I’m headed to Europe in January for a weekend trip with some friends. And given that the trip is just a few weeks away I finally got around to buying my plane tickets. It is a quick trip – Thursday to Monday – with five flights, visits to three countries (and transits of two others) and most likely more than a few beers along the way. It also will involve flying on five different airlines, including some of the usual suspects. But it also includes a couple firsts for me, one of which is a 700-ish mile flight on RyanAir. Yup, I’m willingly taking a flight on the carrier recently voted the worst short-haul experience in Europe.
It wasn’t easy to do, really. Maybe it was just my laptop but I actually ran in to a bit of trouble with the booking. Eventually I got to the fare summary page and had this awesome list of fees, on top of the base fare:
So, yeah, they apparently charge passengers a fee against having to pay out EU261 claims. And a surcharge to allow for check-in. And an administrative fee which I’m sure covers something like them making more money. And a strange fare discount tossed in there; I have no idea why.
At the end of the day the fare is still only $35. I added on a pre-assigned exit row window seat for $15 more, bringing the grand total up to $50. I will only have my small backpack for this trip so no baggage fees but even if I did check a bag it would still be well under $100 for the flight. The next closest published fare I could find was $188, with a 40+ hour connection in Riga, Latvia. A trip on the same day would run me north of $400 and 9 hours versus the 2 hours on RyanAir.
My expectations are not particularly high. And the flight is around lunch time so I’ll need to remember to pack a picnic to bring on board. But I’m reasonably confident my expectations won’t be left wanting. After all, I’m going in pretty much expecting a mess.
I often enjoy reading economic analysis of the aviation industry. I usually feel like I’m learning something new and the nuance is generally interesting. I was quite surprised when reading an OpEd piece in the New York Times last week to uncover what would appear to be a rather ridiculous suggestion: Small and mid-size markets in the USA would benefit from foreign carriers being given permission to operate on wholly domestic routes. The basic claim is that there is insufficient competition in the market today, allowing fares to creep higher and planes to be more full. And service to small and mid-size markets is enduring the brunt of the pain; most of the "heartland hubs" (CLE, CVG, PIT, MEM, STL) have seen major capacity cuts in recent years, with their status as a hub in question. And the solution, according to Mr. Winston, is opening the skies over the USA to anyone who wants to operate here.
That is, unless policy makers do what they should have done a long time ago and allow foreign airlines, including discount carriers like Ryanair and global players like Qantas and British Airways, to serve domestic routes in the United States. Why, after all, should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?
Well, we can start with the part about how that isn’t actually a "real free market" based on a lack of reciprocity in the other countries. And even if that were made available it still is an unlikely solution. Or at least not likely a good one. After all, what’s the value proposition being suggested? Apparently the key to improving the UA aviation market is to flood it with more capacity, driving down fares. But that increased supply will somehow also drive demand. Last I checked that’s not how the basic supply/demand curve works, though I will admit I dropped my Econ class after the first exam because I didn’t really like it.
There is a certain amount of discretionary travel demand which increases as fares drop below a certain threshold. I believe that number is roughly $100 each way these days. But just flooding the market with inventory to drive the fares down that low doesn’t mean that enough people will necessarily buy the seats in a volume which pays for the service. In fact, it is rare that flights operated at that discretionary demand point are profitable to the airlines at all.
Mr. Winston notes that passengers have likely saved $5bn annually thanks to Open Skies agreements between the US and Europe. Not surprisingly the airlines are trying to claw some of that revenue back, cutting service and striking joint ventures which allow them to cut costs and pool revenue and collude on prices. Are these agreements good or bad for passengers? If only measured by average fare paid then they are probably bad. But that’s not really the only metric. Look at the carriers who have gone bankrupt in the interim. For those customers – and those employees and creditors – the $5bn in annual savings means a lot of losses, not gains.
Mr. Winston also suggests that one upside of the competition is that it will help reduce unemployment:
Competition from foreign airlines would put downward pressure on wages, something that union workers may object to. But by reducing fares and expanding service, it would also increase the demand for air travel and related services — thus, presumably, creating additional jobs during a time of persistently high unemployment.
Can someone explain to me how cutting the salaries of US-based employees and creating an environment where the domestic airlines will struggle more to maintain their margins is actually going to increase the employment rates?
