1. This E-note has been written by Roman from Air Observer
http://twitter.com/AirObserver
http://airobserver.wordpress.com/
Ryanair
Business Model
Under a New
Light
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2. This document summarizes a new approach in
analyzing Ryanair’s business model. It is based on one
year of research. This is also based on my experience
with the AirObserver blog, a platform where I have
Ryanair Main Destinations
discussed and analysed the low cost business model
for over a year now. I would nonetheless like to thank
specialists and aviation aficionados that have helped
me to formalize this note.
I’m aware that thousands of documents on Ryanair’s
business model have already been published. Even
more reports and notes have been written about the
low cost airline business model. However, I believe no
work is formulated as clearly as this one.
Ryanair Key Figures Source: Air DB
Ryanair Passenger Traffic
Source: Ryanair
Annual Report
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3. Elements commonly admitted as basis for
Ryanair’s business success
Most Ryanair business model analyses focus on the
understanding of key historical characteristics of the Main Airports Deserved by Ryanair
low cost airline business model. They often explain
Ryanair’s success thanks to the facts listed below.
Unique aircraft type with lower maintenance
costs/crew training costs
High density to increase profitability
Every additional service is charged
Online services only
Small regional airports with direct access to
planes/lower airport fees
Routes through secondary and smaller
airports
Short turnaround and maximum utilization
of aircrafts
Continuous innovative measures to increase
ancillary revenues
Non-unionized labour force
Source: Air DB
I won’t develop on them further as I think that
albeit they are important, they are not crucial to
the understanding of Ryanair’s success. Moreover,
you should be able to easily find them on the
Internet.
Ryanair Main Destinations
Why Focus on Ryanair?
Many analyses I have read
describe Ryanair as the most
successful airline in the last
twenty years. Indeed, Ryanair is
the fastest growing airline in
Europe. Since 2004, the Irish low
cost airline more than doubled its
number of passengers, from 33M
up to 73M, expected this year.
However, what such analyses
have failed to point out is just
how the airline achieved such
ongoing success. Journalists who
work on Ryanair case usually only
focused on few elements of its
business, but they mainly fail to
analyse entire Ryanair business
model.
Source: Air DB
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4. The Truth Behind Ryanair Business Model
The element which has never been highlighted in
most Ryanair analysis I have read is the importance of
subsidies in Ryanair business model.
Subsidies are a big part of Ryanair’s revenues. Indeed,
while Ryanair declared €663M of ancillary revenues in
its last annual report (around 22% of Ryanair’s
.
revenues) in 2009, Ryanair earned more than €664M
in subsidies the same year. It means that subsidies
are at least as important as ancillary revenues and
represent around 22% of Ryanair’s revenues.
However, it does not appear in its “Summary
Operating and Financial Overview” where Ryanair
only mentions two sources of revenue, “Scheduled
Revenues” and “Ancillary Revenues”. Moreover, in its
2008 report, Ryanair also clearly assures that it does
not receive any state aids.
“ Ryanair claims that it
does not receive any
State Aid or any
subsidies. Clearly, the
Irish carrier plays on
words here. Indeed, the
French government did
Source: Ryanair
not give them subsidies,
but local authorities did.
Therefore, money
received does not come
from the State, but from
Regions. The point
remains the same: it
comes from public
money ”
A Which Budget Airline Market
Analyst
Source: Les Echos
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5. Questionable Subsidies: Ryanair’s Backbone
In France, French Regional Audit
Courts have conducted
investigations, which have allowed
to measure the percentage of
subsidies represented in Ryanair’s
overall revenue. A total of 25 reports
have pointed out the existence of
unlawful agreements between
Ryanair and Chambers of commerce
and industriy.
“ In France, Ryanair
has received €35M
in public money in
2008 ”
“ Without public
money, Ryanair would
have declared losses
between €179M and
€165M in 2008 ”
An “Industrialised” Process All Over Europe “ Ostende Airport,
Belgium, gave €1,148M
Ryanair not only receives subsidies from French public
authorities. Ryanair receives public money from almost
to Ryanair.”
every airport across Europe it operates from, which
accounts for millions of Euros in revenues. Even if such “ Reus Airport, Spain,
data is hard to find, several cases have surfaced. To give
more tangible evidence, I chose to highlight examples in gave €14M to
which Ryanair received large amounts from airports. Ryanair.”
