Ryanair results
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If we're treating air travel increasingly as a commodity, let's look at the supermarket comparison.
The biggest supermarket chain in the UK is Tesco which is focused on delivering value rather than low prices. The lowest-priced chains are, looking at their relative size, 'niche' operators. Ironically, in the same way that Waitrose or the Harrods Food Hall are 'niche' operators.
Now, the question is, will Ryanair become a 'niche' operator, only able to offer dirt cheap flights with bare-bones service to out of the way airports? If they do, they'll have a lot of spare capacity.
There will always be a hard-core who want the cheapest of everything. But as the Tesco analogy shows, it's becoming increasingly apparent that the majority want a little more....and are willing to pay for it.
The biggest supermarket chain in the UK is Tesco which is focused on delivering value rather than low prices. The lowest-priced chains are, looking at their relative size, 'niche' operators. Ironically, in the same way that Waitrose or the Harrods Food Hall are 'niche' operators.
Now, the question is, will Ryanair become a 'niche' operator, only able to offer dirt cheap flights with bare-bones service to out of the way airports? If they do, they'll have a lot of spare capacity.
There will always be a hard-core who want the cheapest of everything. But as the Tesco analogy shows, it's becoming increasingly apparent that the majority want a little more....and are willing to pay for it.
Jolly Green Giant
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Thats what I'm saying BL, Tesco's are following a differentiated product strategy based on service. They have geared all their capabilities and resources to that end. But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service, explain then the rise and rise of Aldo and Lidl supermarkets? Explain the rise and rise of Wal-Mart?
Ryanair have done the same. And a firm following a low cost, price leader strategy is not a "niche" operator. Thats the generic strategy they have chosen.
There is always room in the market for price leaders. And what we are seeing is the airline industry is a mature industry now, the hey day and glamour days are long gone. And what can be seen in mature industries is the battle shifts from non-price to price competition.
Ryanair have done the same. And a firm following a low cost, price leader strategy is not a "niche" operator. Thats the generic strategy they have chosen.
There is always room in the market for price leaders. And what we are seeing is the airline industry is a mature industry now, the hey day and glamour days are long gone. And what can be seen in mature industries is the battle shifts from non-price to price competition.
Too mean to buy a long personal title
OneWorld22: But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service, explain then the rise and rise of Aldo and Lidl supermarkets?
When Aldi, Lidl and Netto first moved in to the UK, the financial press was all full of the impending demise of the established supermarket chains. Sainsbury's and Tesco both doomed, must radically reinvent themselves to match the prices, etc. etc. But it hasn't happened, has it? It's been something like 10 years now, and Aldi, Lidl and Netto are still effectively confined to being specialist retailers.
The market shares may fall into a different equilibrium where the airlines are concerned, but I entirely agree with BahrainLad on this - enough of the UK/European market is sufficiently concerned with value, as opposed to price, that FR and others will hit a ceiling. While this may come as no surprise to astute observers, I reckon that in time MOL's present rhetoric will come to sound a bit hollow.
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OneWorld22:
But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service.
But if you're trying to say that the public now don't care about price and all they want is great customer service and quality service.
Ryanair have specifically stated that they are not interested in providing anything other than low fares, at all odds.
Time will tell whether they become a Netto/Aldi/Lidl or a Tesco/Sainsburys/Asda.
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I think there are other factors involved here particularly equipment and routes ie flybe operates from very small british airports with regional equipment using a loco business model, so this does not put it head to head with ryanair. Following on how many of these routes could Ryanair use?.
Easyjet seem to be overlooked by MOL these days as if they were not competitors at all, and i still question the swap of equipment by EZY to the airbus which i am sure ( although will stand corrected ) has a greater range opening up the longer routes to EZY in the long term, to the point were they could do etops sectors to ny. A little far fetched i know but all you have to do is look just how far the boundary of the eu is just now and you will see that it is almost to the middle east and the artic north.
