[Anonymous]

[FormerlyDoS]

Interesting article in the Telegraph

http://www.telegraph.co.uk/finance/newsbysector/transport/10466209/Ryanairs-Michael-OLeary-easyJet-wiped-the-floor-with-us.html

1 – it’s unusual to see a CEO be so blunt

2 – can Ryanair close the gap in 3-6 months?

On #2, I guess it depends how you measure the gap, i.e. if profitability, maybe, but in terms of brand image I don’t think it wil be that quick, as easyJet has worked assiduously for a number of years to open the perception gap.

What does the forum think?

[AMcWhirter]

To be honest, I don’t see why M O’Leary is worried. I have followed the fortunes of budget airlines since Laker Skytain in the late 1970s and have seen so many come and go on both sides of the Atlantic.

The budget carrier who wins out in the end is always the one with the lowest cost structure. And Ryanair’s costs are the lowest in Europe and possibly in the world (although China’s Spring Airlines may be lower still).

[FormerlyDoS]

Alex

As a matter of interest, I though Wizz had slightly lower costs that Ryanair? It’s probably irrelevant to this conversation.

Why is O’Leary saying this? Maybe he needs a burning platform to drive change in Ryanair?

I know Southwest are doing some soul searching, at the moment.

[TabTraveller]

It doesn’t surprise me in the slightest that Spring Airlines has the lowest cost structure. I flew with them from Shanghai to Chengdu and the flight was hellish. Pretty much non-stop announcements to sell products, wholly unrealistic cabin baggage size restrictions and terrible pitch.

[AMcWhirter]

Good points, FDos.

As TabTraveller notes above, I guess it is the lower wages of Spring and, as you say yourself, Wizzair which keeps their costs so low.

Take your point about Southwest. It always had a tight control on costs but things may be about to change. Still Southwest remains the longest surviving US budget airline.

[FormerlyDoS]

Alex

Have you looked at the potential impact on the expiry of the Wright Amendment.

This will give Southwest a good boost and they have to decide how to counter Spirit, which is either the evil pantomime dame or the leading lady, depending on whether you are a pax in row 26 or a Wall St analyst!

[Xuluman]

It’s not surprising when you look at how they had such low costs in the first place.

The typical LCC start up offers very low wages and contracts out to employees and partners alike. The reason they are accepted is because they claim it’s temporary just to help them start, and after that the salary structure increases over time so they will eventually end up earning well.

Well 15/20 years down the road, those chickens are coming home. Long serving Southwest pilots are amongst the highest paid in the world. At easyjet there is a 15% annual bonus! after serving 10 years. At the time management never thought it would last that long, let alone be still working at Ezy themselves to pay for it. They only included it to make people sign up to the crap wages initially available, plus they were desperate for pilots during early expansion.

After 15 years existence, a relatively high proportion of EZY employees are already getting this bonus, and that’s only increasing.

New competition can therefore offer something substantially lower, only having to promise salary rises up to industry standard at sometime in the future. For the successful low cost operators, that future is now.

[TimFitzgeraldTC]

As a slight tangent, but as they allude to Easyjet being more customer friendly – as a travel professional they alienate a large portion of people who could book Ryanair. In 13 years of working in the travel industry I have never sold a Ryanair Ticket. This calendar year alone I have put 68 people onto Easyjet. Not only that but Easyjet are one of the best airlines to deal with when things need amending / changing – rarely ever charging fee (except any price differences) if things are rectified the same day. Very few airlines are as helpful as this. Other big UK airlines (no names) are the least helpful in this respect as well – not just Ryanair.

It is ironic on the trade issue as MoL always attacks agents calling them parasites and so forth, yet at the same issued court proceedings against Amex a few years back for not offering Ryanair flights on the EU account. He wanted it both ways. Not surprising coming from such a man.

[Str8Talking]

+1 on how easy and pleasant Easyjet are to deal with as far as the travel trade is concerned!

[BigDog.]

