Ryanair attributes success to its business model

Courtesy PA

FOLLOWING the good results announced by rival easyJet (See easyJet rides on Air France’s troubles, Oct 8, 2014), Ryanair too has good news for its shareholders. The budget carrier reported a half-year net profit of €795m (US$998m), an increase of 32 per cent compared to last year’s performance. While passenger numbers rose by 4 per cent, the “slightly higher” summer fares were also contributory to the good result.

Consequently Ryanair has revised its forecast for full-year profit upwards from €650m to between €750m and €770m. Although passenger numbers are likely to continue to grow, the carrier expects the first half-year to make up for lower winter fares which would flatten the profitability curve somewhat.

Ryanair chief executive Michael O’Leary said: “The strong H1 results demonstrate our business model is performing.”

This only exacerbates the concern of legacy airlines about the market within Europe shifting in favor of low-cost carriers. Air France and Lufthansa are trying to compete with the likes of Ryanair and easyJet through their respective budget offshoots: Transavia (Air France) and Germanwings (Lufthansa). The International Airlines Group (IAC) which also owns British Airways and Iberia Airlines have successfully turned round budget subsidiary Vueling Airlines.

However, as many budget operators too have come and gone. The issue may be one of staying true to the “no frills” model in a price sensitive market for the short haul. Monarch Airlines which is cutting 700 jobs as well as the pay of employees of up to 30 per cent is ending long-haul operations to concentrate on scheduled short-haul European leisure routes.

Beyond five or six hours of travel time, passenger demands change drastically and the market becomes less price sensitive. But that has not stopped pioneering airlines such as Norwegian xxx to boldly go where others fear to tread, noting the number of failures that include Hong Kong’s Oasis Airlines. (See Norwegian venture into budget long-haul raises the same viability question, Jun 18, 2013) Ryanair too talked about doing a Freddie Laker, but that would mean tweaking the “business model”. What works for the short-haul may not necessarily guarantee success for the long-haul.

Is Virgin Atlantic on the verge of extinction?

Courtesy Virgin Atlantic

RIVALS Virgin Atlantic and British Airways have never been the best of friends. The long-running feud between the two airlines is taking on a new confrontation since the `dirty tricks” campaign in the early 1990s when Virgin chief Richard Branson successfully sued BA for  poaching Virgin passengers and staff and for scandalizing his name.

The two airlines have long been engaged in fierce tussles over landing slots at London Heathrow.  Sir Richard has expressed dissatisfaction with the advantage held by BA, enhanced by IAG’s acquisition of British Midland International and BA’s alliance with American Airlines.

In the latest bout, Sir Richard said he would bet £1m that Virgin would still exist in five years, following an alleged comment by BA and International Airlines Group (IAG) chief Willie Walsh that the Virgin brand would soon disappear. IAG, a British-Spanish holding company, owns BA and Iberia Air and has minor stakes in smaller operators that include Flybe, Royal Air Maroc and Air Mauritius. The winner of the bet will distribute the money to the respective airline’s staff.

Courtesy time.com

Sir Branson, who founded Virgin 28 years ago, insisted: “We have no plans to disappear.”

Doubt over Virgin’s future took root in Delta’s interest in acquiring more than the 49-per-cent stake that Singapore Airlines owns in Virgin. (See Singapore Airlines in discussion to sell Virgin stake to Delta, Dec 4, 2012). Since European Union (EU) regulations do not permit majority ownership by a foreign carrier, rumours had it that Delta’s partners in the EU – Air France-KLM – would then acquire part of Virgin’s 51-per-cent stake. This would expand Delta’s cross-Atlantic operations and secure it slots at London Heathrow, fanning suspicion that it might well mean the end of the Virgin brand.

Courtesy news.delta.com

Sir Branson had said it was time that Virgin form alliances to ensure its survival.

Five years is not a long time but anything can happen in the volatile airline business. Admired as a shrewd entrepreneur and respected for his management expertise, Sir Richard is an industry enigma. Even as he reduces his stake in his “baby”, there are ways to retain the Virgin identity – at least for five years. New majority owners may want to retain Virgin brand loyalty and continue to ride on Virgin’s popularity.