D2 Distinction Task - Ryanair's Fuel Price Rise and Ticket Price Rise
TREND:
Rising fuel prices and the strategies that Ryanair, a budget airline, has put into place to reduce its impact.
Ryanair has reported huge rise in profits despite the rise in fuel costs. According to the BBC, “profits after tax rose 13% to £569m” and passenger traffic grew to 79.3m passengers. However, fuel costs rose my 290m euros, and now account for 45% of total costs.
To combat this, Ryanair has raised the prices of its tickets, whilst they are still catering for those travellers that are on a budget, they are no longer as cheap as they once were. They have also attempted to offset rising fuel and parts costs in the past by standardising on a one type of aircraft, from Boeing, which
has saved them considerable amounts of time and money, as they do not have to stockpile parts for many different types of craft, and it means less downtime
too, so less revenue lost.
Due to Ryanair’s cost-cutting, they have also been known to let their planes run with the minimum amount of fuel in their tanks, as defined by EU legislation. As a result of its minimum fuel policy, it was letting planes run until their tanks were empty whilst in service, and it often led to planes having to make emergency landings, miles away from their intended destinations, because the fuel levels were so low. Ryanair’s critics were quick to say that this was leaving passengers in danger and situations like this should not be allowed to develop. However, because Ryanair was within the limits as defined by the EU legislation (Ryanair is based in the Republic of Ireland, an EU country) there was not really a lot that the EU or other industry bodies could do about it, apart from advice that “enough fuel must be carried in order for the aircraft to complete its flight”
FACTOR:
A factor in the rise in fuel prices, and the effect that this has had on Ryanair, is the rise in fuel duty (a tax that oil producers are legally bound to add on to the price of every barrel of oil that is sold). This has meant that the wholesale price of oil has risen, even before it has had the chance to actually be purchased by the company (at an increased cost) and then imported (if it was produced in a foreign country), this has meant that the price of fuel has risen for the purchasers such as Ryanair, who have had to force up the prices of their tickets in order to cover the increased costs of the fuel that they purchase. Other industries that are heavily dependent on oil have also increased the prices of the products and services that they offer, so as to soften the blow of the actual rise in fuel production costs whilst maintaining a good profit margin. Ryanair is no exception to this rule.
HOW DID RYANAIR’S COMPETITORS REPSOND?
One of Ryanair’s main competitors is Easyjet, who also operate in the budget sector of the airline market, who, upon learning that Ryanair’s prices had gone up, decided to lower the prices of selected flights that were in competition with Ryanair, and whilst some were not as cheap as Ryanair was/is, Easyjet embarked upon a vigorous advertisement campaign that emphasised that “quality doesn’t have to come at a cost”, which is in complete opposite to Ryanair’s policy of selling cheap seats without many extras. It is generally perceived by tourists that, whilst they both operate in the budget sector of the market, Easyjet’s flights are of a far higher quality than Ryanair’s, the service is of a better standard and the customer care is far superior. Easyjet’s campaign exploited
this customer perception to their advantage and it eventually paid dividends, showing how promotion can benefit one company when the competition is weak.
Rising fuel prices and the strategies that Ryanair, a budget airline, has put into place to reduce its impact.
Ryanair has reported huge rise in profits despite the rise in fuel costs. According to the BBC, “profits after tax rose 13% to £569m” and passenger traffic grew to 79.3m passengers. However, fuel costs rose my 290m euros, and now account for 45% of total costs.
To combat this, Ryanair has raised the prices of its tickets, whilst they are still catering for those travellers that are on a budget, they are no longer as cheap as they once were. They have also attempted to offset rising fuel and parts costs in the past by standardising on a one type of aircraft, from Boeing, which
has saved them considerable amounts of time and money, as they do not have to stockpile parts for many different types of craft, and it means less downtime
too, so less revenue lost.
Due to Ryanair’s cost-cutting, they have also been known to let their planes run with the minimum amount of fuel in their tanks, as defined by EU legislation. As a result of its minimum fuel policy, it was letting planes run until their tanks were empty whilst in service, and it often led to planes having to make emergency landings, miles away from their intended destinations, because the fuel levels were so low. Ryanair’s critics were quick to say that this was leaving passengers in danger and situations like this should not be allowed to develop. However, because Ryanair was within the limits as defined by the EU legislation (Ryanair is based in the Republic of Ireland, an EU country) there was not really a lot that the EU or other industry bodies could do about it, apart from advice that “enough fuel must be carried in order for the aircraft to complete its flight”
FACTOR:
A factor in the rise in fuel prices, and the effect that this has had on Ryanair, is the rise in fuel duty (a tax that oil producers are legally bound to add on to the price of every barrel of oil that is sold). This has meant that the wholesale price of oil has risen, even before it has had the chance to actually be purchased by the company (at an increased cost) and then imported (if it was produced in a foreign country), this has meant that the price of fuel has risen for the purchasers such as Ryanair, who have had to force up the prices of their tickets in order to cover the increased costs of the fuel that they purchase. Other industries that are heavily dependent on oil have also increased the prices of the products and services that they offer, so as to soften the blow of the actual rise in fuel production costs whilst maintaining a good profit margin. Ryanair is no exception to this rule.
HOW DID RYANAIR’S COMPETITORS REPSOND?
One of Ryanair’s main competitors is Easyjet, who also operate in the budget sector of the airline market, who, upon learning that Ryanair’s prices had gone up, decided to lower the prices of selected flights that were in competition with Ryanair, and whilst some were not as cheap as Ryanair was/is, Easyjet embarked upon a vigorous advertisement campaign that emphasised that “quality doesn’t have to come at a cost”, which is in complete opposite to Ryanair’s policy of selling cheap seats without many extras. It is generally perceived by tourists that, whilst they both operate in the budget sector of the market, Easyjet’s flights are of a far higher quality than Ryanair’s, the service is of a better standard and the customer care is far superior. Easyjet’s campaign exploited
this customer perception to their advantage and it eventually paid dividends, showing how promotion can benefit one company when the competition is weak.