An Irish happy ending

When IAG first announced their interest in buying Aer Lingus we said this was a marriage made in heaven.

Aer Lingus had done well to put itself on a sounder base and was able to ride through the Irish economic troubles relatively unscathed. However, going forward, the airline was just too small to survive on its own. Furthermore, there were not many possible saviours around.

For IAG, Aer Lingus was attractive because of its base in Dublin and established routes to the US which will allow it to funnel traffic from Europe through Dublin, as well as take Irish passengers overseas via Madrid and Heathrow.

The Irish government could rid itself of a potential liability – and get some cash as well. And the staff of the airline would have a much more secure future in an airline group that is growing.

As we said at the time, it was just too good to happen. Something was bound to get in the way. Yet, one by one, the obstacles were overcome.

The unions might not have been hugely supportive (it is, after all, their job to look for any negatives) but they did not attempt to wreck the deal.

Irish politicians who could have been difficult about surrendering the Irish flag-carrier to foreigners (and partly British foreigners at that) were won over by the logic of the deal combined with the fear of what they would do with the airline if IAG walked away.

Finally, Ryanair, who had a large minority stake in the airline and could have proved very obstructive, gave in and agreed to sell their shares. They were even quite nice about it and wished Aer Lingus all the best in the future. Being Ryanair they could not resist a dig and commented that their original plan to buy Aer Lingus had been to give them a stake in the middle-market but since their “being nice” campaign had been so successful, they no longer felt they needed a more up-market brand. Of course, they have been able to cash in a holding for a good price and avoid the huge expense of further litigation. Even Ryanair can, on occasions, see when a fight is no longer worth the effort.

Business does not normally do happy endings but this genuinely seems like one where all parties win.

Ryanair have the last laugh

Last week Ryanair said that the Board had given agreement to start flights to the US within four years. Then, a few days later, Michael O’Leary stepped in and said it was all a mistake and the airline had no such plans.

Cue a long list of articles in travel business publications claiming that the airline had made fools of themselves.

Actually, the people who had made fools of themselves were these supposedly serious publications that had immediately followed Ryanair’s initial announcement with long, pontificating articles about how Ryanair would be able to shake up transatlantic flights and – even – threaten the future of current major airlines.

As we said when Ryanair made its original “announcement”, there was really very little that was new – just a vague remark that the airline could start flights within a few years. There was no commitment and, as we added, the airline did not have any current orders for suitable aircraft. Ryanair have tossed around this idea so many times. We are quite sure they have many thick files on the subject and periodically set feasibility teams to work. One day, they might well give it a go but there was nothing to suggest that a launch was in any way imminent or even that it was being planned.

As Michael O’Leary once said, you should never believe anything Ryanair say in public. All the so-called experts who broke that rule should feel suitably embarrassed.

Of course, there is one way that Ryanair might start transatlantic flights quite soon. There are vague whispers that they might make a bid for the struggling Norwegian. Ironically, part of the reason for that airline’s problems is its new longhaul network. Ryanair do not normally buy airlines – it is cheaper to watch them disappear and then pick up the routes they want – so we would not place much credence on these rumours. But you never know.

If that happened, the assembled mass of travel business journalists would probably hyperventilate. 

 

Ryanair to the US – why now?

Yesterday’s announcement that the Board of Ryanair had given provisional agreement to planning transatlantic services was actually rather meaningless. The timeframe of “four to five years” for starting flights is vague, they do not have aircraft on order and they would have to come to agreements with individual airports so the talk of “fourteen destinations” is rather premature.

Sooner or later, Ryanair will start services to the US. It is just too tempting. They might well lose money but will avoid making fools of themselves as Norwegian have done. I am sure they have been looking at the possibility of starting flights to the US for some years. One day they will but it might not be tomorrow, or even the day after.

So why the sudden announcement?

The Irish government appears to be very close to agreeing the sale of Aer Lingus to IAG. Ryanair remains a shareholder and has enjoyed being a thorn in the side of the Irish government. It looks as if it will finally be forced to sell its shareholding in the airline and will no doubt ensure it gets the best possible price. However, IAG wants Aer Lingus partly because of its transatlantic flights. 

Yesterday’s announcement sounds rather an unsubtle way of saying “OK IAG, you can have our shares in Aer Lingus. We don’t want them anyway because we are starting our own flights to the US”.

That will allow any forced sale of shares by Ryanair to be presented as yet another triumph.

 

An easy target

Ryanair actually has a very good record of being on time – in part thanks to generously “baggy” schedules, and also its use of secondary airports. But when things go wrong, things REALLY go wrong. Earlier this week, the police were called to Stansted to help “evacuate” passengers. See this video for the whole horror story:

Ryanair results show weakness

Ryanair’s quarterly results which were announced yesterday show Ryanair’s real problem. That is not the loss itself (quite common for airlines in the weak shoulder quarter and not so surprising if the company is going through a transformation) but the fact that they had to wheel out their C.O.O, Michael Cawley to front interviews.

