Why Ryanair's low-cost, high-fee model may be the future - Macleans.ca

Why Ryanair’s low-cost, high-fee model may be the future

The company is loved, loathed and hugely successful in Europe

by
Air uncomfortable

Robin Townsend/EPA/Keystone

It can be hard to know exactly how serious Michael O’Leary is. The CEO of Ireland’s Ryanair has proposed many things over the years—a surcharge on fat passengers, standing-room airplanes—that have never come to be. So when he mused recently about yanking two of three toilets from his airplanes to make room for more seats, you could almost see the eyes rolling from the other side of the Atlantic. O’Leary, pugnacious and confrontational, can come off as a clown. He once dressed as the pope to advertise a new Italian route. Another time, he called the agency that operates British airports a bunch of “overcharging rapists.” But for all his ideas that go nowhere—like pay-per-use toilets—an equal number have spun into business gold.

Over the past dozen years, as other airlines have struggled to cope with high fuel costs, pension obligations and new competition, Ryanair has thrived. The company flew about five million passengers in 1999 and earned $81 million in profit. By fiscal 2011, it had more than quadrupled its customers and doubled its cash, all in a year when it lost 9,400 flights to the Icelandic volcano.

Ryanair’s success rests on two promises: cheap tickets, as low as a few dollars on some routes, and on-time flights. Everything else, well, there’s the rub. Buying a Ryanair ticket is a gamble; it’s a bet between customer and company that the former can get through the flight without being too badly milked for extra fees for things like printing a boarding pass, carrying an extra bag, or a cup of tea.

Ryanair tends to be loved and loathed in about equal measure. What it hasn’t been, at least not in Canada, is copied. There have been attempts to set up cheap airlines in this country before. But most have either folded (Canada 3000 and Jetsgo) or morphed into something more traditional, like WestJet. Still, as Air Canada’s recent bid to set up its own discount carrier shows, we are living more and more in a Ryanair world.

In the air, luxury is out, low costs and ancillary revenues (money from things other than tickets) are in. That’s not to say Canada will see a true Ryanair clone anytime soon. O’Leary’s airline exists in its own particular context, one many experts are not sure could ever be duplicated here because of geography, taxes and regulations. Whether that’s a good thing, for consumers and the airline business alike, is another question entirely.

The airline that would become Europe’s most popular, and possibly most controversial, was founded in 1985 by Ireland’s Ryan family. That year, Ryanair flew a single route, from Waterford, Ireland, to London in a cramped 15-seater aircraft. In the early years, Ryanair flew primarily between Ireland and the U.K. Two big shifts in the 1990s changed that: the European Union’s “Open Skies” policy, which allowed Ryanair to compete in more markets; and the Internet, which gave passengers the ability to compare fares in a comprehensive way. It made the impulse vacation a reality, opening up a new world of European day trips.

Ryanair today is a creature of borderless Europe with its dense populations and porous political boundaries. But the airline’s success is also a product of O’Leary’s genius. The Dubliner joined Ryanair in 1988 and became chief executive in 1997. He is famous today mostly for his press-baiting, carnival barker persona (he once told a reporter Germans would “crawl bollock-naked over broken glass” in pursuit of cheaper fares). But his real value is on the business end.

Under O’Leary, Ryanair became less a no-frills airline than an all-frills business. Fares are just a way of getting passengers through the door, where the real selling begins. Forget to print your boarding pass before arriving at the airport? That will be $64 (a fee so outlandish Ryanair recently had to defend it, successfully, in a Spanish court). Handbags don’t fit? That’s $64 more. Once on board, flight attendants sell scratch cards, water, even a Girls of Ryanair calendar. If O’Leary had his way, they’d sell toilet paper too. (“I would wipe their bums for a fiver,” he once said of his customers.) Starting this fall, Ryanair customers will only be able to avoid a $10 booking fee if they use a Ryanair credit card (which comes with its own raft of charges).

One of the main foundations of Ryanair’s success was its decision, early on, to target second-tier airports. Smaller airports don’t charge the same tariffs as large urban ones. In some cases, they even pay Ryanair to fly there. “This is a great deal,” says Karl Moore, a business professor at McGill University and a former consultant for airlines including Air Canada and British Airways. It’s also one of the main reasons many believe a Ryanair clone would not likely prosper in Canada. There are some smaller airports here, such as Abbotsford, outside Vancouver, but not in the same density as Europe.

Deregulation is also a factor. Ryanair prospers in an open European market. North American airlines don’t have the same luxury. As for WestJet, it broke into the market with lower prices, but it also built its brand on good service. Moving toward Ryanair’s cheerfully hostile model might alienate customers. Add in the realities of geography—it’s one thing to fly from Dublin to London in a cramped, frill-free tube; it’s something else entirely to do the same from Vancouver to Toronto—and Moore, at least, sees problems for any ultra-discount clone. “Will we see a Ryanair start-up in Canada? I don’t think so,” he says.

In some ways, though, the Ryanair model is already here. Air Canada and WestJet have both increasingly targeted ancillary revenues. Air Canada, meanwhile, announced plans last spring to set up a discount airline to compete in the lucrative low-cost vacation market. It’s a model inspired by Australia’s Qantas, which set up a low-cost subsidiary in 2003 to compete with Ryanair-like rival Virgin Blue.

The problem with that, at least from the perspective of Air Canada’s unionized employees, is that “low-cost” invariably means “low-wage.” The airline’s flight attendants are currently locked in a dispute with management at least in part over an attempt by Air Canada to set up a second, much lower wage scale for the new carrier. The pilots’ union also has problems with the plan. The worry from the unions’ perspective is that well-paid employees on the main carrier will be phased out in favour of cheaper replacements.

Unions, like passengers, face an uncomfortable ride in the Ryanair world. But passengers, at least, have an upside. As O’Leary has proven over and over again, people will put up with just about anything for a cheap fare. Make it cheap enough, and they might even live with toilet-free planes.