Ryanair seat pocket safety card joke

For those of you who have never heard of Ryanair, it is a low cost airline, based in Ireland. They are one of the world’s largest airlines with just under 58m passengers carried in 2008 and with a market cap bigger than British Airways, Virgin, United Airlines and all the other publically traded big name airlines.

Ryanair is foreasting a net profit of 388m euros for this financial year. It has a cash balance of 2.5bn euros and a net debt of just 105m euros. It is a robust business capable of surviving price wars and cost increases.

I have flown Ryanair frequently whilst i have been in Europe this year and taken a keen interest in watching how the company does business. There are Ryanair business lessons for any business – large, small or ‘me’preneurial.

Here are some observations.

1. Aggressive cost squeezing.

I use squeezing here instead of cutting. An airline can only cut so many costs. Ryanair squeezes. Like many of the budget airlines they have disrupted the traditional airline service model – they have done that at the ‘front end’ with pricing (more of that later), but also at the ‘back end’ with services required to operate planes, provide passenger services and service planes at airports. Ryanair now charges for online check in, issuing boarding passes at airports, checking in hold baggage and wheelchairs. Ryanair outsources a lot of operational functions. I noticed at some airports that Ryanair’s baggage handler supplier manually loads bags. They don’t use the usual conveyor belt. Perhaps this makes them cheaper to use?

I dont know how much they have squeezed their suppliers, but clearly they have looked to shift these costs directly onto the passenger. Perhaps Ryanair pays the company who manages customer’s hold baggage,  a piece rate for each item loaded and unloaded?

Business lesson – can suppliers deliver the same service but differently? Is there scope for gearing up and scaling down outsourcing in line with demand? Can flat rate overheads be broken up and turned into piece rate? Ryanair is flexible enough in their supplier base to be able to reduce flight numbers without bearing the associated continued overheads.

2.Have a PR machine operating in overdrive

Anything and everything is newsworthy as far as Ryanair is concerned. From spoof stories such as charging for toilet use or adding a fat tax onto overweight passengers, to more business orientated stories such as the recent announcement of cutting services from Stansted and Machester Airports in the winter 09 (and blaming the airport operators in the process) – a service reduction which they always do every winter anyway.

The Ryanair brand is front and centre most times of the year and therefore is on the mind of potential customers.

Business Lesson – there is always some news worth promoting, even if it means recycling old ‘non stories’ with a new angle year after year. You dont need a glamor girl to front your stunts, Michael O’Leary (Ryanair CEO) is no oil painting and is happy pratting around. In fact i met him once, when i was dressed as a Viking promoting the opening morning of Ryanair’s first flight to Sweden in 1998.

3. Clever pricing

Ryanair is famous for its free or ultracheap pricing. This is used in all geographical markets. It is used to raise awareness in print ads, emails and is very effective i would guess at driving traffic to their websites. The Ryanair flight network is so vast in Europe that is very likely most customer’s destinations are served.

A number of factors go into Ryanair’s ability to offer such low pricing – clever carve up of the traditional business model, removing third party operating costs from the ticket price and showing them as a named variable line item at checkout, use of yield, capacity and demand modeling to create a fluid price, leasing of no frills Boeing and Airbus aircraft.

Business Lesson – there is nothing more powerful than the word ‘free’ in sales. It makes people do strange things. Create a free offer with upsells and cross sells at the backend to generate more revenue than you would have done had you charged in the first place.

4. Time and Availablity Scarcity

Ryanair always has a scarcity offer running. It is usually a dual scarcity tactic involving the limited number of ultra cheap flights (availability) that have to be booked by a certain date (time). “1 million seats at £1 have to be booked by 31st July 2009″ was the subject of a recent Ryanair emailing on the 25th July. The same email with a different end date will be sent around the sametime in August, September etc.

