Ryanair in 2014

[teddybAIR]

You seem to think that such a campaign would merely represent a cost and not result in any return whatsoever. If that was the case: would advertising still be a multi-billion euro business (measureable advertising expenditures in belgium alone amount 3bn gross, which is +/- 1,5bn€ effectively out of pocket). If a 1m€ campaing generates 2m€ business, then to me it wasn't really a cost, but rather an investment with solid return.
Conclusion: it all depends on the return!

[Inquirer]

You seem to think that such a campaign would merely represent a cost and not result in any return whatsoever!

Not at all.

However, it must be understood that the new and costly advertising is aimed at the new markets, not the current ones (see what the CEO says about it himself); however the costs of it are absorbed by ALL, hence my remark that it's an unneeded cost increase to their ultra low cost core business too.

Setting up a separate brand for their new strategy could have easily prevented this effect from happening, but there just wasn't enough time for that any longer.

When the return from an investment cost is known to come from a specific customer base alone, it's better to focus the investment on that customer base alone and not to load other customers with similar costs. In fact it's the essence of the low cost model even, in which you only let customers pay for what they really need, not for what others (may) need too.

[teddybAIR]

I really don't see the culprit:

> they turn 4,8bn€ revenues, so the advertising expenditures would maximally account for 0,72% EBIT impact;
> if your FY2013 profit after tax was 569m€, you can probably reduce the impact of your expenditures as they are tax deductible (we belgians know all about that, right?)
> they project 81,5m one-way tickets for FY2014, so the incremental cost per ticket would be 0.43€
> revenues per pax increased to 62€ in 2013, up from 57€ in 2012. That's a 5€ improvement that will fund about 12 of the above mentionned campaigns. Or otherwise stated: the increase in pax revenue would need to be at least 12 times worse than in FY2013 for it to even have a visible impact on P&L

So i really don't see what all the fuzz is about.

[teddybAIR]

however the costs of it are absorbed by ALL,

Even if you launch a seperate brand, the cost would be financed by the current business. There are different possible scenario's to do so, but essentially it will always be your current activities that pay for the development of new activities. Actually, that is the very essence of the Boston Consulting Group matrix. You have to accept that some of your activities will be cash cows which you milk in order to finance the launch of a number of question marks which hopefully become star projects.

I'm not saying that launching a seperate brand would be a losing strategy. As a matter of fact, it would make perfect sence on the condition that you can prove that it are truly two different segments with two different sets of requirements that can most optimally be served by two different business models. Unfortunately, in aviation the most succesfull business strategy has proven to be operational efficiency. That makes sense since aviation is an industry that faces massive operational barriers, constraints, requirements, etc. all with a significant impact on operations and bottom line. And which types of companies truly understand operational efficiency in aviation?

But do realise that that seperate brand would require extra costs which you wouldn't have in a mono-brand strategy. And that incremental cost needs to be funded somehow. Even if it would be a seperate company. If your suggestion is that ryanair 'owns' a second brand aimed at a more affluent traveler, then it faces an out of pocket investment to start-up that company. Consequently, even in your scenario the current activities would fund the future ones, wouldn't it?

[Inquirer]

I know teddybAIR and it's the essence of their failed attempts to take over Aer Lingus, as that would have given them an established separate brand, allowing them to financially segregate 2 very different customer profiles from the start, all without need for start up funding from one to the other.

What they are doing now is just plan B, and the fact it is on many fronts ill-conceived and not fully ready yet, despite them already rolling it out is because they have wasted all too long on fighting the EU over their objections to their plan A.

I can understand plan A was far better than plan B, but MOLs insistance to set through with it has not only made them lose valuable time and money (see the graph I've posted above about the share price evolution between Easyjet and them over the past 2 years), but it has made plan B even more costly than before due to the rushed nature of its current rather amateuristic implementation.

[teddybAIR]

Well, I guess only the future will tell whether their current strategy will be a success. But they have a clean track record when it comes to organic growth and funding start-up of new bases, so I'll give them the benefit of the doubt.

On a side note: even in the scenario where they take over another company (eg: Aer Lingus), that acquisition needs to be financed!