So if the fares are driven sufficiently low, to the point that they cannot cover the costs of operating the flights, then other airlines will want to jump in to the market, right? Certainly then Singapore Airlines will show up to operate on Sarasota – Cincinnati, making the service better and the price lower, right? That’s what is being claimed in the piece.
The reality is that opening up the US skies to foreign carriers would see those carriers do the same thing that pretty much every other start-up airline has done in recent years: cherry pick. JetBlue started by cherry picking routes between JFK and upstate New York or Florida. Virgin America has picked heavy business routes and seems to be losing a ton of capital doing so. Oh, and that’s with the fares higher now; things would be much, much worse for them were the fares depressed further.
So where can these foreign carriers make money operating in the USA? Certainly the grandmother trying to get from Sarasota to Cincinnati (his example, not mine) worried about fewer flights and higher fares won’t benefit from Qantas getting local traffic rights on their LAX-JFK flight. And even if Singapore Air could operate to Sarasota, why would they? The market demand there isn’t very high. So instead of the smaller markets getting more service the carriers who serve them today suffer from lower yields on their more profitable routes. That means they scale back the less profitable routes. So grandma gets even fewer options, not more.
Maybe easyJet or RyanAir could set up shop in the USA and make it work. But SkyBus certainly couldn’t. Maybe the others would actually serve the airports in the cities they advertise, but they often don’t in Europe. RyanAir’s idea of service Paris is an airport 60+ miles away. That’s like flying in to Trenton for service to New York City.
Competition is good. Monopolized markets are not very consumer friendly. But neither are unstable markets. A few people might win, playing in the margins, but the big picture effects of pursuing open skies on all domestic markets would be a disaster for the US economy. And for the passengers such a change supposes to help.
The answer to this question is probably a resounding "yes" but generally there is some need to qualify it. Crazy smart in many cases as they seem to be still making money, despite the complaints, gripes and crazy policies. And the boss certainly has a way of making noise and getting himself out in front of the cameras. Generally speaking I have no problems with their business model or approach to the game. They’re pretty up-front about all the extra fees and such and they continue to book huge volumes of passengers. But this latest move might just be a bit too much.
Thanks to the eruption of another volcano in Iceland there’s an ash cloud that threatens air traffic over Scotland. The impact last time around was enormous, with some carriers pushed out of business in part due to the costs of the flight cancelations. This time around at least one airline is fighting back. Ryanair has flown at least one aircraft through a forecast ash zone and reported no visible impact. And they’re pushing up against regulators and air traffic controllers with their intentions to fly more, even in supposedly dangerous areas.
Thus the question: Is Ryanair crazy?
Certainly the costs of not flying are huge. Particularly with the EU’s Right to Care requirements, the costs of a canceled flight are not just lost revenue or upset customers; there are significant hard costs that must be shouldered. But what are the costs of flying into such potential harm? Can they even be calculated?
The air travel industry is incredibly safe. Odds of even an injury, much less a fatality, are miniscule compared with nearly every other mode of transportation. This is almost entirely attributable to the sometimes painfully conservative approach taken to safety. Redundancies and backups are the norm, not the exception and the rules err on the side of not flying unless there is tested evidence that things are safe. The German air traffic controllers are holding to that line, refusing passage of aircraft through predicted ash zones. They are suggesting that any airline looking to make such flights provide proof that it is safe, not just that it is likely to not be dangerous. Ryanair is taking the opposite tack, suggesting that the ash issues are a "myth" and that flying is probably safe enough.
Is this simply a case of profits over safety? Or is the air travel industry too conservative to begin with? In other words, is Ryanair crazy?
And, not just to pick on Ryanair, but most other airlines are operating nearly all their flights today, too; only about 500 cancelations are expected. Still, some flights to Northern England, Scotland and Ireland are being scrapped. Unless you’re on Ryanair.
UPDATE: Despite the previous statements that they’d fly, Ryanair has succumbed to the rule of law and canceled their flights.
Following a direction from the Irish Aviation Authority Ryanair regrets that we have been forced to cancel all flights to/from Scottish Airports for the remainder of the day (24 May).
