Ryanair reduces Stansted flights

Andy,

I think your comments are absolutely fair and right. The point is that with increased airport charges and APD, the costs of operating at London Stansted are too high for their business model, so they’re withdrawing capacity from the market and placing it where they can make more money. This is a sensible business move which woudl not be frowned upon by any other airline or indeed in other industries, so I think we have to be careful that it isn’t Ryanair bashing rather than acknowledgement that this is a business decision based on their costs and revenues and something had to push some routes over the edge.

RYR are just the most vocal about the issue in the hope that the withdrawal will prompt a rethink by the Govt. It is true to say that this will have an effect on inbound expenditure in the UK and that needs to be considered in truth. What also needs to be considered is the effect this will have on Stansted which saw passenger numbers go into free fall before the recession due to withdrawal of servcies reuslting from charges increases. At some point BAA will end up having less income overall because of higher charges than they woudl have if they’d kept the charges lower.

Having said all that, I know another airline which is looking at SUBSTANTIAL cuts in the London market due to charges and APD having a cumulative effect on their business.

A recently published study has revealed that the loyalty programs of the major “legacy” carriers have increased their memberships by around 19% since the recession started. Particularly strong growth has come from the 16-25 and over 65 age groups – arguably the segments of the market that the low-fare carriers mostly appeal to as they tend to be both price sensitive AND less likely to be travelling on corporately funded tickets. Why is this? Increasingly, travellers are seeking VALUE for money rather than the cheapest flight – especially where the “cheapest” flight involves paying additional ancillliary charges. Rather than the legacy carriers having improved their product, a major driver to this has been the behavior of the low-fare airline sector and the increasing perception that the low-fare sector only offers “value” when the fare charged is next-to-nothing.

Thus, the low-fare sector is being hit from both sides – a perception that there will be a fare sale sooner or later delaying purchase decisions and driving yields down, AND a perception that for anything other than rock-bottom fares they do not offer good value for money and travellers may increasingly be “better off” chosing a [slightly more expensive] legacy carrier. Ryanair is at the bottom of the barrel – the lowest common denominator – and is therefore going to be pinched more by this as time moves on than are some of the other carriers. At present, Ryanair can move capacity into Euro-land – less affected in some cases by the recession and by currency fluctuations – and can thus continue to use its capacity effectively. But again, lets not kid ourselves that these problems are all someone else’s doing and Ryanair are the victims – much of this has been brought on by the airline itself.

A

So why not just add the £1 flat onto each fare, and forget about it? Well because, rightly or wrongly (there are definate arguments both ways) we have been spoilt by low fares and so the travelling public has become highly price sensitive, to such an extent that traditional price-elasticity ratios associated with air fares increases don’t necessarily apply anymore. Much of the travel on th LCC’s is discretionary, particulalry driven by the question “where can I get to at the lowest ticket price?” Every small step up in ticket price cuts another layer of potential demand out…

Hurrah, and good of you to acknowledge it – at least here we can clearly see why Ryanair has to a large extent only itself to blame for its current conundrum at Stansted (and maybe elsewhere too). Clearly recession reduces discretionary spend, but over the last few years Ryanair has lead the discretionary market to expect £1-type fares, and in these economically sensitive times more would-be travellers are either (a) unwilling to pay more for travel that is indeed discretionary – particularly for Ryanair’s style of service – or (b) delaying buying when they see a higher fare and instead are wait for the next £1-type fare offer even if that ends up involving travel to a different destination. It is not totally correct to believe that most travellers buying decisions will be changed by a £1 increase in overall fare – it is rather more correct to believe that the market has been conditioned to pay next to nothing and in these difficult times wishes to preserve that ability and will put off or abandon the idea of travel when they such fares are not available. In any case, even if the assertion that market will not stand a £1 increase in total fare is partially correct, it is even more appropriate to realise that it will not stand further increases in credit/debit card fees, check-in fees, baggage fees, priority boarding fees, etc – all of which Ryanair have increased by far more than the increase in APD. That leaves Ryanair with the option of either absorbing the APD increase (and on promotional fares not collect so many ancilliary fees either) and suffering from reduced yields and maybe even loadfactors too, or moving capacity out of UK (to EUR land, where travel is less affected by currency fluctuations and punative taxes). Ryanair may have gotten away with what they’ve done, had it not been for the APD increase being compounded by the recession reducing the demand for discretionary travel and the currency fluctuations making UK-Europe travel less economically viable – even if the fare is close to zero, most UK-originating travellers still spend whilst they’re abroad so the total cost of the trip increases)

The contention that APD increases are/will affect other airlines too is quite true, although because Ryanair have chosen to live at the sharp end of the low-fares offerings they are thus more impacted than many of the other short haul airlines if they chose to absorb these increases – as they have to do if they continue to offer £1 fares. Thus Ryanair have to a significant extent created a problem of their own making – the mantra of extremely cheap or “free” flights has directed market expectation and indirectly driven their own yields down. A bit of an own goal, in effect.

Andy

I know I’m not known for Ryanair bashing, sometimes quite the opposite, so it may come as no suprise that I would come on here to provide some insight (hopefully) as to the effects of airport charges and APD, and to explain how the airlines have dealt with this in the last couple of years.

Through work I have spent a lot of time looking at the effects of Airport charges on passenger demand, it is a tedious task, but someone has to do it :o. Most of the data I analyse is in relation to UK airports, as the Centre for the Study of Regulated Industries at Bath University publishes detailed data in relation to most UK airports (only the regulated airports actually need to report, but the others tend to do so anyway which is useful) which allows you to track aeronatautical income changes against passenger changes. There are some small problems with the data admittedly and so occasionally proxies and adjustments need to be made, but the pattern in the UK in recent years has been very clear, that is to say, where average charges per passenger increase at airports, passenger growth declines or goes negative. The figure below is the most recent, and you can see some outliers, but also a clear trend line.

