Ryanair is one of the most innovative companies on the planet… and yet it also manages to
be one of the most hated.
Yes, yes, we all have heard about TESLA or the HYPERLOOP.
But… let’s be honest, its going to be years before we know if those companies are
actually going to change lives...
Ryanair though, have already created a revolution.
And I’m not just talking about Europe here, Ryanair’s sway can be felt worldwide.
But on the other side of things, it is hard to find someone who doesn’t hate this airline.
This is, partly, due to the efforts of its CEO, Michael O’Leary.
He seems to have really worked hard to becoming
the man you love to hate with quotes like this one.
“People make queues to go to the toilet…
how do we stop them?
Charge them for it!”
Or… this other one:
“Nobody wants to sit beside a really fattass on board.
We have been frankly astonished at the number of
customers who don’t only want to tax fat people but torture them.”
–Michael O´Leary
Well… there is actually another reason people hate Ryanair...
If you have been following me here or in my other channels, you might already know that
I live in Prague,
Czech Republic.
My partners at VisualPolitik they live over in Madrid, in Spain.
Until this very month, Prague to Madrid flights cost around $250.
But this year, Ryanair came to town.
And they offered Prague to Madrid routes for as cheap as $90.
And what did the other airlines do in response to this?
Well, they were forced to lower their prices too...
And the same happened all across Europe.
Anywhere Ryanair operates, the rest of its competitors have to put down their fare to
remain competitive.
This means less profit margin or, even potential bankruptcy.
Just have a look at British Airways.
In the year 2000, they carried over 46 million passengers.
8 years later, they don’t even carry the 33 million.
And, of course, those big airlines like British Airways, or Lufthansa, or Iberia spent a fortune
buying ads in the media.
And because of this, they won the love of journalists.
And you know who didn’t have much love from journalists?
Well, that’d be Ryan Air, because they don’t really buy any ads…
Anyway, despite this bad reputation, there are only a few companies that can claim to
have changed an entire industry the way Ryanair did...
And, as I said before, this is not only a European thing!
The Ryanair effect can be felt all around the world...
Except perhaps in Latin America.
So the first question we have to ask here is…
How did Ryanair change the world?
Why do regions like Latin
America need a company like this?
And most important of all…
How does Ryanair manage to offer these ludicrously low prices?
Well, today, we are going to answer all those questions.
But first, let’s take a look back at history!
WHY IS RYANAIR SO CHEAP?
Back in the 1980s, a Madrid to London flight cost the equivalent of $700.
Back then, in Spain, this was the average monthly wage.
Everyone understood that flying was a luxury...
At the end of the day… planes are expensive!
There was nothing people could do…
Nevertheless, the reason why flights were that expensive had little to
do with technology and a lot to do with politics!
Yeah, it’s true…
Back then, air routes were based on agreements between governments.
For instance, the French Government and the American one had a deal so only French and
American airlines could fly between Paris and New York
City.
The same happened with the rest of the European countries.
Airlines had, essentially, a monopoly over the routes they operated.
So now, why would they lower their fares if they could make a fortune selling $700 tickets!?
Back then were the times when only British and Irish people could enjoy Ryanair's lower
fares.
But… in April of 1997, things changed forever.
“From this month, any technically qualified airline in the European Union (plus Norway
and Iceland) will be able to run services inside any other country.”
All of a sudden, all those European Carriers could compete against each other.
But…
they didn’t know how.
This is why they invested heavily on more advertising and more luxuries: better food,
more comfortable seats, and even corporate gifts to the passengers.
Ryanair, instead, bet on a totally different strategy.
"The other airlines are asking how they can put up fares.
We are asking how we could get rid of them."
–Michael O´Leary
Saying this in 1997 was crazy.
Of course, there were already other budget airlines like the American airline South West.
But Ryanair wanted to go even further...
This is why they found new ways to reduce cost to the absolute minimum.
For example, the landing cost depended, partly, on the fares that airlines pay to the airports.
Landing at Brussels Central Airport is costly.
But 60km south, there is the Charleroi Airport, which offers way lower landing fees.
Simply by choosing to fly to tht airport, Ryanair saved a fortune.
