By Bjorn Fehrm
20 Jan 2015: On the second day of Growth Frontiers 2015 conference in Dublin, Ryanair former CFO, now Board Member Howard Millar, told us about a changed company.
“Ryanair is today the largest airline in Europe with 82 million passengers carried during Fiscal Year 2014 (April 2013 to March 2014). Growth is at record level and RyanAir is planning to grow to more than 100 million passengers during the ongoing Fiscal Year 2015.
The growth has increased in recent years based on a large change in Ryanair’s culture. Under the program “Always getting better” Ryanair launched their family travel program “Family extra” and business traveler program “Business Plus” last year. The business program is far away from Ryanair’s roots but the company was reacting to the fact that 25% of their passengers were travelling on business and the changed travelling policies of companies made low cost business travel an attractive market.
There has also been a large change in the general attitude towards passengers, no more being nasty but changing that to being nice and making it easy to book and fly Ryanair. The change in philosophy can not be more telling than with their work on their on-line booking experience.
Historically the urge to sell add-on revenue like travel insurance has made the booking experience a nightmare of questions and re-question, requiring 17 clicks before you had your ticket. Through the changed view of the customer and through several iterations of the system this has been reduced to just 5 clicks.
As part of this 5 click booking the customer also gets a reserved seat, a major change from the old philosophy that this would impair RaynAir’s focus on a ground turn-around time of 25 minutes. The seat allocation was in the booking system and Ryanair originally put in work to blank it out, with the change in policy they could easily turn it on and try if an increase in ground turnaround time was indeed the fact. The driver for testing this was a gathering knowledge that one of their passengers worst experiences flying with Ryanair was the fight for places when boarding the plane.
For no cost, and as shown in testing, no effect on their turnaround time, Ryanair could remove this barrier to fly with them. They have also been working on all other touch-points along the flying experience, making these less aggravating, all resulting in a better customers acceptance.
One of such actions is their “Premium Plus” program for business travelers. It introduces better seats, boarding before the coach, ticket change flexibility and up to 20kg of checked in luggage in the price. On some airports there is also fast track security handling. Another initiative is “Family extra”, giving better discounts on children fairs, allowing infant carry on’s and car seats or buggies to be checked-in without fees.
The changes has made a strong airline even stronger, demand is increasing and Ryanair forecasts a 16% growth in passengers in the present Fiscal Years second half, with load-factors approaching close to 90%.
As a result Ryanair is highly profitable with a First Half 2015 profit of $795 million and it has one of the strongest balance sheets in the industry. Ryanair has paid back its investors 5 times their investment over the years through dividends and share buy-backs, yet the balance sheet still enabled Ryanair to get a BBB+ rating when they wanted to raise capital for their 100 Boeing 737 MAX 200 order with options for 100 more.
Part of these strong results are Ryanair’s control of their costs. Their improved products have not come at the expense of an increased cost base. Ryanair is still producing the available seat-mile 44% cheaper than its nearest competitor, Easyjet.
The success of Ryanair both in terms of market coverage, market share growth and financial results shows that the LCC model does not mean low returns on invested capital. Do it consistently and keep your costs under tight control and sheer market volumes will ensure you economies of scale and thereby profitability.
With a market reach of 190 airports in 30 countries and an average fare of 54€ you are unlikely to have a customer demand problem. Add a non passenger aggravating attitude and you can expand your market reach.