Ryanair, the Dublin-based low-cost airline, is facing a rethink of its strategy after a difficult period marked by inflation. Like other low-cost airlines, the Irish airline has suffered a reduction in demand.
Michael O’Leary, CEO of the company, has put on the table a possible Price increase that could come up to 30% on average in the next four or five years, according to what he published Fortune. This is not the first time that Ryanair has threatened this measure.
More tourism, but less benefits
There are countless examples that tourism is recording records and is reflected in the mass tourism in places as diverse as Italy, Mexico or Seville. However, this greater volume of tourists does not seem to result in greater profits for Ryanair, which confirmed a drop in up to 46% in your profits for the first quarter of 2024, while its traffic increased by 10%.
Fortune has seen a report from research firm Bernstein stating that “management perceived a consumer under significant pressure, marked by a decline in spending due to the impact of higher interest rates and inflation. “This pressure from consumers was and is the main reason for the stagnation of yields.”
When Ryanair presented its first quarter accounts, Neil Sorahan, the company’s financial director, was already pointing out the origin of the problem: “People want to travel, but they are a little more cautious in how they spend their money,” the executive declared to the BBC.
As published The reasonthe average price of Ryanair tickets at the end of 2023 It was around 58 euroswhich already represented an increase of 24%. However, Fortune published that Michael O’Leary saw this increase as insufficient and has suggested that rates could increase by up to 30% in the next four or five years.
The risk of raising prices
Price is the main differentiating argument for low-cost airlines, so increasing it is not without certain risks, as highlighted by Peter Follows, CEO of the consultancy Carpedia that advises airlines and logistics companies such as Delta, Fedex and ASL Distribution. .
“Low-cost airlines, like other companies, raise prices when conditions are right. It may be a more direct way to increase profitability than reducing costs. But has inherent risks“
According to the expert, price increases are usually justified by the increase in operating costs, such as fuel or airport fees, which can discourage more price-sensitive customers.
“The danger of rising prices is that it can change consumer behavior. If prices rise too much, consumers look for alternatives (such as) other airlines, other modes of travel or traveling less. If that leads to lower demand, then, in the end, you’ll be back to square one,” Follows explained to Fortune.
Ryanair’s main rival, EasyJet, one of Ryanair’s main competitors, raised the price of its tickets and had a very solid third quarter, with increases of 7% in its revenue per passenger, according to what it published Expansion. Despite the price increase, the low-cost company had managed to increase ticket sales to 1.5 million tickets in the first third of the year, achieving a positive impact on its profits.
“Price increases may benefit in the short term. But like the hotel industry, it will require a careful balance between supply and demand, or in more pragmatic terms, between profitability and customer satisfaction,” said Peter Follows.
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