Ryanair today raised the cost of putting bags in the hold and checking in at airports as the high cost of oil forced airlines to scrabble for extra revenues.
Passengers on Europe’s largest budget carrier will have to pay £16 per bag for a return trip and £8 to use a check-in desk per return journey from next Monday, amid widespread fears for the financial health of the aviation industry.
The cost of fuelling aircraft has soared this year as the global oil price has climbed from around $80 a barrel to nearly $120. Fuel accounts for a quarter of airline budgets and the resulting financial squeeze has triggered a wave of bankruptcies on both sides of the Atlantic, amid warnings from some analysts that major carriers could go to the wall or be forced to merge with rivals in order to survive.
Ryanair attempted to play down the latest charge increases, the second time it has raised baggages costs this year, as part of an ongoing drive against hand luggage.
However, analysts said Ryanair was hiking charges to cover the rising cost of fuel, which is expected to account for nearly half its costs next year.
“Their earnings are very adversely affected by the fuel price, so they need to do everything they possibly can to alleviate that cost pressure,” said Andrew Lobbenberg, analyst at ABN Amro. Long-haul carriers such as British Airways and Virgin Atlantic levy fuel surcharges to cover rising fuel costs, but low-cost airlines refuse to impose them, instead preferring to recoup costs through add-on charges for checking in, in-flight food and car rental deals.
Ryanair said the charges hike would help keep fares low by making airplanes lighter, resulting in less fuel being consumed, and lowering baggage handling costs. However, industry experts said higher bag check-in costs are inevitable if the cost of oil stays around its current level.
“Budget airlines will push harder and harder to increase ancillary revenues. There is all the more impetus to do it in a toughening oil price environment,” said John Strickland, an aviation consultant. Ryanair and low-cost rival easyJet will try to leave fares untouched, because cheap tickets are the key part of a no-frills business model that uses bargain fares to pack passengers onto airplanes and then wring profits from them with add-ons.
“They cannot afford to raise fares. It would break their model. Occupancy would fall and they will not make enough money to cover increased fuel costs,” added Strickland. Ryanair has already warned that profits could fall by as much as 50% this year due to the fuel situation, while easyJet shares were hit recently when it said it would miss full-year profit targets if fuel stayed at the current price.
The Ryanair charges hike came as another airline serving the UK market went bust over the weekend. Eos, an airline carrying business passengers between London and New York, slipped into bankruptcy, taking the same path as Maxjet, another transatlantic business class airline, and Oasis Hong Kong Airlines, a budget long-haul carrier, which both folded recently. A combination of high fuel costs and depressed economies in Europe and the US have caused a number airline bankruptcies on both sides of the Atlantic in 2008, including three budget carriers in the US since March.
Nearly a year ago, airlines were exuding quiet confidence about the industry’s financial outlook, with much industry debate focusing on issues such as surviving the environmental backlash. Now the threat to the industry is at its most serious since the aftermath of September 11, analysts have warned.
The global airline industry is barely profitable, with a return on sales of around 1%, with fuel accounting for around a quarter of its costs. Douglas McNeill, analyst at Blue Oar Securities, said very few airlines are strong enough to withstand such pressure. Just 13 airlines recorded a profit margin of more than 10% across the entire industry last year, including Ryanair and easyJet, when the average oil price hovered below $80 per barrel.
“It is very serious. We are talking about a 50% rise in a portion of the cost base that is typically 25% of an airline’s costs. There are only a handful of airlines in the world that are big enough to absorb that sort of rise and remain comfortably profitable,” said McNeill.
Analysts have warned that BA’s profits will be nearly wiped out if oil stays around $120 per barrel over the next year, while US carriers are holding urgent merger discussions with rival airlines in a bid to mitigate soaring costs. BA has admitted that its fuel bill will rise to £2.5bn this year, which forced the carrier to warn that profits will be lower than expected.
http://www1.u.tv/BusinessNews/index.asp?iNewsID=105440&dtmDate=28/04/2008
By: alangirvan01 - 4th May 2008 at 08:35
Ryanair always said they were going to increase baggage fees, so they have nothing to do with fuel costs. When Ryanair spends all its time using agents to handle its aircraft, rather than staff, of course it wants to save money paying the agents to handle your bags. If you can wheel a 10kg bag into the cabin and lift it into the overhead locker, you will save time not having to retrieve it after the flight. Can you live for a few days with the contents of a smaller bag – just a few T-shirts etc if you are going on holiday. If you are going to a wedding, OK, you need a suitcase.
If BA used the Ryanair policy, the mess at T5 would have been avoided if people had be travelling with just hand luggage.
