Last week, easyJet’s founder Sir Stelios, took yet another stab at Ryanair’s strategy. He said that Ryanair “needs to increase passenger numbers by 50 percent over the next 2 1/2 years to fill its 200 aircrafts and another 100 on order”, then added, “I believe that he will have a lot of grounded aircrafts in the next few years.”

Once again, Ryanair’s competitors are skeptical on how efficient its business model actually is. Whether this is only due to the fact that they are jealous competitors or because they truly believe what they say, it still instills doubt in all’s minds. And actually, it’s been a while since Ryanair announced its strategy, and there nothing is new in the way he has been running it. Strange then that Stelios still criticizes Ryanair’s strategy, afterall, Ryanair has been following the same route for a decade now.

Today, I wanted to get back to this important point. Ryanair’s final strategy is to make passenger fly for free. Indeed, since I’ve been following Michael O’Leary, he has declared several times that he wants to achieve a free air travel model. Of course, to reach this “ideal”, he has to find new opportunities that will allow him to further lower his fares. This is what I want to talk about today, for my first “guest appearance” and contribution to Airline Post!

If Ryanair really wants to make passengers fly for free, he doesn’t have so many options. I only identified 4 opportunities, but none of them seems to bear much or any potential for that matter.

1. Putting pressure on airports to lower there charges and hence its own

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For several months now, we’ve clearly seen that Ryanair is pushing airports to exempt it of charges. This, would allow the Irish airline to save a significant amount, which in turn, could allow it to lower its fares. According to recent cases I’ve been following, it’s clear that this has become Ryanair’s main focus. First it was Manchester Airport, then Dublin, Shannon and finally, Kerry. A Slovak newspaper recently mentioned how the company was also pressuring the Bratislava and Vienna Airports. Another recent case, Euroairport, was also reported. Each time, Ryanair declares it will “continue to lower fares to encourage travel, but with passengers paying lower fares airports must lower their charges – particularly high cost airports like Basel, Stansted and Dublin”. Howver, people are not travelling that much more because a larger number of airports are not willing to accept Ryanair’s blackmail. Manchester Airport’s Chief was the first one to declare that “Manchester Airport will not prostitute itself to Ryanair”. Later, when Ryanair announced that it would cut routes from Dublin Airport because of increasing airport charges, the DAA (Dublin Airport Authority), not only answered that “its airport charges are among the lowest in Europe”, it also added that “Ryanair’s decision is based purely on the economic downturn”.

More alarming for Ryanair, is that all these airports have unveiled over the past few weeks how Ryanair’s departure have left the field open for other low cost airlines to recover Ryanair’s abandoned routes. It simply means that airports now realize that any low cost airline could bring back passengers. I think Ryanair is not as stronger as before in the power struggle against airports. Manchester has thus opened a breach that others airport  are only going to widen.

2. Creating a new tax

When you see O’Leary latest announcements about a new tax, none of them seem realistic: the one about making passengers stand during flights, the fat tax, the toilet tax or even O’Leary announcement that he’d force passengers to carry their own luggage into the plane can’t be taken seriously. In fcat, these are all examples of O’Leary’s PR stunt (something that also got me going in a previous post!). The lastest “project” is to charge passengers who forget to print their boarding pass €100, while the current fee is €40. Just take a look at the comments left on Twitter and you’ll see that this “fine”, as O’Leary calls it, is very unpopular. Moreover, two main threats have to be taken into considered if Ryanair wants to go any further. These two threats have been mentioned by the LCC representatives at the last LCC summit in Barcelona. One is related to what Julian Carr, the Commercial Director of Bmibaby, called “consumer acceptance”. Similar sentiments were shared by Flybe’s Rutter and easyJet Founder Stelios Haji-Ioannou. Rutter believes the upper limit for Flybe in terms of ancillary revenue will represent 15% to 20% of its total revenue. Ryanair’s ancillary already represents over 21% of its global revenues. I think, once more, that Ryanair already used all the opportunities it could. Another threat mentioned at the Barcelona summit was that of the UE regulation, which is to be avoided as it would mean for heavier restrictions. This explains why Mike Rutter, Flybe’s Chief Commercial Officer, said “he’s worried about regulation,” and “asks the industry to heed this call for self-control.” So O’Leary also has to be aware that an excessive tax policy could lead to even more restrictive regulation.

3. Decreasing structural costs

Ryanair is well known for its very strict cost cutting policy. Every penny invested has to turn a profit. The fact is, I believe that Ryanair does not have that much leeway in that direction either. Ryanair probably has the most efficient  cost policy among airline companies nowadays, and as an expert was saying a week ago, “it’s difficult to see how they can keep squeezing costs out of the business”, and then added that “at the end of the day, you need your two pilots, and you need a number of crew per aircraft“. Ryanair announced recently that it’ll “continue to reduce staff costs, with a pay freeze in both the current and coming year” and already moved to a web check-in only policy. What’s next? I trust O’Leary to find other costs to cut, but these would not be significant, and wouldn’t allow him to lower his fares substantially. Too much has already been done in this matter.

4. Striking another very attractive deal with Boeing

Back in 2002, Michael O’Leary managed to get a very attractive deal with Boeing for its current fleet. When the market broke down after the 9/11 terrorist attack, Ryanair obtained a substantial discount for its 155 new aircrafts, taking full advantage of the downturn in airplane orders caused by the slump in air travel. Today, even if Boeing is in trouble with its new 787 Dreamliner, it seems that the global economic situation is getting better and that Boeing can expect new orders to come in, in the next few months, especially from the Indian and Chinese markets. Tough negotiation and Ryanair’s threats however, point to important difficulties in reaching an agreement. Ryanair needs this deal to go through because it has to change its planes approximately every 5 years, otherwise it will face heavy revision costs (planes would be grounded during the revision period, adding to sunk costs and account heavily for profit losses). For now though, it seems that Ryanair can’t expect any significant gain out of this deal.

But this is just my point, please tell us if you think O’Leary is able to make passengers fly for free! and how!