Despite Glasgow Prestwick and Edinburgh Airports being outside the ‘red zone’ on the most recent UK Met Office charts click here for details the UK Civil Authority (CAA) have decided that these charts are wrong and have closed the airspace.
Earlier today Ryanair confirmed that it operated a one hour verification flight up to 41,000 feet in Scottish airspace this morning (24th May). The aircraft took off from Glasgow Prestwick, flew to Inverness, on to Aberdeen and down to Edinburgh – all of which according to the UK Met Office charts were in the “red zone” of “high ash concentration”.
During the flight there was no visible volcanic ash cloud or any other presence of volcanic ash and the post flight inspection revealed no evidence of volcanic ash on the airframe, wings or engines. The absence of any volcanic ash in the atmosphere supports Ryanair’s stated view that there is no safety threat to aircraft in this mythical “red zone” which is another misguided invention by the UK Met. Office and the Civil Aviation Authority (CAA).
Ryanair has also received written confirmation from both its airframe and engine manufacturers that it is safe to operate in these so called “red zones” and, in any event, Ryanair’s verification flight this morning confirms that the “red zone” over Scotland is non-existent.
Spirit Air, always on the cutting edge of ancillary fees and revenue enhancement, has come up with a new plan for pricing their flights. Everything will be “a la carte” from the fuel to taxes to a booking fee to a soda on board. And, now, they’ll also be charging to reserve space in the overhead bins. From their press release:
In order to continue reducing fares even further and offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others, the low fare industry innovator is also progressing to the next phase of unbundling with the introduction of a charge to carry on a bag and be boarded first onto the airplane.
This move is the first foray into what is probably the last unbundled service that airlines offer which was previously considered part of the services included in the fare purchase. Lavatory usage is still free – for now, RyanAir is still working on that – but no longer can one assume that carry-on baggage is part of flying. The carry-on baggage fee also includes access to early boarding of the plane, something else that the airline has routinely charged for. Yes, Spirit will still permit under-seat bags for free, but overhead space will require payment. And with the quite limited pitch that Spirit offers on their planes losing space to put your feet is a painful decision to make.
The cost for space in an overhead bin will be $20 for members of Spirit’s $9 club, $30 for everyone else if purchased before arriving at the gate and $45 at the gate. The $45 price is the same as it would cost to check the bag in the hold at the gate. The $30 at the counter is actually more than the $25 it would cost to check a first bag on a domestic flight and the same as the price for checking a second bag or a first bag internationally.
So the (many multi-)million dollar question is will this idea gain traction? Will other carriers follow? For now, the answer is no, but it is entirely to soon to know for sure. JetBlue has already released a post on their BlueTales blog mocking the idea a bit. No other airlines have commented on it publicly. For most customers the process of buying a plane ticket is split into two very distinct cost areas: the initial purchase and the day-of-travel expenses.
Over the past two years, since the charges for checked baggage started growing rapidly in the US, the carriers have not been able to drive significant differentiation of their products based on whether they charge for those checked bags; customers are still generally willing to pay $10 less for a ticket where they’ll have to pay $25 at the airport for baggage. Will this next step of unbundling be enough to make consumers actually look at the total price picture more closely before buying? I’m guessing no, at least not for the folks who are willing to pay the cheapest fares that Spirit offers. And that might just be enough for other carriers to consider a similar charge. Probably not, but there is a small opening there.
Some additional coverage on the story can be found at:
It is hard to tell if this is a negotiations ploy or a serious move, but Aer Lingus appears to be making overtures towards moving their base of operations out of the Republic of Ireland. The Irish carrier has applied to the CAA in the United Kingdom for an operating license. Should the license be granted it would be possible for planes that are currently operating under an Irish license to be transferred to a newly established company in either Belfast or London to operate from there. Even more importantly, however, is that the “new” company would need to hire a whole bunch of new employees and the old company would have no planes and would simply dismiss all their employees. Folks who want to continue working for Aer Lingus would then reapply for their existing jobs at the new company.
Obviously the move would be a huge blow against the labor unions, the same groups that Aer Lingus is currently locked in rather contentious negotiations with. So maybe this is posturing and maybe it is for real. But reading this bit in the article was particularly interesting:
Aer Lingus has a huge issue with it long-haul pilots, who make up to $500,000 a year on the Atlantic route and have golden pension plans as well. Ryanair pilots, by comparison, are only paid half that amount.
