The end of Ryanair’s business model
Last Saturday, I wrote a small article about the fact that Ryanair’s announced that talks with Boeing had definitely ended. I’m almost certain that in Ryanair’s announcement is the sign of the imminent failure of its business model. Let’s be clear, I’m not saying that Ryanair is going to file for bankruptcy within the next 5 months; I just think that the reported failure of talk with Boeing is just an excuse to not admit that Ryanair’s strong growth strategy is not maintainable. In fact, I’m not the only one to think that Ryanair’s “uncontrolled” growth was not sustainable. Stelios was actually the first one to blow the whistle on Ryanair’s strategy. Three months ago, Stelios tackled Ryanair at the Word Low Cost Airline Congress, saying that “Ryanair looks for volume of passengers while easyJet looks for margins“. Indeed, Ryanair has adopted a “volume strategy” in order to get the highest load factor possible, but also to reach the number of passengers that its airport contracts require. Ryanair receives grants, including public ones, from airports and local authorities, based on the number of passengers carried. And thanks to these grants, Ryanair is able to offer cheap fares.
Last week, Stelios went further still, saying that “the era of endless fast growth and even larger aircraft fleets is near its end. Low-cost airlines are now the mainstream way to fly in Europe. As such, it’s getting difficult to find significant new passenger traffic which is profitable” and interpreted “the withdrawal from the aircraft purchase as a sign that the era of rapid growth in budget airlines and their fleets was coming to an end”.
Moreover, several articles, notably from CAPA, have already questioned Ryanair’s growth strategy. CAPA underlined that Ryanair was discounting (maybe too) massively, to fill up its rapidly growing fleet and network.
Last week, The Independent noticed the same fact, that Ryanair just can’t maintain its growth. “Now that it is operating off such a high base it becomes more and more difficult for Ryanair to maintain these growth rates. Even before the recession decimated the demand for cheap, discretionary travel, it was clear that Ryanair’s growth rates would have had to slow. Otherwise, it would be carrying something like 175 million passengers by 2015 and 435 million by 2020. Quite clearly that’s not going to happen. Otherwise everyone in Europe would end up spending every waking hour either airborne or at the airport — a truly terrifying thought”.
What is Ryanair to do for its growth-driven model to generate cash?
I think Ryanair’s model is still greatly dependant on its successful growth. Ryanair’s DNA is not about rationalising routes and increasing its fares in order to improve its profits. Ryanair’s DNA is to create artificial demand through its secondary airports all over Europe. Only with this configuration Ryanair is able to make profits. A configuration which feeds its addiction, one of constant growth and passenger traffic.
How is such a model to turn into a more ”controlled” one? I do not have the answer to such a question… All I know is that the Ryanair as we’ve come to know it has now come to an end.
Totally agree. Ryanair’s business model is overly dependent on creating artificial demand to secondary airports through low fares and continued growth. There is no way it can rely on increasing fares as passengers will not be willing to pay for such poor service on Ryanair. Interesting to see how this new strategy turns out!
I really think that the real problem that Ryanair will have to face in the future is the grant problem. I’m not really sure local authorities are going to keep giving those grants again and again. In France, a region like “Charente” are criticizing agressive Ryanair method (source : http://www.quellecompagnie.com). As you said in your articles : it seems to be like blackmail : give us a grant or we close your route(s)…