The airline is anxious to pull Michael O’Leary away from the frontline and appear less aggressive but Mr Cawley is about to retire – I actually read an interview with him in December which he said was “his very last interview”.

All he could do was resort to the same old defenisve/aggressive nonsense that Ryanair was Europe’s favourite airline, that it was carrying more passengers and that its fares are 40-50% cheaper than easyJet and British Airways. On how many routes do Ryanair actually compete with these two airlines? It was all a slightly quieter version of the old O’Leary style. Big on bluster and short on facts. There was little about the company’s plans to become more friendly and no information about what they hoped this would do for their figures. In short, nothing to tempt either a potential customer or shareholder.

The airline is moving away from its initial growth phase and desperately needs someone at the top who can show the world the airline has matured. I have a strong feeling that as long as Mr O’Leary is there, no suitably qualified candidate will present themselves.

That is Ryanair’s real problem – and they do not look close to solving it.

 

Sharp minds at Alitalia

Alitalia are in deep trouble. They have struggled to complete a €300m capital increase with one of their major shareholders, Air France/KLM, very reluctant to get involved. It looks highly likely that Brussels will want to investigate whether some of their new, government-linked shareholders were engaging in a form of back-door government aid by agreeing to the new capital. The airline has been burning through money at such a rate that it is anyone’s guess as to how long the new €300m will last.

The company’s bosses seem unconcerned. Their response to Air France/KLM’s lack of enthusiasm has been to say that they will now consider airlines’ in the Far East as possible partners – as if this is some sort of beauty parade where Alitalia can choose the prettiest contestant. Underneath the bluff, it looks as if a degree of panic is setting in. Stories keep appearing in the Italian press with links to possible new investors – the stories have presumably been planted by Alitalia and are normally followed by a vigorous denial from the airline concerned. Even Aeroflot has been forced to state that the rumours of their involvement are false and there is “no way” they would become involved. Etihad was long-rumoured to be a possible saviour but their public response has been that they “are not a bank” – though this does not seem to have stopped Alitalia sending a senior manager to the Gulf in the last few days on what looks suspiciously like a last-ditch begging mission.

So, an airline deep in the mire with absolutely no friends in the market – and then Ryanair turn up on on the doorstep and offer a deal to co-operate on longhaul flights. Ryanair would fly passengers into Rome, where it has a large presence, and Alitalia would taken them overseas. Maybe not ideal, but surely better than nothing. Even if Ryanair did not put any actual cash into the deal, it would at least convince investors and the authorities that the airline was making an effort to turn things round.

Alitalia’s response to the offer was to turn it down without thought because, “We already have our own strategy”

And we know exactly where their strategy has led them in the past.

Air France/KLM have been increasingly outspoken about the somewhat arrogant approach of Alitalia management and their reluctance to produce figures and serious ideas. The unions, for their part, have threatened “war” if there are any redundancies at all.

Despite everything, I have a rather soft spot for Alitalia. It would certainly not give me any pleasure to see them disappear. Sadly, with management and unions equally reluctant or unable to face reality, the airline’s days look numbered.

 

The new face of Ryanair

To show the “new” Ryanair really is different, and has a sense of humour, they’ve even put this on their Twitter page:

Why Ryanair’s new charm offensive won’t work

Ryanair have finally realised that their standard tactic of being aggressive could be doing them more harm than good. The airline had long ago established the idea in people’s minds that they were cheap and it is astonishing that it has taken quite so long for the penny to drop that their hostile approach was turning customers away. 

The airline has two different types of routes. Those between secondary airports which are often supported by very generous deals with the airports concerned, and those on more normal routes where there is competition from other airlines.

On the first type of route, Ryanair can be as competitive as they care to be – they can charge very low fares if they need to fill the plan and reach the quota of passengers they have promised an airport in return for a subsidy, or, when they are busier, they can charge very high rates. In the end, if you want to fly from Liverpool to Vilnius, Ryanair is the only choice so they can do what they want.

It is the routes with competition that Ryanair need to look at more carefully at. They say they want to encourage more business travellers because they recognise their traditional approach has turned possibly the most lucrative clients away. Being a little nicer will certainly help but there is a fundamental problem – Ryanair is often just too expensive.

I have just looked at fares for this Friday afternoon from any London airport to Dublin departing between 17.30 and 20.15. Assuming I check in one case, pay by debit card and have one drink on board, the fares are:

£101 with Aer Lingus from Southend at 17.30 (Southend is just as easy to reach from Liverpool Street as Stansted and, arguably, an easier airport to use once you are there).

£153 or £170 (depending on flight times) with Aer Lingus from Heathrow

£204 with Ryanair from Stansted

Of course, you can save money by not taking a case or drinking on the flight but even Ryanair’s basic fare is only £20 less than Aer Lingus. Such is the bad reputation that Ryanair has created for itself, there are many people who would require at least a £30 discount on any competitor to use them.

