Ryanair’s €5 Gambit

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Ryanair’s inauguration of its latest flight out of Malta is in the news today (Malta-Trapani). Also in the news was Ryanair’s increible offer of one million seats at €5. People still question whether this policy of Ryanair’s is reasonable (not sure there). They also wonder whether Ryanair should be more clear about the fact that €5 does not include taxes and whatsnot (they should). Commenting on an online newspaper someone also commented:

By no stretch of the imagination can the € 5 cover all the Government and Airport Taxes. This goes to show that Ryanair is being aided and abetted to act in breach of competition laws and being given an unfair advantage over legacy carriers like Air Malta who have to collect and pay Government and Airport taxes making their air fares artificially inflated.

The usual rant you would say. His is not the full picture though. Ryanair’s is a commercial gamble – it has not got much to do with breach of competition of laws as it has with the defiance of costs, supply and demand. To an ignoramus like me the reason Ryanair can afford cheap flights is precisely because it cannot. Nobody can really. They are underpriced because Ryanair is gambling on slicing into huge parts of the market. It tries to get customers dependent on the “cheap” idea then runs up the ‘collateral damage’ – or extra costs.

There’s the amount of luggage, the weight of the luggage, the price of food on board, the transport to and from the airports of choice and more. Contrary to popular perception, Ryanair is not “doing well”. Rather it’s recent losses inspired newspaper titles such as “Ryanair got it wrong”. Their Shannon base in Ireland is about to have 400 jobs cut off in order to minimise losses.

The latest setback for Ryanair was during negotiations to order 400 new planes. It tried the usual tactic of bullying with numbers trying to provoke a price war between Airbus and Boeing. Airbus’ answer was simply:

We are not in discussions with Ryanair about aircraft. That is on the record. We don’t have plans to enter a sales campaign with Ryanair, which would be very expensive and very time-consuming.

Clearly Airbus sees this as nothing more than a ploy to negotiate with Boeing, and acknowledging Ryanair was likely never going to place an order with the company. The outlook is not so bad for the airline of the Harp. Despite gross incompetence over the past year with regard to hedging contracts for the price of fuel Ryanair is expected to recover though their plan for transatlantic flights might have to be shelved for now.

Next time you are on a Ryanair flight with your knees rammed firmly into the neck of the passenger seated in front of you do bear in mind that your “cheap” trip is a result of a gambit that relies on numbers, numbers and more numbers.  When you realise that the costs for your flight plus collaterals cost you much more than that €5 ad you saw don’t complain… just go “baaaaa”

After all the choice is yours… and that’s what matters really.

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4 responses to “Ryanair’s €5 Gambit

  1. You said it all: “Just go ‘baaaaa’. After all the choice is yours… and that’s what matters really.”
    I hosted Saviour Balzan (Malta Today’s editor) on Tango (One TV, every Tuesday night sometime after 22:30) and he made an identical comment on how more or less half of the Maltese electorate complains about the government they have chosen but then, when the time comes, go on to vote for the same party.
    Have a nice weekend, Maître.
    Mario

  2. I do not think that it is very clear what defines a ‘low cost’ airline either.

    Easy Jet can easily charge you 150+ euros for a ticket.

    As for the ‘collateral damages’ you mention; you can always choose to take a hand luggage instead and not to eat on board. The only thing really forced on you is the bus ticket to get to the city, unless you decide to walk. The tickets are usually not more than 20 euros.

    Probably with the current recession, very few airline will do well.

    People will become more conscious with money. I think, these low cost airlines will suffer the most from the ‘long weekend’ passenger markets.

  3. unexpectedtraveller

    Travel will always be needed so RyanAir will hardly go bust tomorrow. All airlines are doing badly (BA is merging with Iberia but Iberia is worth more than BA by GBP 0.2 billion – can you believe that?)

    In the good old days, airlines like RyanAir could bill themselves as “low cost” and they were low cost even when you did the maths. Nowadays they bill themselves as low cost because most people don’t do the maths anyway.

  4. This text is worth everyone’s attention. When can I find out
    more?

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