Xuluman – 26/11/2013 11:28 GMT
To improve your understanding of business I suggest becoming more informed, firstly facts:

http://www.telegraph.co.uk/finance/newsbysector/transport/10470350/EasyJet-profits-triggers-pilots-strike-in-France.html

“The French pilot’s union called a one-day strike against easyjet… accusing the budget airline of not adequately sharing with employees record profits announced earlier in the week” – EasyJet is 18 years old – chickens coming home to roost??

Secondly basic business concepts. In this case to start with – the organisational life cycle; ROI/ROE; EBITDA

The organisational life cycle you will see 4 main phases – start-up; growth; maturity then either revival or decline.
Although salaries in start-ups can be justifiably lower, growth phase companies (FR, EZY) have many other cost advantages over start-ups, economies of scale, purchasing power, lower marginal and relative development costs. The most prevalent trap for growth companies is building a bureaucratic back office which employs more people than the front-line (VS).

Fortunately for both Easy and RyanAir their expense ratios, EBITDA and ratios of employees working on the front line far outstrip legacy carriers.

[AnthonyDunn]

The most recent EZY results presentation demonstrates just how successful the company has become – so much so that EZY paid out a sizeable special dividend owing to the substantial amount of cash that the company is generating.

All this at the same time as funding a substantial expansion programme, having gearing of 7% (comparison: state-owned Emirates is 186%) and the stated intention of owning almost all of their aircraft (comparison: state-owned EK’s fleet is entirely operating and finance leased). For an investor, Easyjet probably gives the near optimal combination of serious cost control, innovation, appropriate levels of expansion, dividends payouts and stock price appreciation. For those of you who require your own persuading, see for yourselves at:

http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/results-centre/2013/fy-2013-analyst-presentation.pdf

As for the prospects of Flyandscare turning around their market perception in a few months: no chance. Once something acquires a particular aroma, it sticks in the nostrel for quite a long time and it will take a lot less O’Blarney and a lot more customer friendliness before people’s perceptions start turning around. But is a more customer-friendly and flexible approach compatible with FR’s basic business model? Again, EZY seems to have found the more acceptable middle-way between low cost and decent service delivery.

[BigDog.]

I noted in AD’s link above easy referred to closing its Madrid base in 2012. Interesting rationale…

http://corporate.easyjet.com/media/latest-news/news-year-2012/20-06-2012-en.aspx

it appears Madrid is a high cost base with significant over capacity. Pity BA couldn’t do similar. Just think of the lost opportunity cost wrt IAG/Walsh key strategic link-up.

[Shearer]

I think O’Leary is underestimating the public.
Or maybe I am.

But I feel that the perception of Ryanair has deteriorated far more than O’Leary realises, (lots of “never again” stories circulating at work when travel plans are discussed.)

His famous not-caring bluster isn’t working anymore with investors who look on aghast as headline after headline trashes Ryanair.

Being a low-cost carrier in Europe isn’t the clear blue sea it one was:

Norwegian, Vueling, Wizz and easyJet: agressively expanding and flying from real airports.
British Airways: resurgent, with £39 fares to make bookers think twice about going “low cost”.
Ryanair: the airline with the fees that flies to airports miles from where you think they are…

And two profit warnings.

[Xuluman]

Hello BigDog,

We were talking about competing cost bases, not who made the most. Try to keep up.

Are you denying that easyJets cost base has risen significantly since it’s inception? Are you aware it’s the boards no.1 priority for FY14? By far and away their biggest expenditure they can control is crew cost. Purchasing power, economies of scale etc of course help, but are insignificant next to crew cost.

Are you aware that EZY pilots based in France earn ~30% more than those in the uk yet continue to strike? Do you even know why they are really striking or did you just google the matter like usual? Haha

You are completely clueless, yet once again insist on posting random articles which only prove how out the loop you are.

Just embarrassing. A little knowledge rather than your standard pathetic posturing would be appreciated.

Edit: and no I don’t mean changing your source to Wikipedia. Sigh.

[Author]

Posts