Ryanair - 6
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Hi guys,
I am a still trying to understand Ryanair's business model, I wonder if you can help.
I was just wondering why with Ryanair's profit margin was so incredibly high back in 2005, they felt the need to continue to expand and in turn knock down their profit margin by entering lots of new markets.
What benefit did the continuing expansion bring and why did they do it?
Thanks in advance for any feedback
I am a still trying to understand Ryanair's business model, I wonder if you can help.
I was just wondering why with Ryanair's profit margin was so incredibly high back in 2005, they felt the need to continue to expand and in turn knock down their profit margin by entering lots of new markets.
What benefit did the continuing expansion bring and why did they do it?
Thanks in advance for any feedback
Sparky
In 2005 they stated that Margins were excessively high and couldn't continue longer term. A business will love this short term but they have to plan for organic growth as its generally cheaper than buying another airline.
The agressive expansion of routes was based on looking at the way EU was developing and the opportunities that would result from this. Additionally there was a lot of new aircraft due bought post 9/11 that needed homes.
Capital cities are well served by existing airlines, as are secondary cities but there was always smaller cities and areas that couldn't really increase tourism and business opportunities as many countries tend to keep investments into big cities.
In a way agressive expansion has a cost as can do it too quickly and run out of cash or it stretches an organisation so much that people can not cope and the organisation collapses.
In Ryanair's case they have the cash and as an organisation they are pretty small but that allows them to move quickly. They make mistakes but the key is learning from a mistake.
Ultimately looking at the way the legacy carriers have contracted i.e. BA or disappeared Sabena / Swiss / Austrian / Alitalia there was always a model where being nimble would help because you are not stuck with heritage costs and unions who wish to preserve the status quo.
They are continuing to expand but now with many major airports like BCN / CPH etc losing numbers there are opportunities that will develop here. Locking in slots at these airports will start to hurt legacy carriers and it will happen.
I guess the benefit can be meaured in many areas where an airport existed in name only before and you are getting 50 - 100,000 passengers going through it.
Tourism is more effective in creating local jobs in economically disadvantaged areas than direct state aid. Quite simply money spent in tourism tends to stay local and is more likely to be respent locally. Where as state aid can have political strings attached or just get stolen by the mafia as in Italy.
I think the Ryanair of 2016 will bear little resemblance to the Ryanair of 2009 but then again there is a huge diff between 2009 Ryanair and 1999 Ryanair.
Ultimately Ryanair board is there to serve the interests of its shareholders and the agressive building of market share will stop in about 5 years and they will be more interested in dividend policy etc.
MOL is fond of saying there will be 4-5 majors in Europe eventually with AF / LH / FR / Easyjet and maybe BA with quite a few secondary airlines in niche markets. Personally think BA and Easyjet may get tied together but that just a guess.
Ryanair I think just happened to be in the right place at the right time and particularly post 9/11 made calls that would have bankrupted them had passengers stopped flying. As the Americans say its betting the farm and hoping it works.
Their willingness to look at every activity and see whether its a revenue generator or a cost and take action is pretty unique for a service industry BUT is pretty common in manufacturing. This enables them to develop ancillary revenue from everything you can think of.
Like them or hate them they are the most successful Airline in Europe over the last 10 years and commercially are way ahead of their competitors in thinking of how to generate a profit.
Stand by for the thrashing of the busines model now.
In 2005 they stated that Margins were excessively high and couldn't continue longer term. A business will love this short term but they have to plan for organic growth as its generally cheaper than buying another airline.
The agressive expansion of routes was based on looking at the way EU was developing and the opportunities that would result from this. Additionally there was a lot of new aircraft due bought post 9/11 that needed homes.
Capital cities are well served by existing airlines, as are secondary cities but there was always smaller cities and areas that couldn't really increase tourism and business opportunities as many countries tend to keep investments into big cities.
In a way agressive expansion has a cost as can do it too quickly and run out of cash or it stretches an organisation so much that people can not cope and the organisation collapses.
In Ryanair's case they have the cash and as an organisation they are pretty small but that allows them to move quickly. They make mistakes but the key is learning from a mistake.
Ultimately looking at the way the legacy carriers have contracted i.e. BA or disappeared Sabena / Swiss / Austrian / Alitalia there was always a model where being nimble would help because you are not stuck with heritage costs and unions who wish to preserve the status quo.
They are continuing to expand but now with many major airports like BCN / CPH etc losing numbers there are opportunities that will develop here. Locking in slots at these airports will start to hurt legacy carriers and it will happen.
I guess the benefit can be meaured in many areas where an airport existed in name only before and you are getting 50 - 100,000 passengers going through it.
Tourism is more effective in creating local jobs in economically disadvantaged areas than direct state aid. Quite simply money spent in tourism tends to stay local and is more likely to be respent locally. Where as state aid can have political strings attached or just get stolen by the mafia as in Italy.
I think the Ryanair of 2016 will bear little resemblance to the Ryanair of 2009 but then again there is a huge diff between 2009 Ryanair and 1999 Ryanair.
Ultimately Ryanair board is there to serve the interests of its shareholders and the agressive building of market share will stop in about 5 years and they will be more interested in dividend policy etc.
MOL is fond of saying there will be 4-5 majors in Europe eventually with AF / LH / FR / Easyjet and maybe BA with quite a few secondary airlines in niche markets. Personally think BA and Easyjet may get tied together but that just a guess.
