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Last Updated: Wednesday, 4 June, 2003, 15:16 GMT 16:16 UK
Ryanair perfects budget flying
By Rajan Datar
BBC 2's The Money Programme

Ryanair saw its net profits increase by almost 60% on Tuesday. It has also become the third largest airline in the world by market capitalisation. But just 15 years ago Ryanair was losing money. So how did it turn itself around?

It started when Michael O'Leary joined Ryanair as its new chief executive in 1988. He wasn't hopeful.

Ryanair jet
Ryanair only spends 25 minutes on the ground between flights
The airline was haemorrhaging money while fighting rivals British Airways and Aer Lingus on the one route from London to Dublin

"At the time we were losing about five million quid a year, the thing was going nowhere," he says.

"I thought we should close it down, it would never make money, we were being beat up by Aer Lingus and British Airways."

But instead Mr O'Leary decided to visit the US and Southwest Airlines.

"I think it was [founder] Tony Ryan who said, go over to the States, have a look at Southwest. I went over there... and was just blown away".

The budget prototype

At Southwest, the airline regarded itself as a "bus" service, a replacement for ground transport. It was cheap, and it offered no frills at all.

Mr O'Leary was won over. "We thought, you can do this in Europe, in fact Europe is ripe for this because Europe has been ripped off by the airlines for 50 years."

I wouldn't even tell my priest what discount I got off Boeing
Michael O'Leary

He came back and began to cut Ryanair's costs at every stage - building the low-cost model so many know today.

It starts with cheap and cheerful advertising. While British Airways may spend 3m on a television advertisement, Ryanair doesn't even use an advertising agency.

The company does it all in-house. "The core of our marketing strategy is to spend as little money as possible advertising," he says.

Simple newspaper and poster ads emphasising the low fares are the staple at Ryanair, spiced up with controversy and attacks on their competitors.

Occasionally, the airline has run into trouble. One customer reported Mr O'Leary to the Advertising Standards Authority over an advertised fare of 1, which couldn't be found on the website.

The complaint was upheld.

Saving money

The next stage is booking. Ryanair does not use travel agents as according to Mr O'Leary, "they are a waste of bloody time".

He estimates that Ryanair saves 15% on the price of every ticket by using direct booking through the internet.

At check-in, meanwhile, the airlines does not allocate seats, which speeds up the process and saves more money.

Some passengers, however, have not been so happy with the company's approach to cost-cutting.

Bob Ross, who was born with cerebral palsy, found out the hard way when he recently travelled to France on Ryanair.

"I have to use a wheelchair because the distance from the check-in desk to the plane is far too great for me to even think about negotiating."

Normally if someone needs to hire wheelchair, the airline picks up the tab. Not on Ryanair.

"I asked for a wheelchair. I then had to go and pay 18 for using the wheelchair."

Customer complaints

There have also been complaints over Ryanair's policy on damaged luggage.

Ryanair have just six staff in their customer care department; that's one for every two million passengers. British Airways has 10 times the coverage.

In the past, Ryanair's compensation policy even included clauses which meant they would not pay up if the bag had ANY "protruding parts" - that's handles and wheels to you and me.

The Office of Fair Trading (OFT), however, said the compensation clauses were unfair and asked the company to withdraw them.

Revenue streams

Ryanair's biggest fixed cost, like most airlines, are the aeroplanes themselves.

Ryanair flies only Boeing 737s, which legend has it Mr O'Leary bought for a substantial discount.

"I wouldn't even tell my priest what discount I got off Boeing," he says, smiling.

"Some things will remain forever secret."

Once on the plane, any food and drink must be paid for. "He's turned what was a cost into a revenue stream," says airline analyst Chris Tarry.

The airline also only flies to and from popular destinations, but picks secondary airports which are cheaper to use, and in some cases even pay Ryanair to fly there.

Flying from Stansted airport rather than Heathrow saves them an estimated 3 for every passenger.

But there are disadvantages - fly to Stockholm and you end up in Skavsta, which is 100 kilometres away.

Quick turns

While on the ground, Ryanair's planes have perfected the fast-turnaround.

They average just 25 minutes between flights, which gives them more time in the air, and once again saves the pennies.

Their turnaround times are estimated to be half those of British Airways.

Meanwhile, ancillary revenue makes up about 14% of Ryanair's profits.

Typically, this is when Ryanair takes a cut of deals which go through its website for car hire, hotels and even for mortgages and credit cards.

Do all of that, add a little luck of the Irish, and you have Ryanair. But Mr O'Leary isn't stopping there.

He genuinely believes that in due course "the world's favourite airline will be poor old paddy Ryanair".

Watch BBC 2's "The Money Programme: Ryanair's Cut-Price Route to Riches" on Wednesday, 4 June, at 1930, to see if you agree.


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