“Ryanair arrives at Brussels Airport, but don’t bet too much on a price war.”
Guest post by TravelMagic speaker Raphael Cockx.
Ryanair is on the move. Up until last week, that was just a figure of speech. When the Irish ‘ultra low cost carrier’ announced lower fees and a more customer friendly set of policies a few weeks ago, it took a step towards longtime rival Easyjet and its way of doing business. The Ryanair website got a new look and the company all of a sudden embraced social media in the form of a rather active and helpful Twitter account. Then came the real move and the big surprise. From Ciampino to Fiumicino in Rome and from Charleroi to Zaventem in Brussels. Surely, this changed… well, everything. Here was a carrier that over the last few years became almost synonymous with the airport misleadingly called ‘Brussels South’ only to move in with the ‘real’ Brussels. Ryanair might not be leaving their home turf but they do move into enemy territory. After all, CEO Michael O’Leary, has made it an almost predictable habit to take jabs at big, expensive airports like Brussels Zaventem. Not anymore: Mister O’Leary cheerily claimed Ryanair’s takeover of smaller airports to be complete and said it was time to do the same at the bigger airfields. With the exception of megahubs like Frankfurt or Heathrow Ryanair could go anywhere next.
Logic? Don’t count on it
In that regard, the new hub at Zaventem, the 4 planes based there and the 10 new destinations can be seen as an experiment. Ryanair might look at it as a test of their newly finetuned business model but for avid travellers the real question is what such a move will do with airfares. If one wishes to fly from Brussels to Rome in 2014, a choice of 4 carriers awaits: Alitalia, Brussels Airlines, Ryanair and Vueling. Surely, such a fight for the consumer can only result in more competition and thus lower prices across the board? Well, not necessarily. After all, solid logic often finds itself squashed by the peculiarities of the airline industry.
Clear choices
Then again, there are only a few ways to make (more) money if you own an airline. Costs can go down or revenue can go up. Ideally, revenue should go up without investing millions in developing new routes or buying new airplanes. The arrival of Ryanair in Brussels should – and hopefully will – force Brussels Airlines to make some very clear choices. The company might very much like to lower costs, but it’s unlikely there’s much room to do so, as recent events and social actions have proven. The always excellent
CAPA has illustrated very well how ‘typical’ the average cost per kilometer – how much it costs to transport one passenger over a distance of one kilometer – at Brussels Airlines is. The chart also shows just how much cheaper Ryanair still is.
Prices should go up
Lowering airfares to ‘go after the competition’ without reducing the cost base would be nice for flyers, but would quickly become entirely unsustainable. And so revenue should go up. Brussels Airlines has been on a cautious expansion course buying new long haul aircraft and launching flights to New York and Washington. It has announced it will continue to invest. But the rise in revenue cannot come from these new destinations alone. If the Belgian flag carrier wants to have a fighting chance against Ryanair, Vueling and Easyjet, it would do well to raise its prices. This may sound like a strange reaction, but in fact it’s exactly what Ryanair has promised to do. The company had to confess to its shareholders that profits in the current fiscal year will be lower than expected. And it had to revise the number downward not once but twice over the course of two months. The growth in passenger numbers at Ryanair is now – for the first time in 20 years – ‘on hold’. All of this made shareholders nervous, sent the stock price down by 13 procent in one day and points to the most obvious solution to make profits at Ryanair go up again: make more money per passenger.
Focus on connecting passengers
It explains the move to that other Brussels airport and makes one cynical when hearing how Michael O’Leary warns that prices at Zaventem won’t be as low as those charged from Charleroi. The huge difference in taxes at both airports has something to do with that, but it would hardly make sense for Ryanair not to charge somewhat higher base fares – the part of the ticket price actually determined by the carrier. At the same time, Ryanair has said it will become more business friendly and start selling flexible tickets on some of its flights. The privilege of changing your flight at the very last minute is one that is always paid dearly and Ryanair will be no exception. Still, there’s only so much a low cost carrier can do when competing with the likes of Brussels Airlines. They can fly to the same airports and cater to business passengers, but up until today they still don’t sell connecting flights or fly long haul. That is not to say that Brussels Airlines faces no significant competition to North-America or Africa, but it does point to a strategy for the Belgian carrier that is ever the more inevitable.
Discourage leisure travellers, but some good news
It’s all about selling more tickets that merely have Brussels as a connection point. The company would do well to discourage leisure travellers flying Brussels to Rome for the long weekend if that means seats become available for a much more profitable Rome-Brussels-Kinshasa itinerary. Especially if those passengers are flying in business class, considering the lack of real business class seats on European flights. Profits might be relatively slim still, but at least the carriers isn’t transporting a customer at fares just above cost. It shouldn’t be all bad news for leisure travellers however. Not if they are somewhat flexible. Two possible changes come to mind. Brussels Airlines could follow the example of Swiss and start selling very last minute tickets at significantly reduced prices. Think booking on Thursday to travel over the next weekend. Secondly, also looking at Swiss or even BA in this case, Brussels Airlines could well introduce a hand luggage only fare. Not that one should bet on prices as spectacular as those from Geneva, where Swiss is happy to sell a very limited number of seats to Athens for no more than 39 Swiss Francs (less than 32 euro). So yes, prices might go down, but only if you’re willing to be a hopeless case for the bean counters at Brussels Airlines.
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