Solution to T5 problems: BA moves out of T5, and Ryanair moves in.
By: Newforest - 30th April 2008 at 19:55
They were certainly clever in forward purchasing their fuel requirements in anticipation of fuel increases, but probably didn’t envisage a price hike from $70 to $120!
By: FLYBYDONNI - 30th April 2008 at 19:29
did ryanair not go into a agreement to purchase fuel at a cost that stays same regardless of price rises .im sure i read somewere that they agreed to purchase fuel from same supplier for a set number of years at a set cost with no increase .i also think they anounced last time when they increased baggage and checkin prices that they would continue to put the prices up .their aim is over 50% of customers to do online checkin and cabin baggae only .i supose its ok if you get a 1p flight and can checkin in online with only hand luggage its ok
By: keltic - 30th April 2008 at 19:13
With “never”, I still can remember how silly Spanair has been. They operated with Spanair Link on the Balearic Islands, using B717, which proved to be too big. Then other regional airline came in using ATRs and dropping the prices.
Spanair decided to play the “ignorant fear” game. “We only fly jet aircraft, because we take care of our passengers”. They went on and on advertising how bad properlers were, how unsafe, how turbulent the fights were. They promised never to use propellers
But passengers didn´t follow Spanair strategy. So, now most Spanish domestic routes can´t be profitable using Spanair big planes. So, never say never. It´s not intelligent.
I agree.
By: Newforest - 30th April 2008 at 16:33
Totally agree, that is the problem with saying ‘never’ you can never go back on that word, similar with the word ‘unique’ a very difficult word to use correctly!
By: Saaber - 30th April 2008 at 10:50
This is a fuel charge no matter what spin MOL puts on it. Having said in the past they would “never ever” impose fuel surcharges he would ahve a lot of egg on face if he now came out and admitted that.
By: keltic - 29th April 2008 at 16:38
Taxes usually varies in the same route. So I am affraid they are hidding something “under the carpet”. Unless fuel price go down, I am affraid, prices will go up. No other way out.
I say “they”, because I am seeing some dark aspects in Freakair, sorry Clickair.
I review my initial words. I will book on Ryanair as long as they keep the fares low (even though I had to add the baggage surcharge), and as long as other airline isn´t giving me a right alternative.
By: symon - 29th April 2008 at 16:18
Are the ACTUAL fares going up also?
Or does this mean that if you don’t need any of the “add-ons” (baggage, check in, priority) then you are still getting the same low fares (plus taxes ;)) – a small positive surely!
(I know, I know, you shouldn’t have to pay for the add-ons in the first place but….)
By: Skymonster - 29th April 2008 at 15:31
Basically, its been demonstrated that as oil increases in price, so Ryanair hikes its ancilliary charges. Don’t get me wrong, I’d prefer to see an “all in” price from both “low fares” airlines and legacy carriers, but whilst other airlines prefer to be up-front about it and call it a fuel surcharge Ryanair prefers to hide behind punative rises in costs for things that are simply not going up at the rate Ryanair increases its charge – its quite simple, the cost to Ryanair of checking a bag, or using an airport check in desk, is not going up at the rate Ryanair has increased its charge, so all Ryanair are doing is trying to hide their increased costs behind higher charges and more rhetoric.
Of course, there is one thing Ryanair seems to be getting better at – free excursions into the countryside, as demonstrated by the 737 that they managed to park in the grass at Lodz today.
Andy
By: PMN - 29th April 2008 at 09:42
I realise they have to make money somehow, but surely they can’t simply continue increasing the cost of baggage? I can imagine that annoying more people than simply putting their prices up slightly.
Paul
By: keltic - 29th April 2008 at 09:19
Bye bye Ryanair. Not more bookings as far as I am concerned. Rising costs for the same thing again?. Aviation authorities should say something. It´s absolutely impossible to accomodate 50% of the baggage in the cabin holds. Impossible at all. Evacuation with dozens of bags in the cabin, passengers getting them, or in the middle of the aisle, it´s dangerous.
I find it more decent, imposing fuel surcharges like all airlines instead of criminalazing some of the passengers. What´s next, weighting passengers in the check in.
I have had enough. Iberia is repulsive, but has increased the free baggage allowance, and has proffits. In some routes, with only Ryanair as sole airline, they are not cheap. I understand the fuel costs are consuming the industry, they have to make passengers to pay for them, but not in this way.
BUT, some others are doing more funny things: “Vueling is charging for all seats”. An extra of 4 euros. So…..can I choose a aisle standing possition 🙂
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April 28, 2008 at 9:25 pm