So what efefct does £1 have on an airline, well to start with you have to consider the way airlines treat charges and taxes these days. I know it is easy to talk about all the add-ons from the LCC’s, but infact in a lot of their tickets they absorb all of the costs, APD included, so for example, my recent fares to Italy, at £2.50 included the airport charges and APD. As charges and APD have increased, the airlines have not necessarily increased their fares to the same proportion, if at all, and have therefore absorbed the increase. Not all of the airlines’ fares are £2.50 obviously, and some people will pay alot more and have to pay the tax/charges too, so you need to consider the average yield to the airline. However, by aborbing the charges increases on a proportion of the fares sold, then the overall average yield has dropped, and in some cases, substantially. For a number of key jobs we have undertaken we have been provided with the yield data of some significant airlines and used this to track the effect of selected increases on their yields. Now £1 may not seem much, however on some routes it can be enough to cut the average yield by so much that the route is no longer viable to operate, unfortuately you have to take my word for this due to the sensitive nature of yield data and opertaing costs.

So why not just add the £1 flat onto each fare, and forget about it? Well because, rightly or wrongly (there are definate arguments both ways) we have been spoilt by low fares and so the travelling public has become highly price sensitive, to such an extent that traditional price-elasticity ratios associated with air fares increases don’t necessarily apply anymore. Much of the travel on th LCC’s is discretionary, particulalry driven by the question “where can I get to at the lowest ticket price?” Every small step up in ticket price cuts another layer of potential demand out, and a good example is in relation to Norwich. At NWI, the Airport imposed a £5 development fee, payable by the passengers on departure, so the cost was not even visible at the time of booking on the website (I refer to Flybe here), but the £5 became too restrictive, and cut out a % of the passengers who decided that they would fly from STN where the fares were already lower, but the gap between RYR/EZY fares and BE fares increased still further with the £5. It didn’t cut demand completely, but what it did so was reduce demand to a point to make some routes and frequencies unviable, and Flybe scaled back substantially their operations from NWI. So it is the reduction of demand to any small amount that can start to jeopardise route viability.

If you look at STN, the average airport charges have jumped substantially over the last 2 years as the price cap was lifted and deals unwound, and the effect on airline yields for all carriers at the Airport has been significant, with little or no scope to absorb £1 on many of the routes.

So what about the incumbent traditional airlines? Well they’re not immune to this either, and I know from discussions with such airlines that the APD increases are causing concern. Because of the expectation of low fares which was driven by the LCCs, the incumbents had to reduce fares also to attract demand, and so their yields have been squeezed and they increasingly absorb costs too these days, even for those who don’t liek LCC’s, you have benefitted from lower air fares because of the competition effects of these carriers. So their yields will be affected by the £1 increase and demand will drop for them too. Interestingly this time, the APD increase on long haul may be a killer, because until now, the short haul sector has been the most price sensitive sector due to the higher % of a fare increased with APD, but the newly proposed APD increases, once fully in place, will potentially add between 10-20% to a long haul fare, and so we may start to see an increase int he sensitivity of long haul travel as a result.

It is difficult to show how critical £1 is to many airlines without sharing data, but I hope I have at least explained a bit for you.

It’s interesting that the morning this was announced the media was still reporting that Ryanair were still in discussion with aviation authorities about having flights with people standing.

Just lookk over there whilst I take these hidden cards out of shirt sleeve…

Same ‘ol same ‘ol Mol, ie: Its evryone elses fault except Ryanair. Here we go again, all the old toys in the corner! Perhaps this “dear man” should take a leaf out of the airport operators, service providers and other airlines books and start charging realistic fares allied to the real costs of operating one of his crates from A to B, instead of relying on selling quartz driven cruet sets and cuddly toys onboard along with the lousy charges for baggage, check in and goodness knows what all. Welcome to the real world and costs of operating an airline sir. Perhaps a quiet word in the ear of your favourite plane maker may bring some help.

If they are cutting the number of aeroplanes by 40% but only cutting flights by 30%, they can’t be making very efficient use of their aeroplanes at present, can they!

Not necessarily. They can cut the number of planes based at STN, but still increase the number of flights by using planes based at other airports.

Seems like the pressure of the recession is affecting Scumbag O’Riley too then – maybe even he isn’t immune!!! 😀 :p

Ryanair will reduce the number of aircraft it runs at the airport by 40% in its winter schedule, and will cut the number of flights by 30%, it said.

If they are cutting the number of aeroplanes by 40% but only cutting flights by 30%, they can’t be making very efficient use of their aeroplanes at present, can they! :rolleyes:

and added that an increase in air passenger duty tax was also a factor in its decision. In November, air passenger duty will increase from £10 to £11.

Yeah right, so an increase of £1 in taxes is going to make a HUGE difference to the travel plans of their customers? :confused: NOT! :rolleyes:

The Ryanair statement should be more like, “The £5 we are now charging everyone to check in, and the increase in our checked baggage fees, and the increase in our credit and debite card fees, are damaging our traffic. Our customers are also becoming more savvy and are realising that sometimes ‘real’ airlines are cheaper than us, so we are having to cut back our services.”

Anyhows, Stansted would be a much nicer place to travel through if Ryanair cut back ALL 100% of its services from the airport, so a reduction of 30% is no bad thing.

Andy

I’m pretty sure new routes are being added all the time at Torp here in Norway.

I would suggest the planes are being used on routes where the money is.

I’d check on their website, but it gives me a headache.