What other factors, aside from de-regulation, can explain the relative performance or Ryanair and SAS over the past 10 years?
Aside from deregulation, there have been other factors that have influenced the relative performance of Ryanair and SAS over the past 10 years. Over the last 10 years, at least until the second half of 2017, Ryanair has gone from strength to strength and has experienced profitable years in all but one year during the last decade, (that being 2009 where they experienced a narrow loss due to high oil prices.) The past two years Ryanair has experienced net profits of over €1bn. (The Irish Times, 2017) In contrast to this, Scandinavian Airlines has not been so successful and has reported losses in 2008, 2009, 2010, 2012, 2016 and 2017. However, this vast difference in success isn’t purely down to the regulation factors that have already been discussed.
RYANAIR
With Ryanair, three main factors can be used to explain the company’s success over the last decade. It’s ‘low cost, no frills’ policy, it’s overall brand and reputation and lastly it’s management and leadership under Michael O’Leary. All three are interlinked, but have ultimately resulted in Ryanair being one of the world’s most successful airlines today. Firstly, Ryanair’s low fares have to be seen as a main reason as to why they have been so successful in the last decade. Naturally the consumer is attracted to low prices and with a rise in comparison sites such as ‘Skyskanner’, it’s so easy for the consumer to find the cheapest deal when it comes to airline bookings – and this is often Ryanair. Flash sales also attract consumers, with Ryanair often selling flights for under £10 and sometimes as little as £4.99 return. To put things into perspective, Ryanair have enabled people to travel to Poland and back by air, for cheaper than it would cost to get a Taxi from Exeter St David’s station to the Forum at Exeter University. These low fares, have to be seen as a reason why Ryanair have been so dominant over the past decade. A whole host of little ‘tactics’ you could say have enabled Ryanair to charge such low base prices. That being one of them, advertising the base prices of the tickets. Ryanair generates a lot of its revenue with the add-ons it provides for its flights. For example, it might indeed cost a mere £10 to fly from London to Poland, but reserving that seat will cost you £5, the administrative fee is £6 and its £20 for on-board baggage, making the prices not as cheap as cheap as they first seemed. Ryanair also infamously insists that travellers print their own boarding passes and check in beforehand, and the cost of forgetting to do so is £50. After being attracted to a cheap base price, consumers are often willing to pay these extra costs, and Ryanair know this and thus gain extra revenue through these fees. As we all know Profit = Total Revenue – Total costs, and in order to gain the maximum amount of profit, Ryanair concentrate mainly on cutting costs; which they do in multiple ways. One example of this is using small airports with low airport fees and not using airport ground services (they carry their own stairs) which has resulted in them keeping their costs low and ultimately keeping profits high. Furthermore, they even make their employees cover most of the costs whilst becoming a pilot. My uncle, who attended an interview for Ryanair to become a pilot said if he had proceeded past that stage he would have had to pay for simulator training, and the uniform himself. This can be linked to the fact that Ryanair’s reputation of being a ‘low cost, no frills’ airline has contributed to its dominance. The Ryanair brand is smart, and other airlines, such as SAS, have much to learn from it. Its customer service is infamous, as are its excess fees as I’ve already discussed, but its balance sheet proves passengers don’t seem to mind. In fact, quite the opposite. Increasingly, passengers who are forced to pay for excess luggage before boarding are not surprised in the slightest and instead, they receive comments along the lines of “it’s Ryanair, what were you expecting?”. These statements are often accompanied by a reminder that, for such a cheap price, nobody should expect anything more than what they pay for. In short, the airline consistently under-promises and over-delivers, thus creating a positive brand experience. Finally, Michael O’Leary, Ryanair’s CEO of almost 25 years has undoubtedly contributed to their success over the last decade. His unorthodox management style has given Ryanair an intense amount of publicity, not always positive, but publicity is publicity. Light hearted, controversial statements such as “This airline is cheap, expect nothing less” has meant that Ryanair is constantly in the news and this has ultimately strengthened their brand over time. O’Leary has constantly been looking at ways to drive down costs and increase revenue throughout the last decade and in 2009, O’Leary considered plans to charge passengers to use the lavatory and still that year, 59 million people flew Ryanair. In 2012, O’Leary called passengers who were fined for forgetting to print off their boarding passes “idiots”, and 76 million people flew Ryanair. At the time, he told the Mirror that he had gone into business to make money, but after the first £100m, “It’s Play-Doh.” This whole laid back attitude from O’Leary links to what I have already discussed; low expectation and under-promises, leading to surprised customers and Ryanair over-delivering because really, it’s not that bad. It can therefore be seen that the attitude and management of Michael O’Leary may not be perfect on paper, but has resulted in him running a very successful business.
SCANDINAVIAN AIRLINES
Unlike Ryanair, Scandinavian Airlines has struggled through the last decade, reporting losses in 6 out of 10 years ("Annual Reports – SAS", 2017). The financial crash in 2008, and the rise in budget airlines has led to a decrease in demand for SAS services. Under the management of Rickard Guftason, SAS have struggled to cut costs as successfully as Ryanair have and with more and more opting to travel budget airlines, they’ve struggled to compete and gain market share against their European competitors. They have attempted to adapt however, with Mr Gustafson recently saying “Cost efficiency and productivity are the name of the game in this industry”. (SAS returns to profit in FY2013 through cost reduction, 2017)
As such, SAS has performed creditably on costs in recent years, but demand is where the uncertainty lies. The airline has managed to reduce costs by 25% since 2009, but revenue has also been falling, and so to be profitable again, the airline had to cut costs. In a first step the airline sold its stakes in other companies, such as BMI, Spanair and AirBaltic, and began to restructure its operations. (SAS returns to profit in FY2013 through cost reduction, 2017)
This was to save costs by about 23 percent between 2008 and 2011. In November 2012 the company came under heavy pressure from its owners and banks to implement even heavier cost-cutting measures as a condition for continued financial support. ("Scandinavian Airlines", 2017) Negotiations with the respective trade unions took place for more than a week and exceeded the original deadline, but in the end SAS and the trade unions reached an agreement that would increase the worktime, cutting salaries between 12-20%, pension and retirement plans, and thus keep the airline flying. ("Scandinavian Airlines", 2017) However, the attempt to lower costs hasn’t been fully successful with costs still far higher t
han that of Ryanair’s. In order to raise demand for their services, SAS Plus and SAS Go have recently been introduced to increase passenger numbers. Ultimately it can therefore be seen that failure to adapt and compete with budget airlines such as Ryanair has effected SAS badly, and although the airline is just about managing to survive in the industry, there’s still a lot of work needed to be done to ensure consistent profitable returns.