Profit
Fewer rules, less hassle, more profit – how being nice paid off at Ryanair
Gwyn Topham
Saturday 30 May 2015
15.59 BST
Despite Ryanair’s image makeover as a caring carrier, passengers remain anxious in the queue to board the airline’s 0940 flight from Gatwick to Dublin.
Mainly, though, that’s because the gate display is describing it erroneously as an easyJet flight to Berlin. But there is a difference from the Ryanair queues of old: no jostling for the best seat, and a noticeable array of odd-shaped cases, second bags, shopping and oversized soft toys being carried aboard.
One man is clutching a 2ft-long cardboard tube as well as his case. “I’m best man at a wedding tomorrow and it’s for the speech,” says Colm Donnelly, 26. “I’m still a bit worried about getting it on. But I’m much more likely to chance my arm with something like that on Ryanair now.”
The Irish airline relaxed its famously tight rules and punitive charges last year, as part of a plan to turn its woeful image around: to stop, in chief executive Michael O’Leary’s words, “unnecessarily pissing people off”. Allocated seating ended the scramble at the gate. Permitting a second carry-on bag, and giving more flexibility for frontline staff to tolerate minor infringements, also followed. Ryanair wanted to signal it had changed, to make it easier for people to book and fly.
Last week, it appeared to see the fruit of those changes: a spectacular, 66% leap in profits to €867m (£623m) in the first full year since its conversion from the uncompromising stance of old. O’Leary said the transformation, dubbed the Always Getting Better programme, had attracted millions of new customers. But has being nice really driven profits, or has the hard cash been won elsewhere?
Tales of Ryanair woes past fall readily from the lips of passengers on the London-Dublin flight, with regulars noting the difference in the bag policy above all. Crew seem friendlier, says Danielle Smyth, a yoga instructor: “Maybe before they were a bit uptight as they had to enforce those rules. It was just so restrictive – I remember once when something didn’t quite fit, I was told I couldn’t bring it on: I managed to fit it between three other people’s cases but it was a bit of a panic.” Others weren’t so lucky: last time Sharon Watchorn, a project manager from Guernsey, flew this route with Ryanair, she recalls: “I had a wheelie case a millimetre too long; they put it in the hold and charged me an extortionate amount.”
Julia Wright, from Suffolk, on her first Ryanair flight for some years, had noticed the changes to the website: “It’s better than it was, booking online. Previously, they added so many things the price went right up.”
Few, though, seem to have been ultimately swayed one way or the other by the niceness – perhaps confirming O’Leary’s longer-standing view that the customer service that mattered was cheap fares and punctual services. On board, the plane is still a riot of yellow plastic, and crew still flog scratchcards, although the well-thumbed menus and inflight magazines have been deemed too tatty to remain. Our 737 touches the tarmac almost 10 minutes after its scheduled arrival time for the short hop to Dublin – a delay that doesn’t stop the sounding of the notorious on-time arrival bugle, now wrapped in a marketing jingle in a new sanitised form, like Cameron instead of Thatcher. Donnelly disembarks safely with case and oversized tube, and no penalty to pay.
If the main difference so far is purely the absence of stress, a dramatic manifestation of change is evident at Ryanair’s new HQ, on a business park a few miles from the airport. It is a building that O’Leary snapped up after the crash left a surfeit of unwanted property and it has the kind of features you’d expect to see in Silicon Valley rather than at a notoriously parsimonious airline. On a day when O’Leary and other Ryanair execs are on the road to trumpet their financial results to investors, there is not a suit to be seen, and few faces over 40.
However, there are some Ryanair veterans present, including Ray Conway, the airline’s chief pilot, who has been with the carrier since its inception as a two-plane operation. Underneath the makeover, he says, Ryanair operates on straightforward principles. It still only flies one type of plane, the Boeing 737, and while the jet has become more technologically advanced it has not required an expensive investment in retraining pilots. That cuts costs, while making maintenance schedules and rostering simpler. And, tellingly, he is proud that statistics from Stansted show Ryanair pilots consistently make the most fuel-efficient descent of any airline operating from the Essex airport.
And while customers have been cut a little slack with their carry-on, and Ryanair has spent more on proper marketing after moving away from its previous technique of getting O’Leary in a leprechaun hat or generating preposterous headlines, the focus on cost remains.
More passengers now occupy each plane: where an average of one in six seats was empty in 2014, the results for 2014-15 show it is down to one in eight, and the target for 2015-16 is one in 10, well ahead of the industry average. Costs overall, excluding fuel, have stayed steady even as total revenue leapt 12% to €5.65bn.