At the end of the day the airlines that survive the fare wars could just be the ones with the most daring bank manager.
Easyjet seem to be overlooked by MOL these days as if they were not competitors at all, and i still question the swap of equipment by EZY to the airbus which i am sure ( although will stand corrected ) has a greater range opening up the longer routes to EZY in the long term, to the point were they could do etops sectors to ny. A little far fetched i know but all you have to do is look just how far the boundary of the eu is just now and you will see that it is almost to the middle east and the artic north.
At the end of the day the airlines that survive the fare wars could just be the ones with the most daring bank manager.
Jolly Green Giant
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Like BL you're missing the point Globaliser......
No true business strategist would have predicted the downfall of Sainsbury's and Tesco's because of what I pointed out earlier, namely that firms can choose EITHER a strategy based on low cost, low price to the customer OR offer a product that is significantly differentiated from the competition that the firm can charge a price premium.
In other words there's plenty of room for a Sainsbury's AND Aldi/Lidl in the market place. It does not have to be one or the other. Each have their own customer base.
There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis. All these players have their target market, leave them to it! Theres room for all firms that follow sound strategic choices and commit themselves and all their resources totally to it.
BL, customers don't want both, if they did, Ryanair would just be another case study on a failed airline read by MBA's......Customers know full well what they get with FR and they are willing to pay for it. Who are you to tell us all here what exactly the customers want? They make it clear by looking at FR's passenger numbers.....
No true business strategist would have predicted the downfall of Sainsbury's and Tesco's because of what I pointed out earlier, namely that firms can choose EITHER a strategy based on low cost, low price to the customer OR offer a product that is significantly differentiated from the competition that the firm can charge a price premium.
In other words there's plenty of room for a Sainsbury's AND Aldi/Lidl in the market place. It does not have to be one or the other. Each have their own customer base.
There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis. All these players have their target market, leave them to it! Theres room for all firms that follow sound strategic choices and commit themselves and all their resources totally to it.
BL, customers don't want both, if they did, Ryanair would just be another case study on a failed airline read by MBA's......Customers know full well what they get with FR and they are willing to pay for it. Who are you to tell us all here what exactly the customers want? They make it clear by looking at FR's passenger numbers.....
What happens when long haul starts raking in the cash again for the very large airlines? When the North Atlantic premium pax return - and like the salmon, they always have - BA for one will be raking in gazzilions.
Nothing to stop them then 'refreshing' their shorthaul product and pricing. Much to the detriment of those airlines whose whole business is inside european airspace.
Another point on quality. I think the biggest quality shorthaul airlines can offer is the city pair, followed by the frequency/timing, followed by reliability.
As for allocated seats - some pax want them, others like free seating. In flight meals/drinks/newspapers - again as many don't want them as do. Nice happy staff - everyone wants them but I don't think any airline can claim a monopoly on those.
If the above is true then one business model suggests itself as being attractive.
Cheers
WWW
Nothing to stop them then 'refreshing' their shorthaul product and pricing. Much to the detriment of those airlines whose whole business is inside european airspace.
Another point on quality. I think the biggest quality shorthaul airlines can offer is the city pair, followed by the frequency/timing, followed by reliability.
As for allocated seats - some pax want them, others like free seating. In flight meals/drinks/newspapers - again as many don't want them as do. Nice happy staff - everyone wants them but I don't think any airline can claim a monopoly on those.
If the above is true then one business model suggests itself as being attractive.
Cheers
WWW
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Surely if BA are to compete on quality and reliability, they'll have to work at matching Ryanair's punctuality.
"Saturday May 29, 2004
The Guardian
Ryanair is Britain's most punctual airline, according to statistics released by the Civil Aviation Authority this week. With 81% of their qualifying flights on time or less than 15 minutes late in 2003, Ryanair tops a table that includes British Airways in fourth place with 78% of their flights on time. "
I've flown with Ryanair dozens of times to the South of France. I've only been delayed once and I've been early many times. I like the small airports that they use. On arrival it's only 10 yards to the car hire desk, 500 metres to the autoroute and you're away.
