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Up in the air

BY Rebecca | 15 October, 2014 | no comments

In June 2008, Michael O’Leary hosted a press conference in Dusseldorf where he was quizzed about Ryanair’s much-touted, although ill-defined, plans for a transatlantic service. O’Leary was specifically asked whether he would offer a single-class cabin on the service.

A solely no-frills service would not work across the Atlantic, he said, as there was always “10%-15%” of passengers who were business travellers willing to pay whatever it costs. “In economy it will be very cheap,” he said of the service. “In business it will beds and blowjobs.”

Last week, Ryanair unveiled its first business fare — Business Plus — for 26 years, to be offered on short-haul services. It features no beds or other more exotic additional extras. It does not even include a complimentary glass of champagne, hot towel or extra legroom.

It will be a flexible ticket, with speedy access through security, priority boarding and allocated seating. Pitched at €69.99, it will be cheaper than other carriers’ business flexi-fares, yet considerably more than its own standard fares. Tomorrow, it will start the rollout of a television ad campaign to tell the world that the low-cost airline is open for business.

Ryanair is also busy courting corporate travel agents. It has already signed up to Travelport, a global distribution system (GDS) used by corporate travel agents, and will sign a second deal with a GDS supplier shortly. It is talking with the large travel management companies (TMCs) that handle the travel arrangements of multinational customers. The low-cost leopard, which prides itself on “democratising air travel” across Europe, appears to have changed its spots and is baring its claws.

The launch of Business Plus is, in itself, only the final part of the jigsaw. The more significant work has been a wholesale rejigging of its schedule, piling more routes into more expensive primary airports and increasing flights to airports that attract business traffic.

As flag carriers in European countries have contracted their short-haul services, Ryanair has established bases at primary airports at Lisbon, Athens, Barcelona, Madrid and Brussels Zaventem. These are airports that O’Leary says “wouldn’t even talk” to the airline 18 months ago.

Weekly departures out of Rome’s Fiumicino were up by 112 flights in August 2014, compared with the previous year. As Alitalia ailed, Ryanair has become Italy’s largest domestic carrier. Yet the really big push into business travel will centre on two airports, Stansted and Dublin, and will bring O’Leary more firmly into direct competition with easyJet and Aer Lingus.

Ryanair claims that more than 20% of its existing passengers are travelling on business. “What we don’t have is a big percentage of business passengers at an airport like Stansted, or at Dublin,” O’Leary said in March. “We haven’t focused on those business schedules.”

At Stansted, weekly departures were up 93 in August. At Dublin, there were 23 new departures. For Aer Lingus chief executive Christoph Mueller, the challenge is that Ryanair is offering greater frequencies on some of its highest-yielding routes.

WILL the business traveller actually switch to Ryanair? “The cooking is in the eating,” said Pat Dawson, chief executive of Irish Travel Agents Association. According to Dawson, the Irish corporate travel market is worth about €250m-€300m. Corporates have been a faithful supporter of the travel trade over the past decade, as agents came under attack from Ryanair and Aer Lingus’s drive to “disintermediate” leisure travel through the internet.

Aer Lingus is still a big customer. It is understood that about 40% of Aer Lingus business traffic by volume comes “offline”, through large TMCs and agents. The proportion by value is higher. In other key markets, Britain, France and Germany, the volume and scale of business bookings made through travel agents is even higher.

It is not a constituency where O’Leary enjoys universal admiration. “Screw the travel agents,” O’Leary once said. “Take the f****** out and shoot them. What have they done for passengers over the years?”

In March 2012, Ryanair failed to injunct Budget Travel, part of Club Travel, for the use of so-called screen scraper sites. Club was using the site to seek out cheap Ryanair flights for resale. Earlier this summer, Club Travel won the lucrative contract to run the government travel budget, including civil servants’ trips to Brussels.