Ryanair I think just happened to be in the right place at the right time and particularly post 9/11 made calls that would have bankrupted them had passengers stopped flying. As the Americans say its betting the farm and hoping it works.
Their willingness to look at every activity and see whether its a revenue generator or a cost and take action is pretty unique for a service industry BUT is pretty common in manufacturing. This enables them to develop ancillary revenue from everything you can think of.
Like them or hate them they are the most successful Airline in Europe over the last 10 years and commercially are way ahead of their competitors in thinking of how to generate a profit.
Stand by for the thrashing of the busines model now.
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Just checked the news at the FR Irish/UK sites if there are any tryumphant texts about Aer Lingus' losses. Nothing as yet. But look what I found: Upp för Ryanair, ner för SAS. Do you understand? I do, it's in Swedish. But why is it published along with the English-language news and not at the Swedish site? So happy there?
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Just checked the news at the FR Irish/UK sites if there are any tryumphant texts about Aer Lingus' losses. Nothing as yet.
As shareholders in Aer Lingus, I wonder to what extent Ryanair regrets attempting an Aer Lingus takeover, and now owning so many of its shares that won't pay dividends for a couple of years at least.
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Extra A/c for BHD?
If true what would the likely routes be for it to exist there?
If true what would the likely routes be for it to exist there?
Ryanair to start flying from Belfast City Airport
- Liverpool - exists
- East Midlands - exists
- Bristol - exists
- Paris
- Barcelona
- Riga
- Brussels
- Rome
- Katowice
BUT, the plans are likely to have changed to reflect their current relationships and deals with airports, and what's more the runway isn't long enough for some of the above mentioned destionations I think.
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BHD
BHD - BOH has been rumored numerous times since Jet2 stopped flying BFS - BOH, interesting with both airports having new planes delivered soon to see if this route does happen.
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Thanks for the response racedo!
I saw an IATA article on it here as well
http://www.iata.org/NR/rdonlyres/FCD...g_June2006.pdf
Niche markets will have the highest margins. As airlines deploy their
competitive advantages to other markets and grow their network, overall profit margins will fall, as their advantage diminishes in new markets, but it makes economic sense to expand until absolute profits stop growing – if those
operating profits are at least covering the airline’s cost of capital and tax.
I saw an IATA article on it here as well
http://www.iata.org/NR/rdonlyres/FCD...g_June2006.pdf
Niche markets will have the highest margins. As airlines deploy their
competitive advantages to other markets and grow their network, overall profit margins will fall, as their advantage diminishes in new markets, but it makes economic sense to expand until absolute profits stop growing – if those
operating profits are at least covering the airline’s cost of capital and tax.
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Thanks for the response racedo
I also found this report by IATA on profit margins as well
Niche markets will have the highest margins. As airlines deploy their
competitive advantages to other markets and grow their network, overall profit margins will fall, as their advantage diminishes in new markets, but it makes economic sense to expand until absolute profits stop growing – if those operating profits are at least covering the airline’s cost of capital and tax.
I also found this report by IATA on profit margins as well
Niche markets will have the highest margins. As airlines deploy their
competitive advantages to other markets and grow their network, overall profit margins will fall, as their advantage diminishes in new markets, but it makes economic sense to expand until absolute profits stop growing – if those operating profits are at least covering the airline’s cost of capital and tax.
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Probably use the aircraft to free up others at EMA, PIK etc. so they can fly from their respective bases.
When will FR be able to fly full loads out of BHD? BOH would be a good bet.
When will FR be able to fly full loads out of BHD? BOH would be a good bet.
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BHD-BHX would be good, give Flybe a run for their money!
Doubt that City would allow that and upset Flybe.
Riga Katowice
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With all these extra A/C due to arrive I dont see why
Ryanair dont think STN-MAN and its about time they
had a long hard look/think about STN-LPA a very nice money
maker for the winter months.
Ryanair dont think STN-MAN and its about time they
had a long hard look/think about STN-LPA a very nice money
maker for the winter months.
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Doubt if BHD would be too worried about upsetting Flybe given their opposition to the runway extension plans.
Blimey Mr Mc...they will be drumming you off the Bypass bridge with seditious talk like that!!
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On the new Irish 'Air Travel Tax'...does anyone know if Ryanair are charging this for departures on and after 30th March??? My understanding is that the AIRLINE has to collect and account for it. Are Ryanair playing ball in the booking system on this....I know that MOL has dropped flights at SNN because of it but am wondering is he going to collect the Tax for the Government on his remaining routes out of Ireland.
Sikky
Sikky
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Certainly Beuvais and Charleroi should be possible with decent load out of City currently as for the other no chance until and concrete extension happens. If a few more routes opened up and more a/c I might be tempted to return home! 
As for the loads inbound they have changed to 170 allowable and outbound they are not restricted on "Loads" as in pax but its more the case of allowable fuel to reach destinations. With the routes served currently thats no problem, its going farther afield hence the need for extended runway to allow the required fuel+pax.
Regards
As for the loads inbound they have changed to 170 allowable and outbound they are not restricted on "Loads" as in pax but its more the case of allowable fuel to reach destinations. With the routes served currently thats no problem, its going farther afield hence the need for extended runway to allow the required fuel+pax.
Regards