From a novice point of view, the history of the Irish budget airline is one of the greatest business success stories among the European airline industry. It is true that when you look at Ryanair’s expansion, you could not deny this fact. No other airline expanded so quickly in Europe – it is now hauling around 70M passengers across the continent. From the financial market’s point of view, Ryanair has a solid business model, one of the few able to turn a profit even throughout one of the hardest economic recessions. From the passenger’s point of view, it’s another story. Ryanair is the epitome of the “you get what you pay for” airline.
I’m glad to now have the opportunity to present Ryanair’s business model under a new light to Plane Grazy’s readers.
After covering Ryanair news and the evolution of its strategy for over a year, I’d now like to encourage you to take another look at Ryanair business model. My discovery is related to what Ryanair calls “marketing support”, which is actually the public money that has kept the company on track for the past 10 years. In most of analyses you’ve probably read, whether it be by journalists, bloggers, or even sometimes experts, there never was the mention of the importance of one fundamental element in Ryanair’s business model: the importance of subsidies.
Questionable Subsidies: Ryanair’s Backbone
If subsidies are so important, it is because they represent a very significant part of Ryanair’s revenues. One could say that subsidies are not illegal, and that most European airlines receive some. However, the fundamental difference between Ryanair and any other legacy airline is that Ryanair’s subsidies are more than questionable.In Europe, to legally receive public money, three conditions must be met.
1/ The company must declare all public aids to the European Commission. It’s a fact that Ryanair and its partners have never declared any of their grants. All regional chamber reports point this out.
2/ Subsidies have to be strictly limited to 3 years (5 years in special cases). Once more, Ryanair’s practices are illegal. The first contract between the French regional airport of Beauvais and Ryanair was signed in the very late 90’s. Ryanair has been operating out of Beauvais since 1997, which means that Ryanair’s been “subsidized” for 13 years now!
3/ Lastly, subsidies have to be regressive, which means that each year, the amount has to be significantly lower than the previous one. Here again, is a rule that Ryanair and its “partners” have never respected.
While Ryanair declared €663m of ancillary revenues in its last annual report in 2009, Ryanair earned more than €664m in subsidies the same year. It means that subsidies are at least as important as ancillary revenues and represent around 22% of Ryanair’s revenues.
In France for instance, French Regional Audit Courts have conducted investigations, which revealed that a total of 25 airports have signed unlawful agreements with Ryanair for an amount estimated around €35m. But Ryanair not only receives subsidies from French public authorities. Ryanair receives public money from almost every airport across Europe it operates from. Moreover, 7 investigations are currently underway over Ryanair’s European subsidies; it’s now legitimate to formulate serious doubts about the strength of Ryanair’s business model, but also about its sustainability. What if Ryanair’s subsidies were not legal? What if 22% of Ryanair’s revenues were based on illegal processes and undeclared public money?
Until now, subsidies have allowed Ryanair to withhold a strategic advantage over other airlines. But in the close future, Ryanair could meet difficulties. In fact, in France, Spain, and Italy several investigation have already begun.
This article is based on the e-note Ryanair Business Model Under a New light
