The Cheap Fare in Ryanair Corporation

In the early years of Ryanair, they were perceived by the public as heroes for making air travel economical and for battling government authorities. Ryanair started with having a great image where they were loved by the public, which resulted in it nearly going bankrupt. It’s first regular service started in 1986 from Dublin to London which seemed too good to be true. It had very low cost fares with no restriction and even provided full meals and drinks in the flight. The airline wanted to create a good brand loyalty, passengers would see the same employee checking them in to the flight and then following them on to the plane. This helped create a strong brand loyalty between the customers and the company. This caused the company to have $2 million loss in the first two years. Later on an investment of $20 million had to be made to keep the airline alive. Things changed quickly for Ryanair when Michael O’Leary became Chief Financial Officer. He started off by copying the strategy of the best low cost airlines at that time Southwest Airlines. Ryanair quickly brought down unnecessary extra features and created a very low expense strategy. This made them lose their loyal customers but made the profits go up. In 2013 YouGov surveyed Ryanair with a negative 35% rating making it the least loved company in the UK. With no doubt all the investors were not happy with this decision until the end of the year where Ryanair announced that it made $4.8 billion in revenue making it the most profitable airlines in the world. At this date Ryanair is the biggest European airline and the fifth largest in the world. This was something that baffled everyone in the marketing industry. So how did a company be so successful with such a poor image. The answer is a value proposition.

Value proposition is to understand what a customer is willing to buy. These days passengers know for a fact that Ryanair does not provide excellent service but gives you a very cheap fare. From time to time Michael O’Leary had even made comments on the famous “toilet tax” where he would start charging passengers £1 to use the toilet and even said that if a passenger is willing to pay £5 for the toilet, he will carry them himself and wipe their bums. This got Ryanair a lot of free publicity, whether good or not but people started to be familiar with the brand name and values. The airlines started to give the customers more reasons to fly with them as they knew that no one wanted to travel with them because of their poor service but because of their cheap prices. One of the senior Ryanair executives stated that “Fly with us and then use the money you save to check into a luxury hotel. You will be on our plane for 1 hour. You can be in the hotel for an entire weekend.” It changed the customer's way of looking at things. As per 2019 Ryanair Annual Report, the average fare is only €37. Which is cheaper than travelling in a train for 2 hours within European countries. No doubt they had more than 80 million travellers every year. Most of the people were actually happy to pay a low price and travel with no extra service to save that money and spend it somewhere else. The value proposition isn’t much when the customers are on the plane but it is when they get to their destination. The last time someone used this approach in the airline industry was Freddie Laker in 1977 when he started Skytrain. You could fly from London to New York for just £59 with Skytrain and at that time the average cost for the same ticket cost £200. Freddie Laker’s dream lasted only 5 years as the airline made huge losses and declared bankruptcy.

No matter whatever negative things the customers say about the airlines but they love the low prices offered to them. Unlike most companies that want public admiration as they feel like it would have a positive impact on their sales. But declaring esteem for a company comes at no cost to the customers. The main test is if the customer is gonna reach for their pockets or not. Freddie Laker and Michael O’Leary found out that being loved does not always mean a good thing. The goal should be not to be more focused on being loved but to make their customers understand the value of what they are being offered and make sure the customer is willing to pay the price.