Making half a million a year is a quite posh salary level. Of course the implication that the Ryanair pilots are making a quarter million annually seems high so I’m not sure that the other numbers are really legit. But that’s an awfully large salary base to handle with the current financial woes that many airlines are facing. Even in good times I’m not sure how it was profitable to fly while paying out salaries at that level.
Supposedly there is a deadline in the coming week for negotiations with the unions to be successful in identifying cuts or there will be layoffs and route cuts. And there is no timeline on the application for the new operating certificate. Lots of fun in the Isles with plenty more on the horizon. Still, having the flying shamrock actually being a British company baase would be just plain strange.
And they don’t have a profit center built around this new product. According to the carrier’s head honcho Michael O’Leary mobile phone usage will be coming by the end of the month on an experimental basis, pending final regulatory approval. Rates will be “normal” roaming rates, with O’Leary stating that “There’s no way that we can take a cut” of the revenue from the service. I actually find that hard to believe since they have to carry the equipment to facilitate the service which will cost them money, but I guess we have to believe him since he’s made the claim and I can’t prove otherwise.
Particularly entertaining to me is the concerns people are sharing of the middle-of-the-night call somewhere over the Atlantic or other long-haul flights. First-off, Emirates already allows some mobile usage on their longhaul flights and the crew can shut off the service on the night flights. Second, Ryanair doesn’t fly longhaul flights. And it isn’t clear based on the articles I’ve seen, but I’m willing to bet that they will be using a terrestrial service, not a satellite service for the connectivity, meaning it wouldn’t be available over the oceans even if the airline flew those routes.
I’ve made calls on planes before, back when Verizon owned the Airfone service in the USA and it wasn’t too expensive for their customers. And I’d do it again in a similar situation, but it just isn’t worthwhile for random conversations. Considering that folks are already cutting back on discretionary spending with respect to mobile phones (see Vodaphone’s earnings announcement from this quarter if you don’t believe me), I doubt that this is really as big an issue as people are making it out to be.
And it isn’t like they can really cut any of their services, as that would basically mean no more seats or no more flights.
In this case Ryanair has chosen to reduce the number of flights they are offering over the winter and also shifting their market to warmer destinations where they expect to see more traffic. The carrier will be grounding 15 planes at London’s Stansted over the winter as well as four planes in Dublin. They will likely be reducing frequencies on Tuesdays, Wednesdays and Saturday mornings – traditional slow travel periods – and also shuttering 7 destinations from early November to mid-December, opening them back up in time for the holiday season. The locations that are closing up are Basel, Budapest, Krakow, Palma, Rzeszow, Salzburg and Valencia. At the same time beach routes will be added to Ibiza, Tenerife and Malaga.
Skybus, a “Ryanair-esque” carrier (that was absolutely nothing like Ryanair other than charging for EVERYTHING) based in Columbus, OH (CMH), shut down operations today. For those of you keeping score at home, that’s in addition to Aloha, ATA and Champion Air over the past couple weeks. Low fares, low loads and high costs would seem to be the culprit here, as in the other cases.
There’s going to be a significant drop in the availability of cheap fares (which I’ve already been seeing a lot of – I can’t get a cheap flight to just about anywhere to pick up a few more miles), and of seats in general, so don’t plan on too many cheap and easy trips this summer.
This may just be what the rest of the carriers need to stay in business, or maybe they just have enough extra money to make it a little longer before declaring bankruptcy themselves. Northwest and Delta are on the top of many folks’ list for the next to go (back) into bankruptcy, though they have enough big money behind them that they are likely to continue operations even at that point. Well, one of them is at least.
Faced with the need to upgrade their reservations systems, Ryanair has chosen to do what any reasonable company with thousands of customers a day would do: shut it all down for the weekend. Yup, that’s right – they are completely shutting themselves off from their customers for three days this weekend. The outage will include their web site AND their call center, so basically customers will not be able to get any information at all from the company, though they will keep flying.
Considering that customer service was never too high on the list of things that Ryanair cares about this approach isn’t all that surprising, especially since this is also probably the cheapest way to do things, another of Ryanair’s hallmarks.