engaging in a sterile debate, I prefer to anticipate their arguments
and counter them beforehand.
My point here is not to discuss whether or not Ryanairs aids are justified. This is an economical debate. Rather, I
seek to underline in what ways these aids are illegal; that these aids constitute an important part of Ryanair's
revenues, making its business legally unsustainable. Of course, legacy airlines as British Airways also receive
subsidies, but in a legal framework. I agree with people who argue that some of the major European legacy airlines
do not use them efficiently, but thats a different matter.
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Illegal Subsidies: Ryanairs Achilles Heel?
I found this quote on the Ryanair Business model, which I believe summarizes perfectly the issue
discussed:
Ryanair has established the first efficient and industrialized public subsidies collector
on a European scale. Its interesting to notice that Ryanair is among those which
beneficiated the most of deregulation of the market, but meantime among those
which obtain the most of subsidies.
A Which Budget Airline Market Analyst
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Thank you for reading this note, if you
like what you read, spread the word. If
not, please, take the time to leave
feedback!
To contact me:
http://airobserver.wordpress.com/
http://twitter.com/AirObserver
roman.observer@gmail.com
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