FREE RIDES

Here’s an interesting post at Reveries by Tim Manners regarding the success of low-cost carrier RyanAir in Europe.

It seems that the company is kicking some major butt by providing consumers with unique experiences, no-frills know-how, brilliant branding (the airline lets other companies wrap their planes in branding) and smart stratgey. It is Europe’s most-profitable airline.

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But instead of taking these profits and lining the pockets of the shareholders, RyanAir is committed to giving their customers free rides. That’s right: free tickets. In fact, the CEO is promising that by this decade’s end, 50% of all RyanAir passengers will be flying free!

Even now Ryanair is practically giving its tickets away anyway, with its average customer paying just $53 a ticket. And yet Ryanair “enjoyed revenues of $1.7 billion, up 20 percent over 2004″ and its “$368 million in net earnings gave the airline an industry leading 22 percent net profit margin. (By comparison, Southwest Airline’s net margin was 7.2 percent).”

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Ryanair got there via a deft combination of cost-cutting on the one hand and non-fare revenue generation on the other. Taking a page from Southwest, it flies only Boeing 737s, focuses “on smaller, secondary airports” and “open (unassigned) passenger seating.” Other cost-cutting maneuvers include “removing seat-back pockets to reduce weight and cleaning expense.” Like other airlines, Ryanair sells peanuts and snacks, which last year generated “sales of $61 million.” It also charges $3.50 to check bags, which is neutralized by “cutting ticket prices by an average of $3.50″ and also saves the airline “$36 million a year by reducing fuel and handling costs.” Online, Ryanair not only saves money by booking 98 percent of its passengers electronically, but also makes money by getting a percentage of all rental car and hotel bookings.

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That was good for $100 million last year. Ryanair additionally has turned itself into an advertising medium, offering “advertisers the opportunity to repaint the exteriors of Ryanair’s planes, effectively turning them into giant billboards (Hertz, Jaguar and Vodafone have done so). On tap for ‘07 is in-flight gambling, with Ryanair “earning a tiny cut of each wager”) and down the line there may be charges for using cellphones at 35,000 feet. Michael O’Leary also hopes to partner with “operators of airport parking lots and concession stands to capture a bigger slice of the cash that passengers spend on the round getting to and from planes. He comments: “We weren’t the first to figure this out … But we do it better than everybody else.”

That’s just amazing. Here’s a great example of how experience, rather than the cost-cutting or layoffs, can lead to profit in the airline industry. Just compare the RyanAir story to this one. One airline wants to enhance their core customer experience. The US ones want to destroy it.

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