alanwilliamson

An 'open source' model airline - Ryanair

When I was editor in chief at Java Developers Journal, I wrote in one of my many editorials about the notion of an open source airline. The idea was simple, the seats would be free and the airline would make their money from value added services. I was trying to make parallels between the upcoming vogue of open source software and how the same business model could be applied to other industries. That was nearly 10 years ago now, and at the time, I was shot down in flames as a heretic and saying it was silly anology. However, one airline is proving my case: Ryanair.

I have flown with Ryanair on a number of occasions and could never figure out why or how they could fly me from Glasgow Prestwick down to London Stensted for only 1p (+ taxes). The process was horrendously simple. Online checkin, no bags, no seat allocation, no inflight service, hell even the seats didn't recline. It was more akin to taking a bus than an air plane. Yet it works.

I had to learn more, the secret of their formulae. Where they making money, or where they losing money hand over fist as it tried to win passengers from the other routes. I discovered this book by Alan Ruddock that took a look at the history of both the airline and the man behind it, Michael O'Leary.

Once starting the book, I literally could not put it down, and in only a matter of days, I had consumed the whole thing, and was left in awe of what was going on in the no-frills airline industry. The book catalogued the other airlines as well, including Easyjet, GO, and Buzz, but it was mostly about the rise of Ryanair and how O'Leary got himself involved in one of Irelands most profitable companies and Europes most popular airline.

The key to their success was mind blowingly simple; cut as many costs as possible without compromising safety.

Let me run down some of the points that stand out for me from the book.

  • Outsource as much as possible; they couldn't prepare inflight snacks as cheaply
  • Do not out source inflight cleaners; let the inflight staff do that upon landing
  • Do not serve any snacks that make it harder to clean; so crisps and nuts are out
  • Turn around planes within 20-30minutes instead of the usual hour. Hence able to run more routes in a day
  • Fly the same plane/model throughout the company, making it easier to move around pilots and staff as training is cheaper
  • Do not use rampways at the airport; they cost more and are slower to get people off the plane. By using stairs they can unload quicker from both ends of the plane.
  • Encourage use of the online facilities as much as possible and charge people for using the checkin desks
  • Discourage checked in luggage by levying a charge on each item
  • Sell advertising inside the plane; captive audience for at least an hour
  • Do not under estimate the revenue from inflight scratch cards
  • Fly to out of the way airports where more favourable rates can be agreed
  • Focus on one thing and do it well; create revenue sharing partnerships for everything else
  • Keep flying simple; point-2-point. If you want to fly through a number of hops, then you do it as individual flights with no single ticket.
  • No refunds for anything. Miss a flight? Tough, buy a ticket for the next flight
  • No cross subsidizing; every flight has to make a profit or it doesn't fly
  • Challenge everything; every price and every contract

There are many stories within the book as to how O'Leary got his own way. He was a man that was never scared to challenge the status quo and should you ever call his bluff, he would simply do as he threatened. He often moved out of airports that were established but were trying to put up their landing charges. His line was that he was bringing in passengers to their region so they should be doing all they could to appease and keep Ryanair.

He also has a policy of never dealing with unions. He will happily let Ryanair employees join a union, but he refuses to recognise them and instead will talk directly to his own staff. There was a famed dispute over the bagguage handlers at Dublin airport that went on strike. In response, he simply banned checked luggage and at that point the notion of charging a levy on bagguage handling was introduced. He always looked for a way to remove the bargining chip his opponent had from the table.

In another story, O'Leary was slow to recognise the power of the internet, watching the progress of EasyJet with a keen eye. Hacked off with the travel agents and the commission he had to pay them (7%) he wanted to remove that completely and looked to the internet to do that. He got quotes in for someone to build the site, and they came in around £3M. He refused to accept that, instead, going to 2 irish students, paying them ultimately £14k to complete the www.ryanair.com site, where by, in the first year, it was handling 60% of all bookings!

One of Ryanair's trademarks is their geographically-challenged route planning. Anyone that has flown on a Ryanair flight knows that when they advertise a flight to a given city, then 9 times out of 10, it is no where that city. For example, Glasgow Prestwick is 30miles away, London Standsted is 31 miles away from London. He does this on purpose, as the smaller airports are more favourable to have a carrier come in and literally regenerate the area. Sometimes, he can even levy a charge from the airports to bring people through to them. Completely unheard of in the airline industry.

Throughout this period they were experimenting with fare prices and soon realised that due to all the partnerships that if they flew planes empty they were losing more money on their revenue sharing partnerships. It was more profitable to fly a plane full of people for free than to lose out on the upstream revenue.

For example, since the airports were out of the way, the majority of people had to hire a car to get back and forth from the airport. Ryanair agreed a 50% (tiered) share with the car companies for the pleasure of delivering them a whole new raft of customers. They do this the whole way down. If they are bringing people to the airport, then they want a cut of any revenue generated from that.

So instead of losing out by running empty planes, they will often do 'sales' where by they fly you anywhere on their network for next to nothing. Late bookers still have to pay the full price, which is still way cheaper than the majority of the airlines running to the same area. To give you an example, I have to go to London once a month and rarely do I pay the full fare price, even with the cost of the Stansted Express train into London, the whole trip is done in one day, for less than £100 (give or take) door-to-door including all parking, underground and food.

O'Leary wants to fly to the US, and instead of charging for seats, he will run an in-air casino and let people gamble the whole way there and back. It only takes one unlucky gambler to fund the whole flight, and he has plane full of them! Simple but ingenius.

He is not a character without controversy, but you can't help but like him. He's like a tougher, rougher, meaner Richard Branson.

One story had me particularly smiling. He lives outside of Dublin that's an hour drive away, and while he refuses to get a helicopter into the office, he does have a driver so he can work in the back of his Mercedes. One morning he realised, that the bus/taxi lane was empty and if he could use that, he could shave literally half of the travel time. So what does he do? He registers and buys himself a taxi license at nearly £4k, so he can legally use the taxi lane! He also claims he will take anyone on that route if they should up at his house at the time he leaves, but will charge them! Simple and cheeky, but woefully effective.

Many cannot understand why Ryanair's share price is going from strength to strength and how the model works. The open source world has shown that the model by in large does work but like everything in life, nothing is a sure bet. But by offering your product for free, you reach a wider audience that ordinarily you would not have reached. If they weren't going to buy from you in the first place, then why not give it to them for free and then see if you can upsell them other services. Simple but effective.

In the meantime, O'Leary is proving that the model works beyond the software world.


 

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