In Italy for example, an article mentioned the
interesting case of Alghero Airport. The European “ Girona Airport,
Commission, in its introductive investigation, declares
that between 2002 and 2006, Ryanair received 8 Spain, gave €13,94M
millions Euros in public money to operate from Alghero to Ryanair ”
Airport. Alghero is just one of hundreds of such cases.
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6. Why Subsidies are so Important in Analysing Ryanair’s Business Model?
This is the crucial part of this note. To consider subsidies as a major source of revenue for Ryanair, will
change the way you analyse its business model.
Ryanair does not have the same business model than any other airline. Sure Ryanair needs to fill its planes,
but it does not need to sell seats at a price that covers its costs. In other words, Ryanair can sell at a loss.
Indeed, Ryanair can't sustain such cheap fares just by charging for Coke and nuts alone.
What’s in it for Ryanair?
When Ryanair settles a contract with public authorities of a given country, its main engagement is to assure
a certain number of passengers. If Ryanair fails, it doesn’t receive public subsidies. Hence for Ryanair, the
most important thing is to fill the planes, the price at which it can accomplish this is only secondary.
Some French Regional Audit Courts reports reveal the truth about its economic model: bringing passengers
into a given airport in order to receive a substantial amount of financial aid.
“ García Lorca Granada-Jaén
Airport, Spain, gave €1,345M to
Ryanair ”
“ Faro Airport, Portugal,
gave €3M to Ryanair ”
“ Malta Airport gave
€1.2M to Ryanair ”
“ Paris-Vatry Airport,
France, gave €2M to
Ryanair ”
Why Do Airports Pay?
Most of the time, airports see Ryanair as an easy way to attract passengers and to increase traffic. Airports
that call on Ryanair are, for the most part, often struggling and view Ryanair as their last chance for
survival. However, for those who have experienced Ryanair’s methods, desperation often comes at a price,
a price that could rush them close to bankruptcy as Alghero airport in Italy.
Angouleme Airport, Poitiers Airport, Cuidad Real airport, García Lorca Granada-Jaén airport and Shannon
are some examples.
Recently, according to Aérojournal, a French aviation web site, Ryanair will receive 2 million Euros worth of
subsidies from Paris Vatry Airport. The agreement only covers three months of operations. In
compensation, Ryanair will have to carry 15 000 passengers.
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7. Ryanair and Airports' Relationships
Source: Air Observer
“ What if 22% of
Ryanair’s revenues
were to disappear
from one day to the Basics of Ryanair's
next?” Business model
Now, you know why Ryanair needs to offer such low
fares. You know that airports are often victims of Ryanair
ways, also due to short term management vision from
small airport CEOs.
At this stage, something even more important has to be
highlighted. What if Ryanair’s subsidies were not legal?
What if 22% of Ryanair revenues were based on illegal
processes and undeclared public money? What would
happen if politics discovered this?
The answer is simple. Ryanair would be forced to find
other sources of revenue than public funds. Ryanair’s
future would therefore be up in the air.
Source: Air Observer
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8. A Model Partly Based on Public Subsidies is Questionable
In the last year, I have read a lot on the low cost airline
market and its leader, Ryanair. I gradually gained
valuable knowledge of how Ryanair works,
communicates, and dominates its competitors. It’s the
most fascinating case study I’ve ever looked at so closely.
This page will show in detail why public money received
by Ryanair does not comply with legislation and goes
against lawful and fair competition.
Why are Ryanair’s public subsidies illegal?
To legally receive public money, three conditions
must be met. Should only one of these conditions not
be respected, the whole of the subsidies move into an
illegal agreement that creates unfair competition.
These three conditions are:
The company must declare all public aids to the
European Commission. It's a fact that Ryanair and its
partners have never declared any of their grants. All
regional chamber reports point this out.
Subsidies have to be strictly limited to 3 years (5
years in special cases). Once more, Ryanair's practices
are illegal. The first contract between the French
regional airport of Beauvais and Ryanair was signed in
the very late 90’s. Ryanair has been operating out of
Beauvais since 1997, which means that Ryanair’s been
“subsidized” for 13 years now!
Lastly, subsidies have to be regressive, which
means that each year, the amount has to be significantly
lower than the previous one. Here again, is a rule that
Ryanair and its “partners” have never respected.
Should a private company base its business on public subsidies?
Interesting question, but not the matter I wish to discuss. Indeed, some Ryanair "evangelists" will argue that
Ryanair is not alone in receiving public money, national legacy airlines such as BA, Air France KLM or Lufthansa also
do. Rather than giving into their criticisms and engaging in a sterile debate, I prefer to anticipate their arguments
and counter them beforehand.