Business lesson – Scarcity tactics when used correctly are very effective. Anyone selling anything should use scarcity somewhere in the promotional mix. Limited availability and time are often used together in sales where customers are pre-planning in advance. The subconcious message is, ‘buy this now, it is an amazing deal, it may not be here for long’. Combine with a ‘FREE!’ offer and you are on a sure fire winner.

5. Upsells, Cross Sells and Trap Sells

Here’s a list of the Ryanair extras at checkout:

travel insurance
sports baggage
normal baggage
priority boarding
online check-in
airport assistance.

Here’s a list of the trap sells, these can catch you out at anytime:

adding sports baggage to your itinerary after you have booked and checking online – this one voids your online check in meaning you then have to pay the ‘boarding pass reissue fee’ at the airport on top of your extra fees for the baggage. Should have remembered about your bike when you were booking the cycling trip in France!

boarding pass reissue fee – not managed to check in online and print out your boarding pass? Pay £40 for another one at the airport.

overweight baggage – clever one this. The Ryanair limit on hold baggage is 15kilos. That is about enough for one of the medium size trolly bags – you know the ones that come in a set of 3 – cabin, medium and coffin. From what i have seen at several Ryanair baggage drops, and this is nearly always women, if you have a coffin size hold bag full, it would weigh about 20kilos (enough to not give you a problem on most airlines). You are faced having to pay an additional 5 kilos.

In flight there is no complimentary catering of course, so you are then paying for your own food and drink. Not too bad actually and Ryanair has seemingly cleverly invented some excellent ‘me too’ brand names to make us all feel at home: “Saile and Sagba Gourmet Coffee”, “Saile and Sagba Preium Wine”, “Bullseye Baggies Spirits” – booze in a little foil bag offered 2 for the price of 1.

Business Lessons – allow people to pick and choose what they want. Flying hand baggage only to Ibiza, i am happy that my £19.99 ticket price isnt covering the cost of an entire family’s fortnight of pants, tacky tshirts, white shirts, bucket and spades and Primark dresses.

6. Integrated Partner Offers

Made easy by the web, but also used by Ryanair offline, the concept of promoting complimentary offers that are ‘integrated’ into the Ryanair website during and after the checkout process and also in their on board magazine, in return for commissions can add nicely to the bottom line. Ryanair is promoting offers (that are discounted) for Stansted Express, car parking, car hire, bus services, hotels, phone cards and the, er, smokeless cigarette.

Business lesson – promote aligned products and services with an additional offer such as a discount in return for a commission. The commission maybe as low as £10, but when you expose it to 58million passengers at a pretty low conversion rate of 1%, Ryanair could be generating an additional £5,800,000 in pure profit, per year, per offer.

Summary:

Heres why Ryanair is successful and has bucket loads of euros in the bank:

1. Create your business around a single proposition that you are known for and then increase its scope. Cheap flights. £1 tickets. Free tickets …. anywhere in Europe to all Europeans distributed in local language, electronically.

2. Neutralise the ‘experience’. Ryanair is not ultra profitable because people have a great inflight meal or enjoyed a sumptuous first class lounge with chauffeur to and from the airport. It is profitable because they deliver an experience of cheap, competitively priced tickets and a service to fly people between 2 points in a way that people neither rave about nor overly complain about.

3. Draw a ‘free line’. Utilise the power of free, or almost free (£1) because free does wonderous things. Free is an evergreen proposition. Free crosses class boundaries. Everyone loves something free. Psychologically, it makes people behave irrationally. Can your business offer something free?

4. Behind the ‘free line’ you need to make money. This is where integration marketing comes into play.  Does your business have a backend of upsells and cross sells? My last flight with Ryanair started with a ‘free’ ticket and ended up costing me over £150. Cross sell your own products and then bring in partner offers at a steep discount for which you get a commission.

5. People like transparency and to get what they pay for. If your business un-necesarily over delivers at the expense of other customers with lesser demands, why not re-model it and at the sametime reduce your overheads. Is your outsourcing directly inline with customer’s demand?