Author: Laura French
19 Mar 2015
Budget carrier Ryanair has been subject to searing criticism time and time again over the past decade. In 2013, Which? readers voted it Europe’s least popular short-haul airline, and a dedicated ‘I Hate Ryanair’ website, which calls it “the world’s most hated airline”, sums up quite eloquently the general perception of CEO Michael O’Leary’s infamous empire.
But, despite all that, the cheap-and-cheerful Irish company is now Europe’s biggest carrier, which suggests it must have been doing something right over the past 20 years. Thanks to consistently low fares, the budget carrier has taken on the big-name airlines and has grown to cover 1,600 routes, taking the number-one spot in several countries including Italy, Poland, Spain, Ireland and Belgium.
This basic model appears unsustainable, however, and the airline is now attempting to shed its not-so-nice image under a new programme, named ‘Always Getting Better’. It appears to be paying off, with the carrier raising its profit guidance five times in a year and predicting a 25 percent rise in traffic for the first quarter of 2015 alone. By implementing a ‘Business Plus’ service and moving towards a more customer-focused experience, Ryanair is extending its reach to a wider market than ever before. In so doing, it poses a growing threat to the large national carriers that already seem to have embarked on a path of decline.
Ryanair’s current success is a far cry from its 1985 origins, when the airline was haemorrhaging money under founder Tony Ryan. Attempting to position the carrier as a luxury brand taking on other high-cost airlines, he oversaw losses of £20m over the first four years and was advised by then personal assistant Michael O’Leary to close it down completely.
By 1997, however, a turn of events, including deregulation in the EU, had transformed the airline’s outlook and overall strategy. Liberalised skies sent the likes of EasyJet and Ryanair soaring, as cash-strapped but eager travellers capitalised on new opportunities to fly at a fraction of the former price.
Ryanair, like rival EasyJet and American equivalents such as Southwest Airlines, was relying on a low-cost model that included flying to outer-city ‘secondary’ airports, buying a standardised fleet wholesale, limiting flight turnaround time, sticking to short-haul routes, and offering luggage, food and other extras as options subject to a surcharge. With the dawn of the online revolution, it was able to avoid the costs associated with distributing tickets through third-party travel agents, which can represent up to 17 percent of an airline’s total operating costs, according to industry experts Fariba Alamdari and Simon Fagan.
Ryanair stuck rigidly to this low-cost model and, when the financial crisis hit in 2007, it paid off. High-cost national carriers quickly felt the effects; after years of decline, Spanish carrier Iberia merged with BA to form IAG, in an effort to turn its fortunes around. Last year, German flag carrier Lufthansa lowered its profit guidance for 2015 twice, and in January state carrier Cyprus Airways collapsed after several years of deterioration in the face of growing competition from low-cost rivals.
Ryanair CEO Michael O’Leary is known for his forthright comments. Intentionally or not, his words prove that no publicity is bad publicity
“We don’t want to hear your sob stories. What part of ‘no refund’ don’t you understand?”
“I’m Europe’s most underpaid and underappreciated boss. I’m paid about 20 times more than the average Ryanair employee and I think the gap should be wider”
“Ryanair brings lots of different cultures to the beaches of Spain, Greece and Italy, where they couple and copulate in the interests of pan-European peace”
“If drink sales are falling off, we get the pilots to engineer a bit of turbulence. That usually spikes sales”
“Anyone who thinks Ryanair flights are some sort of bastion of sanctity where you can contemplate your navel is wrong. We already bombard you with as many in-flight announcements and trolleys as we can. Anyone who looks like sleeping, we wake them up to sell them things”
Reputation in tatters
Despite this financial success story, the perception of Ryanair has gone from bad to worse, with a reputation for hidden fees, bad customer service, and a somewhat aggressive approach that meant it treated its customers more like cattle to be herded than people to be courted. That approach was one instigated by O’Leary, much to the distaste of founder Ryan. As O’Leary himself put it in a Daily Mail interview: “The thing that we repeatedly would have clashed over was my determination to make Ryanair the lowest-cost airline in Europe and Tony’s desire to make it the most beloved airline in Europe.”
O’Leary made controversial and attention-grabbing comments on issues such as climate change and customers, claiming in an interview with The Independent that scientists invented the concept of global warming – which he labelled “bullshit” – and stating in another instance that passengers who forget to print out their boarding passes (an understandable mistake for those used to traditional tickets) were “idiots”. He didn’t stop short of insulting his whole industry, and made it quite clear likeability was not part of his leadership approach. “I don’t give a shit if no-one likes me. I’m not a cloud bunny or an aerosexual. I never wanted to be a pilot like those other platoons of goons who populate the airline industry.”
