After extending the cancellation of several flights until March 2018 and formally abandoning the acquisition of Alitalia, Ryanair, Europe's largest airline in the low cost sector, seems to have entered a deep "crisis".
But where did this situation start? What was Ryanair's secret, and is the end of low cost airlines really possible?
The Ryanair model
The airline was founded in 1985 by Liam Lonergan, Christy Ryan and Irish billionaire and philanthropist Tony Ryan.
Ryanair started its business with just one plane with a capacity of 15 people flying the route between Waterford Airport, Southern Ireland and Gatwick, near London.
Today, it is one of the largest low cost airlines in the world and, in 2016, it sured the German company Lufthansa in number of engers carried, becoming the number 1 company in Europe.
One of Ryan's biggest points of view was the choice of Michael O'Leary, then a young Irish manager aged just 30, who in 1991 was called upon to review Ryanair's budgets as the company's executive vice president. Promoted in 1994, O'Leary is the main defender of the low cost model applied by the Irish company.
Inspired by the experience of Texan Southwest Airlines, the largest low-cost airline in the world, O'Leary expanded the model of the American company, reducing all the “paperwork” and introducing commercial policies that compete with the main European operators.
In fact, in the 1990s, flagship companies, still largely state-owned, dominated the enger air transport market in Europe, but were influenced by government policies.
O'Leary managed to reduce the company's operating costs by reducing labor costs and also by concluding agreements with car rental agencies and hotel reservations, to increase ticket sales and, above all, to negotiate airport fees with the authorities that manage the airports where Ryanair aircraft operate.
This last intuition proved to be particularly successful, and some small airports even eliminated taxes in order to increase enger traffic and employment at those airports.
Ryanair thus carried more than two million engers in 1995, when it celebrated its tenth anniversary, to at least 72 million engers in 2010, suring the 117 million in 2016.
Another novelty introduced by the company was the online booking of flights, thanks to the launch of its website in 2000. Advertising revenues, direct sales and low-cost marketing policies contributed to the reduction of fares offered by Ryanair.
But the real success factor for the Irish company was probably the air market liberalization what the European Union wanted.
Thanks to community legislation on this matter, national air carriers were replaced by “community” airlines, so that European companies in the sector could “set tariffs and freely access all routes within the European Union”, without the need for permits additional.
This new principle has enabled Ryanair to expand its geographic horizons and offer its own model to consumers across Europe. The company was able to negotiate profitable rates in several areas that were not appreciated by the other companies and also seize the opportunity to operate at lower costs than its competitors.
Another factor to consider in Ryanair's low-cost model is the work conditions offered by the company to its employees.
First of all, it should be noted that the Irish company had the opportunity to hire qualified workers, such as pilots, at a lower price than its competitors, taking advantage of the crisis of national airlines that, due to the various debts, had to give up of your employees.
In addition, Ryanair's policy provides for the hiring of only a part of its workers, and the rest, that is, the majority are in fact not hired by the company, but through intermediary agencies, and the pilots work by flight hours.
In these conditions, must be added the real aversion of the company's main leaders to union organizations, and CEO O'Leary even said that he would “freeze hell over” before unions were welcome at Ryanair.
Ryanair also benefits from having a most modern fleet of your competitors. The more than 300 Boeing 737 planes with which the Irish fleet flies, consume less fuel and emit less polluting gases, compared to the old models used by other companies in the market.
This technological advantage also resulted in savings. Ryanair in fact, in 2014, spent 2% less than its competitors on fuel and is less susceptible to fines by European authorities when it comes to environmental rules.
The economic crisis and the consequent reduction in the purchasing power of millions of consumers in Europe, allowed the definitive affirmation of the Ryanair phenomenon and low-cost air transport.
The “no frills” model, literally “no frills”, applied by O'Leary and which does not offer free meals or benefits to engers, and even accommodate a greater number of seats on planes, at the expense of the convenience of travelers, was rewarded by s who prefer to travel at a lower cost, instead of benefiting from the comfort offered at a higher cost by traditional companies.
What is Ryanair's risk?
In the three-page letter sent by CAA Executive Director Andrew Haines to Julius Komorek, head of Ryanair's legal department, authorities asked the company to send an email to hundreds of thousands of engers whose flights were cancelled, offering to them a seat on another airline's flight or reimbursement of expenses.
As demonstrated by the British newspaper The Independent, Ryanair initially declined to offer this option, but eventually agreed to comply with the UK Civil Aviation Authority's request.
The reason for this chaos was the organization of pilots' holidays and breaks, who work for the company after the Irish Aviation Authority asked the company to adjust their working year to the Gregorian calendar.
From 2018, the working year will be considered from 1st January to 31st December, as opposed to the dates currently used by Ryanair, which run from 1st April to 31st March.
This is all at the expense of engers who had already booked a flight with the company, and especially those who intended to travel on the 34 routes suspended by the company during the winter season, that is, from November 2017 to March 2018.
Ryanair runs the risk of having to spend millions of euros on bailouts and face legal action, not only from European air transport controllers and officials, but also from consumer protection associations.
In addition, the damage to the image caused by this situation puts the reputation of the company at risk, which can now lose millions of engers and a substantial share of the civil air transport market.
The same CAA order urges consumers to consider alternative solutions when traveling with Ryanair, which in some cases will be in the condition of having to pay its direct competitors, such as the British low cost Easyjet, to transport its engers.
Shares listed on the Dublin stock exchange closed September 29th with a -4,72% drop and, as of September 17th, when it announced the first set of cancellations, the capitalized value fell by US$ 1,8 billion, reaching just over $24 billion.
Ryanair's share price, at around €16, is still €4 higher than a year ago. If there is then a risk of bankruptcy, shareholders in equity markets are not yet involved in sales operations.
What will happen to the entire industry?
In the Ryanair crisis, European airlines seem to have responded with different policies.
Some companies, such as British Airways in the United Kingdom, began to take advantage of the situation of canceled flights, offering engers refunded by the Irish company prices much higher than those applied by Ryanair.
Other companies, such as former Irish airline Aer Lingus, opted to offer cheaper fares on routes abandoned by Ryanair, simply to gain market share.
Whatever the reaction of the major airlines that have been in competition with Ryanair in recent years, the consumer's concern now is about the fate of this business model and its low prices, which have allowed millions of people to travel across the continent.
It is possible that the cost structure of airlines will not allow companies like Ryanair to keep prices so low for so long.
This low-cost model is in fact based on special conditions, created in part by public decision (the liberalization of the aviation market and the construction of small airports in areas little desired by the flag companies) and partially exploited by the private sector, such as the possibility of employing largely uncontracted staff through completely legal channels.
Once these conditions run out, the entire model will likely no longer be sustainable. However, in an interview with Irish Independent, writer Pól Ó Conghaile, who has published several books on travel, maintains that air fares will continue to decline despite the Ryanair crisis.
Despite the crisis of the Irish transporter having questioned the reputation of this business method and exposed all its defects and raised few controversies, it is the market itself and the consumer demand that advises not to end this low cost model before the moment.
Although Ryanair survives the crisis it created, its example has set itself to the point where even its former competitors have followed.