And the big difference in cost has been the oil price. The price of jet fuel has now risen from its cheapest point after the spectacular falls in late 2014; but airlines buy ahead and the effects filter through slowly. Ryanair’s hedging meant only 10% of its fuel requirement in 2014-15 was bought at current prices. Even that reduced costs by 5%. And, with perfect symmetry, its profit margin increased by five percentage points this year.
For a decade from 2000, the fate of airlines’ profits had an inverse correlation with the fuel price as rising oil costs savaged the bottom line. Since 2010, fuel-efficient planes and effective hedging have helped the industry decouple the oil price from profits. Ryanair’s hedging of fuel and currency costs, allowing it to purchase planes and oil until 2018 with dollars bought at a rate that looks cheap, should help it to even bigger profits ahead. Whether Ryanair remains nice or not, the shareholders will probably be smiling.
AIRLINE LOUNGE: THE NEW HQA slide from the office floor to reception. A putting green in a foyer. Air hockey and pool tables. Not only has Michael O’Leary embraced Twitter, but he has festooned Ryanair’s €18m (£13m) head office with accoutrements better associated with a Silicon Valley tech headquarters. Or possibly a nursery.
Office space may not have been at a premium in Ireland since the crash, and Ryanair’s offices are in an estate outside Dublin and the airport. But it is a startling sight: games, decorations and imaginative meeting spaces abound. Whole walls are given over to huge photographs of football teams, cartoon characters, landscapes and racehorses (O’Leary’s own office preference).
O’Leary and the other directors occupy glass-walled rooms around the multicoloured open-plan desks where most of the 500 or so staff work.
Only the operations room, tracking all 1,600 daily flights on a giant screen, is the big reminder that this is an airline’s headquarters; well, that and the yellow toy biplane in which employees can relax.
The Californian touches don’t just speak to the new sunny Ryanair, but also its digital ambitions, since it is home to Ryanair Labs, the tech department that has overhauled its website and may yet change the business more fundamentally.
Add in the sight of a customer service department on live chat solving queries and problems, and Ryanair’s world seems impossibly changed. Fortunately for traditionalists, who remember O’Leary telling staff to nick other people’s ballpoint pens, the stationery cupboard remains firmly locked.
Gwyn Topham
Saturday 30 May 2015
15.59 BST
Despite Ryanair’s image makeover as a caring carrier, passengers remain anxious in the queue to board the airline’s 0940 flight from Gatwick to Dublin.
Mainly, though, that’s because the gate display is describing it erroneously as an easyJet flight to Berlin. But there is a difference from the Ryanair queues of old: no jostling for the best seat, and a noticeable array of odd-shaped cases, second bags, shopping and oversized soft toys being carried aboard.
One man is clutching a 2ft-long cardboard tube as well as his case. “I’m best man at a wedding tomorrow and it’s for the speech,” says Colm Donnelly, 26. “I’m still a bit worried about getting it on. But I’m much more likely to chance my arm with something like that on Ryanair now.”
The Irish airline relaxed its famously tight rules and punitive charges last year, as part of a plan to turn its woeful image around: to stop, in chief executive Michael O’Leary’s words, “unnecessarily pissing people off”. Allocated seating ended the scramble at the gate. Permitting a second carry-on bag, and giving more flexibility for frontline staff to tolerate minor infringements, also followed. Ryanair wanted to signal it had changed, to make it easier for people to book and fly.
Last week, it appeared to see the fruit of those changes: a spectacular, 66% leap in profits to €867m (£623m) in the first full year since its conversion from the uncompromising stance of old. O’Leary said the transformation, dubbed the Always Getting Better programme, had attracted millions of new customers. But has being nice really driven profits, or has the hard cash been won elsewhere?
Tales of Ryanair woes past fall readily from the lips of passengers on the London-Dublin flight, with regulars noting the difference in the bag policy above all. Crew seem friendlier, says Danielle Smyth, a yoga instructor: “Maybe before they were a bit uptight as they had to enforce those rules. It was just so restrictive – I remember once when something didn’t quite fit, I was told I couldn’t bring it on: I managed to fit it between three other people’s cases but it was a bit of a panic.” Others weren’t so lucky: last time Sharon Watchorn, a project manager from Guernsey, flew this route with Ryanair, she recalls: “I had a wheelie case a millimetre too long; they put it in the hold and charged me an extortionate amount.”