But I'm not sure I understand you completely. Are you saying that they are trying to fit two different business models under the Ryanair brand? Because then it could indeed make sense to split the activities. But IMHO Ryanair's strength is it's relentless pursuit to drive down costs and although I'll never fly them because I value what a traditional airline can offer me, I have to admit that they are best in class when it comes to driving down costs...and supporting 2 brands cannot be the most cost effective way to serve your market.

Their strategy is cost-based. It is not based on delighting their customers...and IMHO if they want to keep on growing, they should stick to the current strategy! Your salary doesn't get payed with likes or customer satisfaction scores. It's payed with hard cash and they generate it big time!

[teddybAIR]

(see the graph I've posted above about the share price evolution between Easyjet and them over the past 2 years)

Well, those easyjet numbers are simply impressive. didn't know that because frankly, I don't follow stock markets in daily life. However, do note that easyjet market capitalisation is about 6,6bn...RYR is at 9bn. But I grant you that the percentage increase over the past 2y's for easyjet is impressive. But does that tell you anything about the current RYR strategy? That it is less performant than easyjet...ok. But that's probably true for 99% of all airlines out there

[Flanker2]

The graph comparison is basically meaningless. U2 is increasing suddenly now because it stagnated for years and is now starting to turn decent profits. FR turned decent profits for years.
We're into a new bubble anyway, and it will burst at the first big bankruptcy announcement. Many shares are not worth the paper they're written on, yet they are behaving like sexy technology giants in the making.

[Inquirer]

On a side note: even in the scenario where they take over another company (eg: Aer Lingus), that acquisition needs to be financed!

Yes, but an acquisition is an equity investment and not written off at the end of the fiscal year, so big difference.

But I'm not sure I understand you completely. Are you saying that they are trying to fit two different business models under the Ryanair brand? Because then it could indeed make sense to split the activities.

Not so much 2 different business models, but 2 very different customer profiles: they are now trying to blur the 2 corresponding business models into one fit for both, which is the main problem I have with their strategy.

Besides, I do hope for CRL that I am right and that there are 2 very different customer profiles targeted indeed, or there's no reason why any of their flights from there aren't soon going to leave from BRU, BTW.

If on the other hand one says that a price difference of say 25 euro per pax due to airport fees alone would destroy the profitability of any given route currently still operated from CRL, then one is in fact saying these routes have indeed a completely different customer profile than the routes which they (will) operate from BRU and where they think the very same 25 euro extra in fees isn't problematic and so them soon adding costly frills, leniency, and other convenience features to their flights from CRL too is in fact an unneeded cost increase because of their choice to stick with a single brand.

[Inquirer]

(see the graph I've posted above about the share price evolution between Easyjet and them over the past 2 years)

But does that tell you anything about the current RYR strategy? That it is less performant than easyjet...ok

It nicely illustrates what has become common understanding by now, even to Ryanair: the real sweet spot of European short haul travel by air is not to be found in flying from secondary airports at the absolutely lowest possible fares, but in offering more convenient alternatives at value for money, like Easyjet are doing.

Ryanair's new strategy has to be seen in this context, as well as their failed attempts to take over Aer lingus, something they have wasted far too much time on during which they were not creating much added shareholders value, contrary to their most direct competitor, to the point where this winter Ryanair is flying deep in the red even, all while Easyjet is doing really great over the same period: the new strategy is aimed to fix that and catch up again, simple as that really. All the rest is window dressing.

[3toons]

With respect, everyone is entitled to their own opinion but not everyone wants to fly in and out of a major airport / shopping mall, where you have to walk what seems like miles to the aircraft, have to catch a little train to go to the satellite terminal. I prefer to use smaller airports like Prestwick or Charleroi where I am in and out in minutes. Easyjet provides a quality service but at a price. Every time I compare their fares they are much more expensive than Ryanair.

[Sabena320]

I just read this article on pilot churn at Ryanair. Apparently, rumour has it that they are faced with high churn amongst their flight crew and churn levels have risen to the level where it is becoming difficult to maintain a healthy training funnel. Ryanair is adressing the problem with floating pilots, calling pilots back from their leave and wet-lease contracts for Stansted based aircraft.

I'm curious to see how they will address the problem in a more structural way. Maybe better working conditions in sight for Ryanair flight crew?

