"Ryanair’s million seat gamble" it's a title of an interesting comment just published by
TravelMole. Here is an abridged version:
Steve Endacott, chief executive of On Holiday Group, warns Michael O'Leary that he might have gone one step too far in his ongoing battle with the trade.
"After years of ignorance, Ryanair has finally realised how many agents were booking their flight and packaging them into holidays, due to the heavy use of credit card surcharge avoidance techniques via virtual booking cards.
/./Although their move is highly logical, as they were losing millions in yield from agents avoiding credit card fees, the sudden price hike will clearly reduce visibility and sales of their flights. When you're earning £50 a flight on luggage, empty seats are even more expensive!
The second move has been to block agents compiling databases of Rynair’s flight prices by introducing a “human” question interface e.g. enter these letters, before a search can be launched. This is less logical in my opinion. It is obviously annoying to its “real” direct customers and more importantly it cuts off a distribution channel I really do not think Rynair understand the size of ie. dynamically packaging agents.
I would estimate that 30% of dynamic packaging was based on Ryanair flights and hence the sale of over 1 million seats on leisure routes has been put at risk. Low-cost carrier load factors and yields are under threat currently, because of the decline of their core “high frequency short flight duration” city route network, due to the current economic climate.
/./In order to drive market leading flight pricing, Ryanair is dependent on ancillary income and believes that agents who package its flights are denting their accommodation, transfer and insurance sales by offering the customers cheaper options than those available on the Ryanair website.
In some ways Mr O’Leary may be right, but in the age of the internet I think it is he who is missing the key point. It's really easy for customers to shop around online and, given their mistrust of the Ryanair pricing, they are likely to shop around anyway, which is probably the main reason his sales of ancillaries are relatively low ie. his site is far to expensive.
Therefore, in his attempt to cut out agents, O’Leary is taking a 1m seat gamble, that the lost sales channel presented by dynamically packing travel agents will be made up by increased direct sales.
However, will it? Unlike easyJet, I am not convinced Rynair has the brand values for customers to trust it with their holiday requirements. At the moment customers are buying their holidays from trusted travel agency brands and accepting later in the booking path that their “bus service to resort” ie low-cost flight, is with Ryanair.
Are customers really going to visit the Ryanair website and build their own holiday? The answer is obviously that some will, however, I think Ryanair will quickly see a large drop on sales on leisure routes and may have to come back to the table.
EasyJet when faced with the same strategic issues, decided that if it could not beat dynamic packaging agents, that it should join them by launching easyJet Holidays, whilst at the same time providing a controlled XML supply of seats to DP agents where they charged a £6 per flight fee for the privilege.
I know Ryanair likes to be a leader and I greatly respect it for it, but in this case Mr O’Leary you might gain more by becoming a follower and working with the travel trade."
Generally I think it's not very wise to relay on just one sales channel, but apparently that's what MOL wants. The decision to self-cripple the most important Ryanair's vending place, their own website, by introducing Capcha, could become an important co-factor if sales fall. Later of course the source of possibly worsening indicators could be confounded and the blame laid on virtually anything else.