How Ryanair justifies cheap seats

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FrCrilly

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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:
  • It can generate more of the above ancillary revenues (baggage, food/drink, hotel/car hire bookings).
  • 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).
  • 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.
  • 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).
  • 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”.
 
Re: [Req] How Ryanair justifies cheap seats

FrCrilly said:
“In the airline business, any idiot can make money during the summer, the trick is not to lose money during the winter”.
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Yup. Another trick is load factor - airline executives don't like to talk about it in downturns, but airline seats are time-limited, that is, if you don't fill them, you only have a cost for transporting them from one airport to another. So, you want your plane to be as full as possible with the maximum revenue possible. As there are ancillary sources of revenue (for example, capitation payments at the landing airports for number of passengers brought in the off season) it may even be worth your while giving the seat away. Revenue management systems do a lot of the dirty work on this in figuring out what to pitch the seat price at based on past history (the number of people who have flown on similar flights in previous years) and forward bookings (at x weeks from departure, we expect the plane to be y% full, because we expect z passengers to book in the next x weeks).
 
The revenue generated by the credit card charge and the taxes etc that are collected from passengers who subsequently don't fly (and aren't refunded) are likely to make a sizable contribution to the Ryanair coffers!
 
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gipimann said:
The revenue generated by the credit card charge and the taxes etc that are collected from passengers who subsequently don't fly (and aren't refunded) are likely to make a sizable contribution to the Ryanair coffers!
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I think you have a good point there. Something I forgot to mention is my belief that Ryanair must have a high no-show rate due to the low cost of their early seats. I imagine, with mathematics, Ryanair must be able to overbook their planes to a greater extent than any other airline, and hence produce large revenues as the flight day approaches.

(I know people who commute between Ireland and England, book a load of cheap flights up to a year in advance feeling no need to show up if future circumstances dictate so). (Thanks for all responses so far).
 
FrCrilly said:
. I imagine, with mathematics, Ryanair must be able to overbook their planes to a greater extent than any other airline, and hence produce large revenues as the flight day approaches.
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Actually they are one of the few airline who never overbook.
 
jhegarty said:
Actually they are one of the few airline who never overbook.
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Can I ask how exactly you know this. I know people working in England who book their regular flights home up to a year in advance, on the assumption that they'll turn up if they feel like it. I thought in this scenario, an airline that doesn't overbook (using adequate probablility mathematics) would be throwing money down the toilet.
 
FrCrilly said:
Can I ask how exactly you know this. I know people working in England who book their regular flights home up to a year in advance, on the assumption that they'll turn up if they feel like it. I thought in this scenario, an airline that doesn't overbook (using adequate probablility mathematics) would be throwing money down the toilet.
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From: [broken link removed]


Ryanair is the only airline in Europe that does not overbook its flights; therefore Ryanair has eliminated the possibility of passengers being denied boarding as a result of overbooking. However if for technical or immigration reasons, it becomes necessary to accommodate passengers on another flight, Ryanair will seek to prioritize the needs and minimise the delay of those passengers effected and provide compensation in line with Regulation EU261/2004.
 
jhegarty said:
From: [broken link removed]


Ryanair is the only airline in Europe that does not overbook its flights; therefore Ryanair has eliminated the possibility of passengers being denied boarding as a result of overbooking. However if for technical or immigration reasons, it becomes necessary to accommodate passengers on another flight, Ryanair will seek to prioritize the needs and minimise the delay of those passengers effected and provide compensation in line with Regulation EU261/2004.
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Excellent observation, but IMO there's a difference between what a corporation wants you to think and what they actually practice. It's up the individual to decide if they believe Ryanair are telling the truth or not.
 
A few years ago I stayed overnight in a hotel at Hahn. The maitre d's wife was a member of Ryanair's ground staff. He said that overselling was (then) up to 40%. The amount of no shows was big. I myself often book a cheap flight just because of the low price - a month later, if we don't feel like going, we just don't turn up. I imagine that lots of people do the same. Since 1990, I have probably flown with them 100 times and just didn't turn up possibly 15 other times.
 
Everyone knows someone thats talked to someone that can say they overbook flights. I didnt think they did this either as I have flown with them loads of times and you never hear at the desk about overbooked flights like other airlines. Other airlines open admit this.
 
Simeon said:
A few years ago I stayed overnight in a hotel at Hahn. The maitre d's wife was a member of Ryanair's ground staff. He said that overselling was (then) up to 40%. The amount of no shows was big. I myself often book a cheap flight just because of the low price - a month later, if we don't feel like going, we just don't turn up. I imagine that lots of people do the same. Since 1990, I have probably flown with them 100 times and just didn't turn up possibly 15 other times.
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And in 100 times turning up at the airport, were you ever or did you ever witness someone else fail to get a seat because of overbooking? Can't say I've ever seen it on Ryanair, and I've seen a fair few packed flights....but then again I haven't been watching the check in desk either. Point is I can't prove it so I don't believe til I see the proof, hearsay ain't worth plop.....
 
All airlines pay taxes to the country that they land in. So when you pay €40, or whatever, in taxes and then don't show Ryanair don't have to pay this to the destination country. Technically they should repay to the person who booked the flight but I think the person has to apply to get this money back from Ryanair and it costs about €40 anyway to apply. That's why they don't over book and thats why they probably make loads of money from no shows.. plus the plane is lighter and less fuel is used.
They're not top of the game for no reason.
 
admoriarty said:
And in 100 times turning up at the airport, were you ever or did you ever witness someone else fail to get a seat because of overbooking? Can't say I've ever seen it on Ryanair, and I've seen a fair few packed flights....but then again I haven't been watching the check in desk either. Point is I can't prove it so I don't believe til I see the proof, hearsay ain't worth plop.....
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Generally I get to the airport early, go through and relax. I have seen bust ups about people being bumped but cannot recall the airline or airport.
SteH, a good point.
Am flying to Birmingham on Saturday morning and got an eMail from them a few days ago to check in on line. Spoke to my very own hostess (Mrs Simeon) who explained that it is a money-saving tactic (for us). Incidentally, the flights cost zero, the taxes etc E40 for both of us and (you cannot dodge this one!) cc charge of E5 pp. Still deadly value at a total of E50:)
 
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