Julia Wright, from Suffolk, on her first Ryanair flight for some years, had noticed the changes to the website: “It’s better than it was, booking online. Previously, they added so many things the price went right up.”
Few, though, seem to have been ultimately swayed one way or the other by the niceness – perhaps confirming O’Leary’s longer-standing view that the customer service that mattered was cheap fares and punctual services. On board, the plane is still a riot of yellow plastic, and crew still flog scratchcards, although the well-thumbed menus and inflight magazines have been deemed too tatty to remain. Our 737 touches the tarmac almost 10 minutes after its scheduled arrival time for the short hop to Dublin – a delay that doesn’t stop the sounding of the notorious on-time arrival bugle, now wrapped in a marketing jingle in a new sanitised form, like Cameron instead of Thatcher. Donnelly disembarks safely with case and oversized tube, and no penalty to pay.
If the main difference so far is purely the absence of stress, a dramatic manifestation of change is evident at Ryanair’s new HQ, on a business park a few miles from the airport. It is a building that O’Leary snapped up after the crash left a surfeit of unwanted property and it has the kind of features you’d expect to see in Silicon Valley rather than at a notoriously parsimonious airline. On a day when O’Leary and other Ryanair execs are on the road to trumpet their financial results to investors, there is not a suit to be seen, and few faces over 40.
However, there are some Ryanair veterans present, including Ray Conway, the airline’s chief pilot, who has been with the carrier since its inception as a two-plane operation. Underneath the makeover, he says, Ryanair operates on straightforward principles. It still only flies one type of plane, the Boeing 737, and while the jet has become more technologically advanced it has not required an expensive investment in retraining pilots. That cuts costs, while making maintenance schedules and rostering simpler. And, tellingly, he is proud that statistics from Stansted show Ryanair pilots consistently make the most fuel-efficient descent of any airline operating from the Essex airport.
And while customers have been cut a little slack with their carry-on, and Ryanair has spent more on proper marketing after moving away from its previous technique of getting O’Leary in a leprechaun hat or generating preposterous headlines, the focus on cost remains.
More passengers now occupy each plane: where an average of one in six seats was empty in 2014, the results for 2014-15 show it is down to one in eight, and the target for 2015-16 is one in 10, well ahead of the industry average. Costs overall, excluding fuel, have stayed steady even as total revenue leapt 12% to €5.65bn.
And the big difference in cost has been the oil price. The price of jet fuel has now risen from its cheapest point after the spectacular falls in late 2014; but airlines buy ahead and the effects filter through slowly. Ryanair’s hedging meant only 10% of its fuel requirement in 2014-15 was bought at current prices. Even that reduced costs by 5%. And, with perfect symmetry, its profit margin increased by five percentage points this year.
For a decade from 2000, the fate of airlines’ profits had an inverse correlation with the fuel price as rising oil costs savaged the bottom line. Since 2010, fuel-efficient planes and effective hedging have helped the industry decouple the oil price from profits. Ryanair’s hedging of fuel and currency costs, allowing it to purchase planes and oil until 2018 with dollars bought at a rate that looks cheap, should help it to even bigger profits ahead. Whether Ryanair remains nice or not, the shareholders will probably be smiling.
AIRLINE LOUNGE: THE NEW HQA slide from the office floor to reception. A putting green in a foyer. Air hockey and pool tables. Not only has Michael O’Leary embraced Twitter, but he has festooned Ryanair’s €18m (£13m) head office with accoutrements better associated with a Silicon Valley tech headquarters. Or possibly a nursery.
Office space may not have been at a premium in Ireland since the crash, and Ryanair’s offices are in an estate outside Dublin and the airport. But it is a startling sight: games, decorations and imaginative meeting spaces abound. Whole walls are given over to huge photographs of football teams, cartoon characters, landscapes and racehorses (O’Leary’s own office preference).
O’Leary and the other directors occupy glass-walled rooms around the multicoloured open-plan desks where most of the 500 or so staff work.
Only the operations room, tracking all 1,600 daily flights on a giant screen, is the big reminder that this is an airline’s headquarters; well, that and the yellow toy biplane in which employees can relax.
The Californian touches don’t just speak to the new sunny Ryanair, but also its digital ambitions, since it is home to Ryanair Labs, the tech department that has overhauled its website and may yet change the business more fundamentally.
Add in the sight of a customer service department on live chat solving queries and problems, and Ryanair’s world seems impossibly changed. Fortunately for traditionalists, who remember O’Leary telling staff to nick other people’s ballpoint pens, the stationery cupboard remains firmly locked.
The business at the airport that is make it successful in their own way