Page last updated at 23:25 GMT, Monday, 25 January 2010

Ryanair charges fail to put off travellers

By Jorn Madslien
Business reporter, BBC News, Rygge, Norway

Ryanair planes
Ryanair's charges are often difficult to understand fully

Returning to London from a few days in Oslo starts out as a minor endurance test.

Standing room only in a hot and stuffy coach means the 120 kroner ($20.75; £12.85) trip to Rygge, a provincial airport an hour-and-a-quarter's drive along icy roads to the south of the city, turns into a tiresome one.

Fortunately, the second leg of the journey from Rygge to London is much more comfortable, even though it had cost much less.

The price paid for the Ryanair flight; £5, including taxes, charges and online check-in - though there was an additional £5 fee for paying by debit card; a charge described as "puerile and childish" by the UK's business watchdog, the Office of Fair Trading.

Avoiding the charges

It seems most of the young crowd getting ready to board have done their best to dodge many of Ryanair's oft incomprehensible charges.

Ryanair, with its innovative pricing policies, is streets ahead of the competition
Saj Ahmad
Analyst at FBE Aerospace

Just one passenger, a woman in her 40s, queues up for priority boarding, having paid the £8 early boarding charge.

The rest are clutching boarding cards printed from their home computers, thus saving them £40 - the fee Ryanair check-in staff would have charged for pressing the print button.

Few have arrived with suitcases - Ryanair charges £30 to check in a 15kg suitcase. Instead, most carry hand luggage that is both light and small enough to comply with Ryanair's strict limits - the airline charges careless travellers some £35 if their bag is too big.

In some cases, such charges make it cheaper to buy new than to bring clothes. "We'll just drop in to Topshop," giggles a 20-something woman wearing a skiing coat and jeans. "It's cheaper and much more fun."

Rising costs

Cash-strapped young people with time on their hands have been able to carefully study budget airlines' terms and conditions online and thus avoid their ever more complex minefields of additional charges.

Ryanair and Aer Lingus planes
Ryanair is expected to make another attempt to acquire Aer Lingus

To them, budget airlines such as Ryanair have created a brave new world that is both open and free - or at least almost free.

To others - such as families flying away on their once-a-year holiday abroad or older, less computer-literate travellers - the budget airlines' charging and check-in policies have made travel by plane both more stressful and often much more expensive than they had budgeted for.

But although many of them may grumble "never again", most of them will be back for more before long, insists Saj Ahmad, an analyst at FBE Aerospace.

It seems at the time of booking, the ticket price is king and last year's painful journey - with its additional £9.84 charge for travel insurance or £1 to pay for a text message reminder to the mobile - is long-forgotten.

And the prices paid for smokeless cigarettes or scratch cards onboard the plane are rarely deemed as a holiday expense - yet income from such sales make up about a fifth of Ryanair's total earnings.

"Ryanair, with its innovative pricing policies, is streets ahead of the competition," says Mr Ahmad.

New charges

So Ryanair keeps on going from strength to strength.

Michael O'Leary, chief executive, Ryanair
If we're going to hit our profit targets, we can't continue reducing fares
Michael O'Leary, chief executive, Ryanair

It carries more passengers in Europe than any of its rivals, having grown passenger numbers by an average 23% per year during the last five years. Last year, when most other airlines were hit hard by the global recession, Ryanair's passenger numbers still rose 13%.

The airline's growth contrasts sharply with the woes of former flagship carriers such as British Airways or Scandinavian Airlines, whose flights between London and Oslo cost at least 10 times more than the Ryanair £5 headline figure.

Ryanair's success has not gone unnoticed by its rivals. Rather than turning away from creative additional charging policies, it seems ever more airlines are introducing their own.

"Surreptitious levies on baggage and fuel surcharges will probably be something we'd all better get used to," says Mr Ahmad.

Boosting growth

Meanwhile, the budget carriers' seemingly low prices are attracting customers who would perhaps have been put off by conventional airlines' higher headline prices.

Easyjet aircraft
Easyjet is expected to open half as many new routes as Ryanair this year

In addition, Ryanair and other budget airlines have been poaching lucrative customers from incumbent airlines, whose business models tend to be built around strong earnings from customers paying more for seats in front of the curtain.

"High yield traffic is doing better disappearing acts than Houdini," says Mr Ahmad.

"Business travellers have started down-gauging their budgets and even gone down the low-cost carrier route where applicable."

For conventional airlines, these developments are proving disastrous.

"For BA, the reality is that the ideology of First Class has all but evaporated," according to Mr Ahmad.

Industry observers say Ryanair is on course to sell more tickets than British Airways this year, with new routes set to help the carrier push passenger numbers to 73 million in 2010.

Ryanair is expected to launch 146 new routes this year, more than double the number rival Easyjet is planning to launch, according to analysts, quoted by Irish Examiner.

Ryanair's chief executive, Michael O'Leary, is also widely expected to start courting Aer Lingus again this year, having failed twice in the last four years to take over its incumbent rival in Ireland.

Boeing and Airbus hit

But Ryanair is not invincible and its business model, based on cutting fares to boost passenger numbers, is not sustainable for a company aiming to maximise profits.

Last year, revenues fell in spite of a rise in passenger numbers that pushed up costs. Although it made profits of 388m euros ($549m; £338m) during the first half of the year, it has since made losses so the full year is expected to come in somewhere between 200m euros and 300m euros.

"If we're going to hit our profit targets, we can't continue reducing fares," acknowledges Michael O'Leary, chief executive of Ryanair.

Many predict that Ryanair and other airlines will slow down their expansion in the months and years ahead.

Already, Ryanair has said it will cut capital spending, having recently pulled out of talks to buy 200 aircraft from Boeing.

This does not bode well for aircraft manufacturers Boeing and Airbus, whose reliance on budget airlines has made them vulnerable to slower growth.

In particular, reduced custom from budget airlines are expected to hit sales of the Boeing 737, which accounts for some three quarters of its aircraft deliveries, and the Airbus A320, which accounts for 84% of its aircraft deliveries.

But shareholders may benefit as the airline gets ready to pay larger dividends.

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