O’Leary also floated some notoriously bizarre ideas – some serious, some not – from paying for toilets to introducing standing seats in order to squeeze out a little bit more revenue from each flight. Negative press went beyond O’Leary’s words; it was said in 2006, for example, that Ryanair pilot candidates had been charged £50 to have an interview and £200 for a related simulator exercise.
According to Robin Kiely, Ryanair’s Head of Communications, O’Leary’s comments were part of a deliberate strategy. “Our CEO, in order to generate column inches and bookings, would resort to dressing up or saying something quite ridiculous and generate plenty of free controversial PR”, he says. “That worked because we were a challenger brand taking on these big airlines across Europe.” The strategy certainly seemed to pay off in the short term.
But, in the long term, its reach appeared to be limited. Although excelling at captivating new customers, Ryanair found it significantly trickier to retain them – something O’Leary now seems to recognise. “I’m learning over the last year or two that a lot of what [Ryan] was saying was actually right, we should have been nicer to customers earlier than we have been”, he admitted. “As I said myself, if I had known being nicer to our customers was going to work so well, I would have done it years ago.”
Richard Elsen, Chairman of reputational management firm Byfield Consultancy, agrees the strategy has its limits. “While the outspoken approach of Michael O’Leary was very effective in challenging the non-budget airlines, there has often been a disconnect between customer expectation and the actual experience of flying Ryanair”, he says. Kiely believes the carrier was then partly the victim of its own success, seeing little reason to improve communication and service when its revenues were soaring.
As Elsen recognises, however, hidden charges such as web check-in fees, admin fees and excessive prices for hold luggage were compounding an increasingly damaged reputation. That was made all the worse when it was revealed in 2012 that the carrier used an exchange rate of £1 to €1 – set when it was almost accurate – for flight add-ons, which reportedly disadvantaged UK fliers at a time when the pound was particularly strong.
The tarnished image came to a head in 2013, when the airline suffered a slump in growth and was forced to revise its profit forecasts twice in the space of two months, for the first time in a decade. It saw a loss of £28.7m in the final quarter of the year, marking the poorest end-of-year performance in five years.
It seemed the offensive marketing technique and extremely basic, low-cost business model that had succeeded for 20 years was in need of an overhaul. Ryanair’s position had changed, with the airline taking over from the likes of BA as the dominant carrier, rather than a mere challenger. In addition to this, an increasingly competitive market meant value proposition needed to be stronger, according to Ryanair CFO Howard Millar. “I think [the low fares industry] has evolved more in the last year or two, where it’s just not good enough anymore to offer low fares, you must offer other customer service features”, he told Bloomberg in January.
With the aim of moving beyond the one-dimensional price-slashing model, Ryanair introduced its three-year Always Getting Better programme. The carrier pledged to become more customer-focused and, in the words of O’Leary, to “stop unnecessarily pissing people off”. It made changes such as allowing passengers a free second carry-on bag, introducing allocated seating and reducing the sky-high fees for oversights like not printing a boarding pass. It also sought to increase its appeal to families by launching Family Extra, offering discounts and incentives for family customers to return.
In true Ryanair style, the majority of these changes required little expenditure. Reducing fees ran the risk of eating away at the revenue base, but Kiely argues an increase in passenger numbers means it’s paying off in the long term.
Where Ryanair did need to dig into its dusty wallet to help with the image overhaul was in terms of marketing; the carrier pretty much tripled its budget, investing around €35m in advertising, website improvements and travel products in 2014, and launching its first television advert in a quarter of a century.
The new adverts typified the overall transformation Ryanair was attempting to undergo; they were subtle, focusing on customer satisfaction and sophistication. The overused low-fare message it relied on for so many years was relegated to a more minor position, shown at the end of the ad. The carrier finally seemed to be recognising low fares alone don’t necessarily result in customer loyalty, especially with the likes of fellow budget airlines EasyJet, Jet2, Wizz Air and Vueling representing a growing threat.
With the aim of providing that value, Ryanair dug yet deeper into its pockets with a comprehensive digital strategy. The Irish carrier’s website was clunky and characteristically unwelcoming to customers. With the goal of changing that, Ryanair set about overhauling the site, developing its app (complete with mobile boarding passes), taking on a chief technology officer and opening an incubator (Ryanair Labs).