"Saturday May 29, 2004
The Guardian
Ryanair is Britain's most punctual airline, according to statistics released by the Civil Aviation Authority this week. With 81% of their qualifying flights on time or less than 15 minutes late in 2003, Ryanair tops a table that includes British Airways in fourth place with 78% of their flights on time. "
I've flown with Ryanair dozens of times to the South of France. I've only been delayed once and I've been early many times. I like the small airports that they use. On arrival it's only 10 yards to the car hire desk, 500 metres to the autoroute and you're away.
Too mean to buy a long personal title
OneWorld22: In other words there's plenty of room for a Sainsbury's AND Aldi/Lidl in the market place. It does not have to be one or the other. Each have their own customer base.
There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis.
There also room for Ryanair/Easyjet and BA/Lufthansa in the Euro marketplace as well. Mistakes come if BA/Lufthansa try to take on Ryanair on price and find they can't compete in the long run on that basis.
The problem is that MOL - or rather his rhetoric - fails to recognise this. And I think that he will come to rue his words. (No, actually, given that he's such a thick-skinned *******, we will come to see that his words were no good.)
CARR30: Surely if BA are to compete on quality and reliability, they'll have to work at matching Ryanair's punctuality.
Of course, as with all statistics one needs to dig a bit more to find out what they really mean.
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Guys, Guys, FR carried 26 milliion passengers last year and are currently carrying more bodies around Europe the BA, the formula works ! the passengers have chosen. If another company wants to try and take that market good luck, some people will pay for the frills, most will take a cheap ticket for a hour long flight. Its a simple model, lets stop whinging and pretending it will go away... it won't.
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Dewdrop, I don't think anyone's denying that Ryanair can carry around huge number of passengers around Europe. At the price they're offering it would be wrong to expect they wouldn't. The questions I think need to be answered are:
(a) If you accept a £1 lead-in price is paid for by the pax who pay the £100+ fare, then how do you improve yield when flag-carriers are lowering their prices too?
(b) Are you going to be able to carry on differentiating your product in a highly competitive market place if you focus exclusively on price - and other carriers are very close to matching that price?
Low margin requires very high volume to produce profit. Profit provides opportunity for investment. It doesn't take much before it becomes hard to realise enough money to invest in future products...
I have no doubt that MOL and RY will be around for a long time although there's no way the growth of previous years will continue at the same rate. RY are very good at what they do and MOL (for all his cheeky chappy Irish charm) is a bright man (also a trained accountant so knows the cost and value of all around him)who's been around for a long time.
Personally though, I predict rocky waters ahead and I think he knows it (ergo the downbeat trading assessment from the usually ebullient gent).
(a) If you accept a £1 lead-in price is paid for by the pax who pay the £100+ fare, then how do you improve yield when flag-carriers are lowering their prices too?
(b) Are you going to be able to carry on differentiating your product in a highly competitive market place if you focus exclusively on price - and other carriers are very close to matching that price?
Low margin requires very high volume to produce profit. Profit provides opportunity for investment. It doesn't take much before it becomes hard to realise enough money to invest in future products...
I have no doubt that MOL and RY will be around for a long time although there's no way the growth of previous years will continue at the same rate. RY are very good at what they do and MOL (for all his cheeky chappy Irish charm) is a bright man (also a trained accountant so knows the cost and value of all around him)who's been around for a long time.
Personally though, I predict rocky waters ahead and I think he knows it (ergo the downbeat trading assessment from the usually ebullient gent).
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OJS I agree with everything you say about FR and the bottom line is cost control. If FR maintain the lowest cost base they will allows lead the LC operators, and put pressure on everyone else who wants to compete on price.
The question I suppose is how big is the market for those who wish to provide a service with frills and who is trying to grab that market ?
The question I suppose is how big is the market for those who wish to provide a service with frills and who is trying to grab that market ?
