Peter thanks a lot for the comment! I agree it is a valid question. Certainly long term.
In the mid-term I would lean towards saying it is largely sustainable.
When I was writing this post, I looked at their most recent financials and apart from the hiccup in 2013 that your link points to they seemed to have been doing really well… Certainly not much inverse correlation between pax volumes and economic recovery.
Key reason might be that there are large customer segments who will not trade up despite rude staff and other such aspects, because their demand is just too price elastic:
i) mid-to-low budget tourists visiting London- especially families – on their once in a couple of years / lifetime visit to London
ii) UK tourists from this budget category
iii) tourists on weekend trips, where airfare matters a lot more
v) business people – two types – shoestring business travellers, as well as usual ones flying to low volume destinations that Ryanair serves direct and where the likes of Lufthansa, SAS or Aitalia would require two legs
In addition, EasyJet (I believe) is not doing nearly as well… perhaps there is a no-man’s land at least for now between low frills and flag carriers? It might be the case given how many of the flag carriers have traded down – e.g. AerLingus or SAS. Or even BA in some instances.
Ben thanks for the comment!
On fares: my bet is they are going to remain the bottom segment of the market. The modifications they have made to date do not in any way go against their core model – they just adjusted a few things that were pretty easy to implement.
On legacy carriers: this is an entirely different discussion. Some became seriously competitive on fares and cut on the sandwiches, off-line checkin and wine on short haul – example is SAS. Others stayed as they are but acquired low fare airlines to benefit from this growing segment – like Lufthansa and German Wings
On fuel policy: any serious accident due to savings on safety could be a fatal blow to them so I’m sure they still leave plenty of margin!
Thanks for the great point Mondli! Indeed they have been looking at long haul for quite some time. I believe one thing is that they really need to use the new generation aircraft (most likely A350) because in order to offer low fare intercontinental travel on something like B777 or A340 the extent to which you have to squeeze people is just prohibitively uncomfortable for a long haul journey. Once they get their aircraft, there seems to be a lot of upside from Open Skies as you point out.
Thanks for the great comment Saaket! I am sure many of the factors you mention play out here, and indeed your point about secondary airports is very illuminating. One thing I would add is that Ryanair is probably unlikely to take any risks – with their reputation for cost savings they are under constant implicit scrutiny – “are they saving on my safety?”. My guess is that a serious incident due to savings would be really an extreme blow to their reputation. So I think they do maintain a safety margin still. Perhaps they realized that normally you take way too much fuel and so they optimized on that to some extent.
Very interesting post! I recently found myself shopping in this market segment, so it was quite an enlightening read.
I agree with your questions at the the end. What strikes me though is that they assume a particular growth strategy, i.e. expand the scale of the current activity.
While it definitely is one of the paths to consider, perhaps there are some additional broader questions, possibly pointing at alternative strategies:
i) A number of clothing/accessories brands have remained successful by staying small, preserving the original spirit. I’m wondering if perhaps the founder could use the same model on small scale to expand to different kinds of products- e.g. clothing? cosmetics? The founder could replicate her approach in terms of operations and capitalize on the vibe around OMyBag
ii) would gaining scale not dilute the “honesty” of her sourcing? It sounds like a huge challenge because you either help your existing suppliers scale up in an ethical way or have to work with an increasing number of them, which raises issues related to monitoring them.
iii) if the founder is motivated no so much by monetary gains as by spreading a certain way of doing things (which might be tied to small scale), perhaps she could consider a series of joint ventures to spread this around the world?
This is certainly the future in the making! Thanks for the great post!
One area of the Tesla’s story that is non-core, but certainly interesting is the charging stations.
Tesla being the absolute pioneer right now is also pioneering the re-charing network. However, what is going to happen in 10 years when say 5 manufacturers offer electric cars? What if customers across numerous countries become seriously interested? Then would guys like Shell or Texaco start offering re-charging facilities at their stations? Would Tesla actually end up having two lines of business – the car and the re-charge station line?
Very interesting story! It makes complete TOM sense and is certainly quite an impressive success story.
What I’m wondering is to what extent successful marketing contributed to that.
I imagine that if you try to do the same with things like whisky or cognac, where you have this “black box”, there would be a big consumer backlash, initially at least. The reason is that the traditional inefficient production process is such a big part of the product image.
However, given that even Barack Obama got to try SAKE, looks like the marketing team was pretty successful, and indeed it seems to be a great story of alignment between business model AND operations AND marketing!
Songi, thanks for the comment! Here are some thoughts.
Re: Japanese experience
It think you are right.
What Ryanair definitely benefits from is:
i) a lot of destinations 1-2h flight from each other. That of course is not a feature of Japan / East Asia
ii) easy international mobility – again not the feature as you need passports and visas
I think the same things benefit people like Southwest in the US.
However, I thought that AirAsia has emerged (I guess driven by East Asian societies getting more affluent) as a player comparable to Ryanair to some extent?
Re: other European low cost carriers
There are a few LCCs around, although less well known:
– WizzAir – a Hungarian LCC focused on flying people from Eastern Europe to Western European destinations. They are pretty successful. I think they benefitted a lot from the fall of Malev (Hungarian flag carrier) and the general limited ability of people like LOT Polish or Czech Airlines to offer low priced flights
– EasyJet – similar to Ryanair, but slightly less low-frills. They have a lot of destinations and i think they are doing okay
– German Wings and Vueling – a different model – low cost carrier owned by a traditional flag carrier (German belongs to Lufthansa, Vueling to Iberia)
– AirBerlin – which has become more of a traditional airline now but until recently was a German low cost carrier