Call Girls Service Nagpur Maya Call 7001035870 Meet With Nagpur Escorts
Â
Ryanair's Business Model Revealed: The Crucial Role of Subsidies
1. This E-note has been written by Roman from Air Observer
http://twitter.com/AirObserver
http://airobserver.wordpress.com/
Ryanair
Business Model
Under a New
Light
1|Page
2. This document summarizes a new approach in
analyzing Ryanairâs business model. It is based on one
year of research. This is also based on my experience
with the AirObserver blog, a platform where I have
Ryanair Main Destinations
discussed and analysed the low cost business model
for over a year now. I would nonetheless like to thank
specialists and aviation aficionados that have helped
me to formalize this note.
Iâm aware that thousands of documents on Ryanairâs
business model have already been published. Even
more reports and notes have been written about the
low cost airline business model. However, I believe no
work is formulated as clearly as this one.
Ryanair Key Figures Source: Air DB
Ryanair Passenger Traffic
Source: Ryanair
Annual Report
2|Page
3. Elements commonly admitted as basis for
Ryanairâs business success
Most Ryanair business model analyses focus on the
understanding of key historical characteristics of the Main Airports Deserved by Ryanair
low cost airline business model. They often explain
Ryanairâs success thanks to the facts listed below.
Unique aircraft type with lower maintenance
costs/crew training costs
High density to increase profitability
Every additional service is charged
Online services only
Small regional airports with direct access to
planes/lower airport fees
Routes through secondary and smaller
airports
Short turnaround and maximum utilization
of aircrafts
Continuous innovative measures to increase
ancillary revenues
Non-unionized labour force
Source: Air DB
I wonât develop on them further as I think that
albeit they are important, they are not crucial to
the understanding of Ryanairâs success. Moreover,
you should be able to easily find them on the
Internet.
Ryanair Main Destinations
Why Focus on Ryanair?
Many analyses I have read
describe Ryanair as the most
successful airline in the last
twenty years. Indeed, Ryanair is
the fastest growing airline in
Europe. Since 2004, the Irish low
cost airline more than doubled its
number of passengers, from 33M
up to 73M, expected this year.
However, what such analyses
have failed to point out is just
how the airline achieved such
ongoing success. Journalists who
work on Ryanair case usually only
focused on few elements of its
business, but they mainly fail to
analyse entire Ryanair business
model.
Source: Air DB
3|Page
4. The Truth Behind Ryanair Business Model
The element which has never been highlighted in
most Ryanair analysis I have read is the importance of
subsidies in Ryanair business model.
Subsidies are a big part of Ryanairâs revenues. Indeed,
while Ryanair declared âŹ663M of ancillary revenues in
its last annual report (around 22% of Ryanairâs
.
revenues) in 2009, Ryanair earned more than âŹ664M
in subsidies the same year. It means that subsidies
are at least as important as ancillary revenues and
represent around 22% of Ryanairâs revenues.
However, it does not appear in its âSummary
Operating and Financial Overviewâ where Ryanair
only mentions two sources of revenue, âScheduled
Revenuesâ and âAncillary Revenuesâ. Moreover, in its
2008 report, Ryanair also clearly assures that it does
not receive any state aids.
â Ryanair claims that it
does not receive any
State Aid or any
subsidies. Clearly, the
Irish carrier plays on
words here. Indeed, the
French government did
Source: Ryanair
not give them subsidies,
but local authorities did.
Therefore, money
received does not come
from the State, but from
Regions. The point
remains the same: it
comes from public
money â
A Which Budget Airline Market
Analyst
Source: Les Echos
4|Page
5. Questionable Subsidies: Ryanairâs Backbone
In France, French Regional Audit
Courts have conducted
investigations, which have allowed
to measure the percentage of
subsidies represented in Ryanairâs
overall revenue. A total of 25 reports
have pointed out the existence of
unlawful agreements between
Ryanair and Chambers of commerce
and industriy.
â In France, Ryanair
has received âŹ35M
in public money in
2008 â
â Without public
money, Ryanair would
have declared losses
between âŹ179M and
âŹ165M in 2008 â
An âIndustrialisedâ Process All Over Europe â Ostende Airport,
Belgium, gave âŹ1,148M
Ryanair not only receives subsidies from French public
authorities. Ryanair receives public money from almost
to Ryanair.â
every airport across Europe it operates from, which
accounts for millions of Euros in revenues. Even if such â Reus Airport, Spain,
data is hard to find, several cases have surfaced. To give
more tangible evidence, I chose to highlight examples in gave âŹ14M to
which Ryanair received large amounts from airports. Ryanair.â
In Italy for example, an article mentioned the
interesting case of Alghero Airport. The European â Girona Airport,
Commission, in its introductive investigation, declares
that between 2002 and 2006, Ryanair received 8 Spain, gave âŹ13,94M
millions Euros in public money to operate from Alghero to Ryanair â
Airport. Alghero is just one of hundreds of such cases.