This pattern can be seen across countless routes where Ryanair faces some form of competition.

Being nice will help a bit – and it might ease the need for a “Ryanair discount” a little – but it does not get round the basic problem which is simply that their fares are too high.

Ryanair’s charm offensive

You cannot help but have noticed that following their recent profit warning, Ryanair have been working hard at softening their image.

They have started a Twitter account (no doubt with some poor intern chained to a computer-screen in a basement), they are improving telephone access for people who need help, they will start to accept AmEx cards, the dreaded captcha is being removed from their booking page, they appear serious about making their press releases less aggressive and – most surprising of all – they offered free refreshments to journalists at a recent press conference. Michael O’Leary finally seems to have worked out that his hard-man image is doing more harm than good.

Ryanair are also clearly a little concerned about their position in the market. It was interesting that they mentioned that bookings for the autumn were not quite as good as they might be. This is a major time for business travel and it is this sector that Ryanair are particularly anxious to attract.

Whilst a more mature approach is welcome, I am not sure that they have really understood the problem. Ryanair is simply too expensive for what it offers.

EasyJet make less than £6 per passenger and Ryanair have been making close to £14. Whilst there is scope for easyJet to improve their margins, they are most unlikely to ever get close to Ryanair’s levels which are far higher than most other airlines. In the last few years, Ryanair have been gently increasing the cost of their fares and extras which has made the problem worse.

If you are flying from Liverpool to Poznan, you really do not have a choice. However, on routes where there is some competition, such as from many UK cities to Dublin or from London to Spain, Ryanair is often more expensive than other airlines. This seems to be especially the case for tickets booked closer to departure, which a businessman might use – a vital area for airlines because these are obviously the most profitable.

Quite simply, if Ryanair are only going to be £5 or even £10 less than Aer Lingus, easyJet or even BA, people will avoid them. Their reputation is such that a sizeable number of people will not use them at any price but, people in the middle, who shop around and know how to compare fares with all the extras they need included, are not going to rush to Ryanair unless there is a worthwhile saving. Ryanair have worked on the principle that if they behave in a cheap and nasty way, people will believe they are cheap. Yet they are making substantially more per passenger than other airlines which suggests they are neither cheap nor good value on many occasions.

The airline really only has two options if it wants to put matters right. They can extend the current charm offensive to a complete re-branding of the airline to make it genuinely passenger-friendly. I imagine such a move would be horrendously difficult and expensive and it would take a very long time to change people’s perceptions. The only other option is to actually do what they say they already do – and that is to offer prices that are lower than the competition.

Their figures show they have plenty of scope.

 

Why the surprise at the blocking of Ryanair’s bid for Aer Lingus?

As soon as Ryanair heard that Brussels was going to reject their bid for Aer Lingus on competition grounds, they went – as always – on the offensive. The decision was summed up as Brussels’ way of paying back its old adversary. Normally, when Ryanair start making silly statements most sensible people assume the opposite to be true but, in this case, Ryanair’s claims are being taken at face value. If only Michael O’Leary had been a bit more polite to all those eurocrats he would have been allowed to buy Aer Lingus, or so some people seem to think.

This seems wrong on so many fronts.

Firstly, whilst there is a great deal of name-calling in public, I am quite sure that Mr O’Leary knows that Ryanair owes its entire business to the EU, the open market and the various lucrative development grants that have been made. Similarly, Brussels must surely see that the huge growth of Ryanair is one of their major success stories. They might argue like cat and dog in public, and they probably do disagree on some issues, but underneath it all, the two parties know they have been very good for each other.

Secondly, whilst I am sure that Brussels does occasionally make decisions based on animosity towards individuals or companies, it would simply be too obvious in this case. If anything, I imagine they bent over backwards to be sure they could not be accused of bias.

But the really amazing thing is that some people actually thought it would  be reasonable for Ryanair to take over Aer Lingus and effectively control one country’s aviation. There were some who raised the monopoly question over BA’s bid for BMI  yet BMI was no competition for anybody. BMI’s position as chief shorthaul competitor to BA had long since been lost to easyJet who offer much more effective and aggressive competition. BA does not have a monopoly either in the UK shorthaul market or at Heathrow. Ryanair’s attempt to defuse the accusations of a monopoly by setting up a deal with flybe, which they would have subsidised, had very little credibility. If Brussels could stop Aegean buying the failing Olympic in Greece then surely there was no way they could ever allow Ryanair to buy Aer Lingus.

Now Ryanair has all the publicity it wants and is doing its best to paint itself as the injured party. They are threatening appeals but why bother? The only good thing to come out of a long-running appeal is that it will put off the evil day when Ryanair has to decide what to do with its shareholding in Aer Lingus.