This is the reaction of Ryanair on the article, of course denying the facts:

"“There is no truth in these claims, as you will see when Ryanair opens our Brussels Zaventem base tomorrow, where all of our flights will be fully crewed. This is an annual pilots union campaign and Ryanair has over a list of over 5,000 pilots and cabin crew waiting to join, because of our fleet of new aircraft, unmatched job security, pay increases and favourable rosters.” -Robin Kiely, Ryanair’s Head of Communication"

[airazurxtror]

A flight to the States for just €10?
Michael O'Leary said it could be a reality if he gets the long-haul aircraft needed to make it happen. It could take several years as the Gulf companies are snapping up the aircraft.
The planes would allow Ryanair to charge around €10 to Boston - and just €7.30 for a flight from New York back to Europe. Not every seat will be at that price, there will also need to be a very high number of business or prmium seats.
Flights would come from more than 10 cities in Europe - but not Dublin - to a similar number of destinations in the States.

Read more :
http://www.irishmirror.ie/news/irish-ne ... ts-3183883

[cnc]

let them first bring a good structure to support transfers and then think about longhaul

[Air Key West]

A flight to the States for just €10? Michael O'Leary said it could be a reality if he gets the long-haul aircraft needed to make it happen.

And who is going to pay for the purchase of the aircraft, their maintenance, fuel, wages of crews and other employees if fares are at 10 euros, pounds or whatever ? Or is it just another advertising coup by MOL ?

[crew1990]

Even in Europe they dont do this price anymore!

[Boeing767copilot]

Ryanair COO Michael Cawley said “the so-called ‘Ryanair transatlantic project’ is not something that sits within Ryanair as such”, following comments from CEO Michael O’Leary the carrier would set fares of EUR10 if it were to launch transatlantic services (Irish Examiner, 27-Feb-2014). Mr Cawley added: “It is something that we haven’t worked on for a long time, it is something that is there. At some stage there was enthusiasm for it, but now we are so busy immersed in allocating the 175 new aircraft we have around Europe there is just no time for it.”

[flightlover]

Ryanair COO Michael Cawley said “the so-called ‘Ryanair transatlantic project’ is not something that sits within Ryanair as such”, following comments from CEO Michael O’Leary the carrier would set fares of EUR10 if it were to launch transatlantic services (Irish Examiner, 27-Feb-2014). Mr Cawley added: “It is something that we haven’t worked on for a long time, it is something that is there. At some stage there was enthusiasm for it, but now we are so busy immersed in allocating the 175 new aircraft we have around Europe there is just no time for it.”

So another free media campaign it is.

[teddybAIR]

Euhm, let's make just a few very basic assumptions:

> flight duration 7hrs
> fuel burn per hour: 4 tons
> seating capacity: 350
> ryanair hedges fuel at $1,31

That would result in a total fuel burn of 28 tons or 35.000 litres or a fuel bill of 45.850$. That's an average fuel cost of 131$ per passanger at 100% load factor...I think I'll rest my case here on the 10$ for a transatlantic ticket as the assumptions would need to be of by a factor 13 to make it happen and the only thing I took into account was simply the fuel. Making abstraction of the ex fuel unit costs as stated in Ryanairs own annual statement for FY 2013:

> staff: 5€
> airport & handling: 8€
> Route charges: 6€
> Ownership & maintenance: 2€
> Other: 2€

So that's another 23€ for their current flights which average only 1h15. This means that even ryanair needs to have an average ticket price of 23€ + fuel burn per seat sold in order to break even. Therefore, quotes like "10€ for transatlantic fares" are simply madness and are probably true for about 2 seats on a 350 seat aircraft while the remaining 348 seats will need make sure the average ticket price is raised.

[Air Key West]

So another free media campaign it is.

Of course. Why don't the media ask him to pay for the press coverage ? Like : If you want us to relay your nonsense, it will cost your this much, Mr MOL ! Just like MOL says : if you want us to continue to operate at your airport, it will costs you this much...

BRU is a different FR story. You may have read my interpretation (fwiw) of MOL's hidden agenda.

So that's another 23€ for their current flights which average only 1h15. This means that even ryanair needs to have an average ticket price of 23€ + fuel burn per seat sold in order to break even. Therefore, quotes like "10€ for transatlantic fares" are simply madness and are probably true for about 2 seats on a 350 seat aircraft while the remaining 348 seats will need make sure the average ticket price is raised.

Unless they manage to get regional subsidies (tax payers money) for all the new jobs they will create