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Could Ryanair Remain Profitable Carrying Passengers for Free?

Could Ryanair Remain Profitable Carrying Passengers for Free?

In our 9th edition, we stressed upon the need for airlines to reconsider how they generate revenues. In this edition of Airline Profits, we are sharing our perspective about a revelation, Michael O’Leary, CEO of Ryanair recently made.

Michael O’Leary
CEO, Ryanair

In a November 2016 article published by the Guardian, Ryanair’s CEO was reported to be considering the possibility of carrying passengers for free in the next decade, meaning by 2026.

Knowing the current frenzy in the airline industry about finding ways to maximize ancillary fees per passenger, this revelation must have sent some shockwaves to not only Ryanair’s direct competitors but also to other airlines worldwide.

Beyond the speculations that Mr. O’Leary’s statement may raise now and in the future, there are at least two important questions worth considering. The first question may be: is this feasible? Can an airline carry passengers free of charge? And the second even more vital question may be: will it be profitable? Can an airline be profitable while flying passengers for free? Let’s examine these two questions in the next few lines.

Can an airline fly passenger free of charge?

Taken from the perspective of the current airline business model, the idea may sound crazy. Some may even suggest that Mr. O’Leary has no clue what he was talking about or that his idea is not realistic or simply impossible to implement. However, taken from a fresh perspective, far from being a marketing buzz, the idea is not only sound theoretical but also feasible, practically speaking. In fact, carrying passengers for free is just an extreme application of the ultra-low-cost model, which already exists in the airline industry. The only thing new about Ryanair’s future proposition is the fact that the airline wants to generate its revenues from its airport affiliations. It is important to highlight that a similar business model already exists in other industries.

Can Ryanair Be Profitable Flying Passengers for Free?

Ryanair’s idea equates to eliminating active revenues entirely and instead rely essentially on collaborative revenues through their partnership with airports that they serve.

Given the price elasticity of air travel demand, the airline will likely attract larger numbers of passengers. Being the first to make such a revolutionary offer is likely to increase Ryanair’s goodwill substantially, provided they are able to maintain a high level of customer satisfaction on a consistent basis. That, in turn, will potentially attract more customers to Ryanair and ultimately sustain a critical mass of passengers necessary to maintain or exceed their current level of profitability.

Tracking of Passenger Transactions at the Airport

One may wonder how exactly passenger expenses at the airport could be recorded and accounted for.

And that is a valid concern. However, tracking each passenger’s transactions at the airport may not be that difficult to accomplish. Each transaction can be accounted for in the same manner as duty-free

purchases.

Potential Risks for Low Revenues and Brand Dilution

With that said, however, there are some risk elements inherent with this approach. On one hand, it may well be that the type of customers, which Ryanair or any airline for that matter, would attract with a “zero fare” offer may not necessarily be inclined to spend enough money at the airports. As a result, the collaborative revenues generated per flight may not be substantial to cover the airline’s total operating costs let alone to make decent airline profits.

On the other hand, a “zero fare” offer won’t appeal to everyone. As some customers would still be willing to pay a fair amount in exchange for a higher level of air service. An amount of money, which they may not necessarily spend at the airport. Besides, this group of passengers may well be reluctant to share their flight with “a bunch of passengers who paid nothing for their ride”.

Summary

The idea Ryanair is exploring about flying passengers for free is not only sound but also feasible. It is only a further extension of the ultra-low-cost airline model. This type of business model is being applied successfully in other industries. There are, however, a few risks associated with this approach, which need to be carefully considered and mitigated in order to attract the right type of customers who can guarantee a minimum degree of profitability. Another critical factor to take into account is the natural human inclination to devalue things we get for free. So, although very sound and practical, the idea should be tested gradually, thoroughly and probably locally on a small scale before a network-wide implementation.

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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is also an author and speaker on the topics of leadership, effectiveness, and profitability.