5|Page
7. Ryanair and Airports' Relationships
Source: Air Observer
â What if 22% of
Ryanairâs revenues
were to disappear
from one day to the Basics of Ryanair's
next?â Business model
Now, you know why Ryanair needs to offer such low
fares. You know that airports are often victims of Ryanair
ways, also due to short term management vision from
small airport CEOs.
At this stage, something even more important has to be
highlighted. What if Ryanairâs subsidies were not legal?
What if 22% of Ryanair revenues were based on illegal
processes and undeclared public money? What would
happen if politics discovered this?
The answer is simple. Ryanair would be forced to find
other sources of revenue than public funds. Ryanairâs
future would therefore be up in the air.
Source: Air Observer
7|Page
8. A Model Partly Based on Public Subsidies is Questionable
In the last year, I have read a lot on the low cost airline
market and its leader, Ryanair. I gradually gained
valuable knowledge of how Ryanair works,
communicates, and dominates its competitors. Itâs the
most fascinating case study Iâve ever looked at so closely.
This page will show in detail why public money received
by Ryanair does not comply with legislation and goes
against lawful and fair competition.
Why are Ryanairâs public subsidies illegal?
To legally receive public money, three conditions
must be met. Should only one of these conditions not
be respected, the whole of the subsidies move into an
illegal agreement that creates unfair competition.
These three conditions are:
The company must declare all public aids to the
European Commission. It's a fact that Ryanair and its
partners have never declared any of their grants. All
regional chamber reports point this out.
Subsidies have to be strictly limited to 3 years (5
years in special cases). Once more, Ryanair's practices
are illegal. The first contract between the French
regional airport of Beauvais and Ryanair was signed in
the very late 90âs. Ryanair has been operating out of
Beauvais since 1997, which means that Ryanairâs been
âsubsidizedâ for 13 years now!
Lastly, subsidies have to be regressive, which
means that each year, the amount has to be significantly
lower than the previous one. Here again, is a rule that
Ryanair and its âpartnersâ have never respected.
Should a private company base its business on public subsidies?
Interesting question, but not the matter I wish to discuss. Indeed, some Ryanair "evangelists" will argue that
Ryanair is not alone in receiving public money, national legacy airlines such as BA, Air France KLM or Lufthansa also
do. Rather than giving into their criticisms and engaging in a sterile debate, I prefer to anticipate their arguments
and counter them beforehand.
My point here is not to discuss whether or not Ryanairâs aids are justified. This is an economical debate. Rather, I
seek to underline in what ways these aids are illegal; that these aids constitute an important part of Ryanair's
revenues, making its business legally unsustainable. Of course, legacy airlines as British Airways also receive
subsidies, but in a legal framework. I agree with people who argue that some of the major European legacy airlines
do not use them efficiently, but thatâs a different matter.
8|Page
9. Illegal Subsidies: Ryanairâs Achilles Heel?
Most analyses donât take this issue into account. However,
several courts have already brought up the matter of Ryanairâs
subsidies, namely in Spain, France, Germany and Italy. Although
several investigations, till now, Ryanair has always managed to slip
through the cracks. This is due to irregularities because airports
are failing to declare subsidies to the European Commission itself.
Indeed, according to a French union, among the 25 airports out of
which Ryanair operates, only one has declared the subsidies to the
European Commission, so even the European Commission doesnât
know that Ryanair receives such amount of public money.
Until now, subsidies have
allowed Ryanair to dominate the
â 7 investigations low cost market and develop its
are currently open own unique business model. It
has allowed Ryanair to withhold a
over Ryanairâs strategic advantage over other
subsidies in Europe.â airlines. Airlines that have never
been shy to voice out: Air France,
Lufthansa, Spanair, Vueling and
Air Berlin are companies that
understood how difficult it is to
compete with Ryanairâs public
financial support.
Airlines have expressed their concerns about this unfair advantage that Ryanair has managed to build up all
over Europe. Some airlines, namely Air France KLM or Air Berlin, have formally complained to the European
Commission. Others have simply expressed their disappointment and grief through the media. For most
airlines, tackling Ryanair is a dangerous game that could easily end up turning against them. Indeed, Ryanair is a
master communicator and avid PR stuntman that always gets the last word. This explains why some airlines
prefer to be tactful when it comes to criticizing Ryanair.
â Opaque subsidies Ryanair received to operate in certain airports
create only an artificial traffic â
Alvaro Middleman, Air Berlin Executive for Spain and Portugal
Conclusion
I found this quote on the Ryanair Business model, which I believe summarizes perfectly the issue
discussed:
âRyanair has established the first efficient and industrialized public subsidies collector
on a European scale. Itâs interesting to notice that Ryanair is among those which
beneficiated the most of deregulation of the market, but meantime among those
which obtain the most of subsidies.â
A Which Budget Airline Market Analyst
9|Page