‘Ryanair, Europe’s largest low fare airlines today, (2 Feb) announced a Q3 loss of €102m, (compared to a profit of €35m in last year’s Q.3). Average fares fell by 9% to €34, while fuel costs rose by 71% to €328m. Revenues rose by 6% to €604.5m, as traffic grew 13% to 14m, as more consumers switch to Ryanair’s low fares from high fare competitors.’
More Info: http://www.ryanair.com/site/EN/news.php?yr=09&month=feb&story=fin-en-020209
The above does demonstrate a flaw in Ryanair’s model…
The loss is to some extent irrelevent – the figures clearly demonstrate that whilst they are taking in more revenue, the revenue is not increasing as fast as is their traffic (6% increase in revenue versus 13% increase in traffic). With Ryanair being very committed to increasing capacity, there is only so far the business can go with increasing traffic but revenue not increasing as quickly. Furthermore, the higher fares charged by Ryanair (mentioned above) are needed to subsidise the rediculous low fares, and those high fares will come under more pressure as the economy tightens further – not only will there be less business travel, but also people travelling on business will increasingly question paying Ryanair a high fare when other carriers offer a better product for a similar amount of money. {The legacy carriers are vulnerable due to the decline in true business class traffic but less so as their higher economy tarrifs do not subsidise the cheap seats to the exent they do on Ryanair, whilst Ryanair is rather vulnerable on the high-yield fares it charges at short notice} Finally, Ryanair is more dependent on the discretionary spend – cheap weekends away – which will be eroded both by the downturn in the economy and the substantially weakened pound/euro exchange rate.
Whilst (sadly) I don’t see Ryanair going away, I think that they will face more pressure to increase the lowest fares to compensate for a reduction in top end revenue – of course they won’t actually do that, and instead they will just reduce the number of seats available at those cheap fares so as to appear not to have had to change things – and also because of their commitments to capacity increases necessitated by their ongoing aircraft acquisition program. Of course, Ryanair have another “cheat” with the latter by sometimes cancelling flights that don’t make sense for them economically, whilst the legacy carriers tend to tough it out more when demand is low (another reason IMHO to stick with legacies).
Andy
Sign In