My point here is not to discuss whether or not Ryanair’s aids are justified. This is an economical debate. Rather, I
seek to underline in what ways these aids are illegal; that these aids constitute an important part of Ryanair's
revenues, making its business legally unsustainable. Of course, legacy airlines as British Airways also receive
subsidies, but in a legal framework. I agree with people who argue that some of the major European legacy airlines
do not use them efficiently, but that’s a different matter.
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9. Illegal Subsidies: Ryanair’s Achilles Heel?
Most analyses don’t take this issue into account. However,
several courts have already brought up the matter of Ryanair’s
subsidies, namely in Spain, France, Germany and Italy. Although
several investigations, till now, Ryanair has always managed to slip
through the cracks. This is due to irregularities because airports
are failing to declare subsidies to the European Commission itself.
Indeed, according to a French union, among the 25 airports out of
which Ryanair operates, only one has declared the subsidies to the
European Commission, so even the European Commission doesn’t
know that Ryanair receives such amount of public money.
Until now, subsidies have
allowed Ryanair to dominate the
“ 7 investigations low cost market and develop its
are currently open own unique business model. It
has allowed Ryanair to withhold a
over Ryanair’s strategic advantage over other
subsidies in Europe.” airlines. Airlines that have never
been shy to voice out: Air France,
Lufthansa, Spanair, Vueling and
Air Berlin are companies that
understood how difficult it is to
compete with Ryanair’s public
financial support.
Airlines have expressed their concerns about this unfair advantage that Ryanair has managed to build up all
over Europe. Some airlines, namely Air France KLM or Air Berlin, have formally complained to the European
Commission. Others have simply expressed their disappointment and grief through the media. For most
airlines, tackling Ryanair is a dangerous game that could easily end up turning against them. Indeed, Ryanair is a
master communicator and avid PR stuntman that always gets the last word. This explains why some airlines
prefer to be tactful when it comes to criticizing Ryanair.
“ Opaque subsidies Ryanair received to operate in certain airports
create only an artificial traffic ”
Alvaro Middleman, Air Berlin Executive for Spain and Portugal
Conclusion
I found this quote on the Ryanair Business model, which I believe summarizes perfectly the issue
discussed:
“Ryanair has established the first efficient and industrialized public subsidies collector
on a European scale. It’s interesting to notice that Ryanair is among those which
beneficiated the most of deregulation of the market, but meantime among those
which obtain the most of subsidies.”
A Which Budget Airline Market Analyst
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10. Thank you for reading this note, if you
like what you read, spread the word. If
not, please, take the time to leave
feedback!
To contact me:
http://airobserver.wordpress.com/
http://twitter.com/AirObserver
roman.observer@gmail.com
Articles mentioned in this note:
Ryanair traffic is to surpass Air France's one
Low-cost carriers: European Subsidies, Alghero
Sources and documentation Airport Case Study
Air-scoop Swot of Ryanair
The best source is obviously my blog  but other French state should make Ryanair respect the law
websites and articles are very interesting! says Union
Ryanair to cancel Prague flights in fee dispute
Articles from my blog used in this note: Ryanair's business model undermined by the
French financial courts
French MP wants an investigation over Ryanair’s Los pilotos de Vueling y Spanair piden que no se
subsidies subvencione a Ryanair
Ryanair’s French public aids La verdad de Ryanair: Ryanair "chantajea a las
Ryanair incurs wrath of French political before instituciones y empresarios de Granada"
major on-coming election Ryanair faces 'blackmail' protests over attempts to
Ryanair and Barcelona: a story of unrequited love? increase fees
A new case of Ryanair blackmail at Angouleme Rebelión aérea contra Ryanair
Airport Ryanair's phoney war with Boeing just a lot of hot
Another take on Ryanair’s financial performance air
Ryanair signals new strategy by ending Boeing talks
Reports: Ryanair to hold talks over ‘lax’ Italian ID row
Air France accuses Ryanair of blackmail
The Best Way to Deal with Low Cost Carriers Small European airports fed up with Ryanair?
French Regional Audit Court report The subsidies that keep Ryanair profits airborne
Ryanair flies high on subsidies
Websites: Ryanair est redevenu la compagnie la plus rentable
Air Scoop d'Europe
Air Panorama
Low cost Portugal Ryanair subsidies figures :
Todo low cost Ostende
AnnaAeoro Paris Vatry
Plane Grazy Faro
Airline Post Girona
Which Budget Reus
Simpliflying García Lorca Granada-Jaén
Malta
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