City Cruises

Published on Friday, November 25, 2011

TravelMole Guest Comment: Ryanair’s million seat gamble




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.

In some ways the trade can only blame itself for the aggressive two-pronged attack on travel agents Ryanair has launched this month, because in colloquial speak, the industry have “had Ryanair’s trousers down and given them a good financial spanking”.

First we saw the credit card avoidance “loophole” closed via a move to a branded Ryanair pre-paid master card. Effectively overnight has this pushed up the prices agents could sell Ryanair flights for by £12 per person or £30 per booking, which in turn reduced the percentage of times Ryanair is packaged as the “Base” flight by 60%.

Previously, although Ryanair charged much higher baggage costs compared to other airlines at £100 per couple taking 2 bags on holiday compared to EasyJet’s £62, this £38 pricing disadvantage came later in the booking path as baggage is deemed to be an option extra no longer included in the basic holiday price.

On price comparison sites such as Teletext Holidays, Ryanair often provided the base flight for holiday pricing and as such benefited from the demand generated in this price conscious holiday channel.

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.

Most low-cost carriers have been moving capacity on to more resilient leisure routes and Ryanair has lead this charge with a massive increase in capacity to the Canary Islands. Given this need to drive more leisure flight sales, travel agents might have expected Mr O’Leary to become more agent friendly rather than dramatically less.

However, in expecting this, agents are missing a key element of Ryanair’s pricing model. 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."


See Endacott's blog here


 

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