Dawson said that Ryanair will be given a fair hearing. Travel agents have been selling Ryanair flights as part of “dynamic packaging” of leisure tours for years, and would listen to what it had to offer. Yet he cautions that there is more to business travel than getting from A to B at the lowest price. Companies entrust their executives to agents to get to their destination in “comfort and stress-free”, and to be there when things go wrong.

Aer Lingus’s response to Business Plus has been so low-key as to border on the dismissive. “We don’t take our position for granted,” said Mike Rutter, Aer Lingus’s chief revenue officer, “nor are we in anyway perturbed by Ryanair’s moves.”

It still dominates the biggest business travel route out of Ireland: Dublin to London. Aer Lingus’s move to Terminal 2 at Heathrow is now a big selling point, eliminating the near-Himalayan trek to get to the departure gate at Terminal 4. It also operates from the more comfortable Terminal 2 at Dublin. It is clearly happy that, for the “time-sensitive business traveller”, its T2 to T2 product will win out.

“In the hierarchy of London airports, Stansted and Luton are at the bottom of the heap when it comes to time-sensitive business travellers,” said one airline industry source. As a result, he added, easyJet’s much-vaunted success in courting higher-paying business passengers has more to do with its pre-eminence at Gatwick, a big hub airport, than price or service.

“For most business travellers, short-haul flying is all about convenience; and that means convenience of airports at both ends of the route,” said Nigel Turner, a director at Carlson Wagonlit, a business travel agency.

Aer Lingus boasts the business lounges and loyalty programmes that O’Leary is so quick to deride as expensive baubles. Unlike Ryanair, Aer Lingus also, however, allows customers to combine low-cost, inflexible, directly booked flights with flexi-business fares. A businessman can book a cheap flight outbound, and a more expensive flexi-fare on his return. It also offers refunds on business fares.

It has decades of experience in dealing with the corporate travel agents; it has the sales force and the expertise. “Aer Lingus is very established in the business-traffic market place,” said Rutter. “I think the differentiators in our products will continue to stand us in good stead.”

While he insists Ryanair is not setting the agenda, Rutter, a former Flybe executive who joined the airline in April, said that Aer Lingus will be making a number of announcements regarding its business service in the near future.

A growing part of the Aer Lingus business traffic is also firmly out of Ryanair’s reach. Dublin is now the seventh largest transatlantic gateway in Europe, and has ambitions to break into the top five. More than 100,000 passengers fly Aer Lingus Regional into Dublin from UK regional airports to access these US flights and emigration pre-clearance.

That said, regional UK routes, where Ryanair will pitch its jets against Aer Lingus Regional turboprops, will be a battleground. Having franchised out the routes, the pressure will be faced by Stobart Air, the operator, not Aer Lingus.

“We will continue to expand the frequency of flights and the range of destinations in the UK over the coming months,” said Simon Fagan, chief commercial officer of Stobart Air.

DAVID HUTTNER at Nyras Capital, a leading aviation consultancy, said there was a segment of the market that would find Ryanair attractive. “There will be plenty of companies, where travel budgets are falling or where the owner signs the cheques, that will like Ryanair fares.”

Gerard Moore, an Investec analyst, said that the strategy is probably more geared towards the “everyday business traveller; the salesman going to Birmingham”, and Ryanair will try to compete on schedule and price. The super-hubs at Heathrow, Charles de Gaulle and Frankfurt account for about 20% of European airline traffic, Moore said. The other 80% is still a large addressable market, and that is where Ryanair will compete hardest. It has the aircraft and the efficiency of operations to do just that. Indeed, if it could convert the existing 20% of passengers that use the airline for business on to new business fares, then it could increase its yield and profitability, if not its passenger numbers.

Will that be enough? Industry sources have said that embracing the business passenger will increase Ryanair’s operating costs, including higher airport charges, distribution costs and leaving seats empty on flights to accommodate flexible bookings. “We have a strong hand to play,” said Kenny Jacobs, Ryanair’s chief marketing officer. “We’ve got the widest network, we are the biggest. A lot of small and medium-sized businesses will choose us because we’ve got the lowest fares.”

The market will decide.

Additional reporting: John Collingridge


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