Originally Posted by
Rated De
As such the inherent weakness in the low fare model is that yield is low and difficult to find...Ryan Air need persistent high Load factors otherwise that cash you speak of rapidly evaporates.
Good points and hit on a very significant revenue issue here for FR.
With regard to yeild, the negative effect of a drop in load factor is magnified due to the escalator in the yeild pricing model e.g. the last few pax booking may pay 10x as much as the first few pax pay for their tickets, so a drop of say 10% in load factor could reduce overall revenue by perhaps 30% or more.
In this respect one could argue that FR profit model is not so very different to EK, whereby the cattle barely covers the operating cost and the
premium pax contribute all of the profit
Unfortunately FR do not have a premium product like EK. What FR are essentially selling at premium price is time and convenience i.e. these are mostly late booking, time and reliability sensitive pax e.g. business travelers or other people who need to travel urgently at a specific time.
FR reputation for reliability is now shot to peices and will take time to restore. FR aggressive posturing in the face of strikes actually does them no favours in this respect, because it prolongs the uncertainty.
Business travelers now have a perfect argument why their employer should put them on a proper airline instead of FR, even if it costs a lot more. Private, urgent travelers will make similar calculations.
Ryanair have admitted this problem and their response is to trim the yeild slope, most especially reducing the price of the most expensive seats. So the recent increases in load factor are masking a much more significant drop on the revenue side, simply because they are having to sell the tickets cheaper to fill the planes.
As a secondary effect, pax are then discouraged from bidding up ticket prices rapidly by booking early, because the pricing remains low for longer. The phycological effect of the yeild price escalator is reversed in a kind of pricing death spiral.
Essentially, FR have themselves destroyed the most profitable aspects of their own product offer
Bang goes the yeild...