“We want to be driving any changes in digital travel over the next three to five years”, says Kiely. In its bid to become the market leader in digital travel, Ryanair is looking into offering in-flight Wi-Fi, tailoring its services to customers by collecting individual data, and creating user-generated content to emphasise its new goal of listening to the customer.
The company is adding further to its business model through deals designed to extend its reach; it signed up to a global distribution system last March that means customers can buy Ryanair tickets from third-party agents, and struck a deal with American Express to open its flights up to American customers booking European travel ahead of arrival on the continent. All of this sees the airline attempting to take on rival carriers as it moves away from the low-cost model that sustained it for so long, diversifying its approach while maintaining the cheap-as-chips fares.
Ryanair has never flown far from controversy and scandal, shocking the once-placid airline industry with an anarchistic refusal to play by the rules. The carrier’s new leaf is a direct attempt to distance itself from the image it once revelled in
During a live radio interview with BBC News in 2009, CEO Michael O’Leary noted that it was “a quiet news day”, and then, out of the blue, stated that Ryanair was going to start charging customers £1 a time to use in-flight toilets. How readily the public believed this obvious joke, and how angrily they reacted, shows just how poor the airline’s reputation was at the time
As the budget airline industry took off, Ryanair pioneered one of its defining tactics, adding the names of attractive cities to distant airports, often with no direct transit links. Thus, Bergamo Airport (28 miles away) became Milan-Bergamo, Reus Airport (62 miles away) became Barcelona-Reus, and Beauvais–Tillé Airport (53 miles away) became Paris-Beauvais
When Ryanair began operating in Belgium, the company ran an ad with the slogan “Pissed off with Sabena’s high fares?” next to a picture of Brussels’ iconic Manneken Pis statue. Sabena, a rival airline, sued and Ryanair was forced to publish an apology. True to form, the sarcastic apology was titled “We’re Sooooo Sorry Sabena!” and contained a list of further price comparisons
Bargain business class
Ryanair could now gnaw further into the big-name players by targeting business travellers, with its introduction of Business Plus. A rival to EasyJet’s Business Travel, it offers priority boarding, fast-track security, ‘premium’ seats and flexible tickets. The carrier is capitalising on a trend towards cost-cutting in business to increase its number of business travellers.
Kiely argues the heyday of luxury business travel is over entirely: “The days of flat champagne and a blue curtain and a lounge are very much gone”, he says. In the UK at least, expensive business class does seem to be on the decline; in 2013, among travel management company HRG’s UK clients, the number of business class travellers tumbled 35 percent year-on-year for short-haul journeys out of the UK. HRG Client Management Director Matthew Pancaldi agrees. “It is indisputable that there has been an overall move from business to economy class”, he said in a statement. That shift marks a substantial threat to the likes of BA, which in 2009 derived around half its revenues from premium travellers, according to a Guardian report.
Through the recent creation of several city centre, ‘primary’ airports, Ryanair is in an even stronger position to compete with national carriers, for whom a central location was traditionally one of the key factors differentiating them from their cheaper rivals. Ryanair has already shifted to primary ports in cities including Rome, Glasgow, Athens and Lisbon. “In the past, these airports didn’t really want us there – they didn’t really need us there because they had the likes of Air France or BA”, says Kiely. “Now a lot of them are cutting short-haul capacity so there’s a serious opportunity for us to grow”, he adds – confirming the reality that, as purse-friendly Ryanair extends its focus beyond the basic low-cost model to offer a strong value proposition, higher-cost names have reason to fear.
This is certainly suggested by Ryanair’s current gains: traffic in January was up 30 percent, according to Kiely, and the airline is predicted to carry 90 million passengers over the year. Elsen, however, has doubts over the extent of the changes. “What will be interesting is how far Ryanair goes in changing the customer experience”, he says. But the impact is already being felt; the carrier made a net profit of €49m in the third quarter of 2014, up €84m from a loss of €35m in the same period in 2013, and revenues soared 17 percent to hit €1.13bn.
With 380 new aircraft set to be acquired over the next decade and plans that could see it move into North Africa, Isreal and the Gulf, Ryanair looks set to grow yet further over the coming years. “We’re actually going to double in size, so by 2024 we’ll be carrying 160 million customers every year, which would make us the biggest airline in the world”, says Kiely.
Indeed, if the airline’s new approach can recapture previously deterred customers and successfully move Ryanair into the business market, that optimistic vision could well become a reality – leaving the higher-cost carriers that soared to success in the late 20th century with a very big burden to haul.