Ryanair: (in) consistency between low fares and high average revenue per passenger

Résumé du document

Ryanair is best-known for its low fare. Most of the flights are worth, at worst, €1, at best, for free. Nonetheless, Ryanair is making huge profits, and has the highest profit margin of the airline industry (20% and more). Besides, it has average revenue per passenger more than 50 times higher than the price of a Paris-Glasgow (€1).

With growing passenger traffic at a fast pace, average revenue per passenger is still increasing due to rapid growth of its revenue. In 2008 (last financial year), it was €54/passenger with an increase of 2.5% (compound annual growth rate 2004-2008).

To explain this apparent inconsistency between the fares and the average revenue per passenger, I will analyze first what Ryanair names it's “Scheduled Revenues”, and then spend more time on its “Ancillary Revenues”, and finally explore the business model for this last category of revenues, and the central role played by the Internet website of the company, Ryanair.com.

Extraits

[...] A la carte pricing A la carte pricing is the reason why Ryanair proposes such low fares. A Ryanair passenger has to pay for everything else that is not his seat in the aircraft: checked bags, excess baggage fee, airport check-in fee, etc. The more Ryanair turns the services classic carriers propose automatically into additional services, the more the company makes ancillary profits. It has recently asked his consumers to find out the new additional services available, after that the CEO let slipped out that access to the toilets will become an additional service. [...]

[...] Pay-for-partnering model Concerning the partners appearing on Ryanair.com, they don't pay Ryanair when a sale is completed through or thanks to the website, but just to appear on the website. Ryanair.com is known for being one of the most browsed pages by British internet users. Consequently, having a mean to reach those visitors is worth paying before earning some money. Ryanair Website Central Role 97% of the tickets are sold on Ryanair.com. This is one of the most visited website worldwide. The visitor traffic generator is those low fare tickets. Nonetheless, the website does not meet the usual requirements of every website. [...]

[...] Ancillary Revenues and its Impact on the Average Revenue per Passenger Ryanair sells also a bunch of related services (even if some are a bit far from their core business). Ryanair.com proposes many services like the sale of bus or rail tickets, car rental booking, hotel nights booking, travel insurances, home insurances, life insurances, credit card, online betting, gift vouchers, etc. The list is too long to be fully exhaustive. Some calls the website a in reference to the marketplace in Maghreb and Middle East cities where you can buy everything, even if products' location is anarchical and not consistent. [...]

[...] All this may make flee internet users, but 16 million unique visitors browse the website every month. Thus, the website is the main gate to access a wide bunch of consumers, and this is why Ryanair is so profitable. To conclude, to me, Ryanair has an amazing revenue strategy. By multiplying and differentiating the sources of revenues, Ryanair is sure to have profit growths. It is like in finance, the company dilutes the risk of loosing money by having plenty of activities. Bibliography "Ryanair Holdings PLC" (Harvard Business School 9-106-003 - revised on June 20, 2006). [...]

[...] It implies that the ARPP (Average Revenue per Passenger) has something to do with those revenues. The average fare is per flight. Thus, it means that Ryanair is also selling tickets at a higher price than those the carrier is known for. The fare is not proposed on all the routes, and only for a few dates. Besides, the strategy of the company explains this huge amount of the Scheduled Revenues. First, the fact that the flights are point-to-point only (no connecting flights available) explains those revenues, because a passenger has to buy two tickets for one trip if no direct route is available, and no discount applies to the connecting flight. [...]