Another cost saving policy was utilizing the same airplane model for all the routes, the
BOEING 737.
Other companies like LUFTHANSA work with over 14 different types of airplanes.
This means they need 14 maintenance technicians, each of them, specialized on each of the different
models.
Ryanair, instead, can do the same with just a few experts.
This means that, while Lufthansa needs hours between flights to do
maintenance checks, Ryanair needs half that time.
And, of course, add to this the rest of the extra costs they save during the flights.
Do you want to eat on the airplane?
Well that’s extra!
Do you want to carry more baggage?
Yep, that’s extra too!
Want to choose your seat?
Every year, Ryanair finds new ways to reduce costs.
For instance, a few years ago, on the back of their seats they started posting adverts.
But the real turning point to this company came in the year 2000.
This was the time when Michael O’Leary made a decision that changed the entire industry
for ever.
"Screw the travel agents.
Take the fuckers out and shoot them.
What have they done for passengers over the years?"–Michael O´Leary
In the year 2000, Ryanair was the first company to create a website where you could book tickets
online.
Prior to that, it was impossible to buy your own plane tickets unless you lived close to
an airport.
So the travel agents where an essential middle man.
And, of course, they charged commissions up to a 30%...
Now, instead, passengers could just go to the website, find the cheapest flight and
buy it.
Today, this is completely normal.
But, back then, it was a revolution!
And it put lots of travel agents out of business.
With all this, by the year 2010, Ryanair could offer tickets for an average price of 40 USD.
That’s cheap.
But it’s ridiculous when you consider the $700 we were talking about before!
OK, ok, now you might be wondering…
Why are we saying cheap flights are such a revolution?
Think about
it, since Ryanair expanded its business in Europe, the amount of passengers has tripled.
Pay attention to the chart because we are talking about much more than tourism here...
Thanks to the cheap flights, student exchange programs have multiplied by 5 since 2007.
In fact, if you are watching this video from anywhere in Europe, you might have studied
abroad with an Erasmus program or have a friend who did.
The same goes with labour mobility, which has tripled in just a decade.
It would be hard to measure all the small businesses that have been born thanks to the
cheap flights…
They can even allow a modest freelancer to go find clients to another country.
But wait a minute because there is another detail we must keep in mind here!
If you look carefully, you will see that, while flying has increased in Europe, Latin
America seems to be immune to those changes.
But didn’t I say that the Ryanair effect was worldwide?
I mean, well, what happened to Latin America?
THE RYANAIR EFFECT
I know what you are thinking!
Ryanair just operates in Europe - how could they have had such a big influence on the
rest of the world?
Well…
I’ll let you draw your own conclusions…
AirASIA was an airline owned by the Malaysian Government.
At the beginning of the 2000s, they were on the
verge of bankruptcy.
Then in 2001, the Malaysian businessman, TONY FERNANDEZ bought it and followed the ‘Ryanair
model’ that had started to work in Europe.
AirAsia adopted the slogan: ‘Now everyone can fly’ and he offered the first low cost
flights on the continent.
Suddenly, Kuala Lumpur to Macao could be done for less than $90.
As happened in Europe, Asia then saw the birth of many other low cost airlines - from LION
AIR, in Indonessia, to CEBU PACIFIC in the Philippines.
Even a country as poor and as big as INDIA has seen the amount of passengers triple in
just 10 years.
But hold on a minute because there is this part of the planet which seems to be immune
from this Ryanair effect... and that area as we mentioned is Latin America…
For example, a cheap flight between Bogota, in Colombia, and Mexico City, costs over $460.
Just compare that with the $86 we pay for going from Kuala Lumpur to Taipei.
And, in case you want to check the distance, both are, more or less, the same.
And the same goes if you want to go from Lima, in Peru, to La Paz in Bolivia.
This is a 3 hours flight that costs over $600.
And yes, this is more than the average monthly wage in most Latin American countries.
So now you might wonder…
Why is it so damn expensive to fly in Latin America?
Why don’t they have some Ryanair-like company?
The answer lies, again, in politics.
In other words, legislation in the region has made it impossible for a Ryanair-like
company to appear.
If an airline wants to work in Brazil, they need to have, at least, 20% of their capital,
owned by Brazilians.
And 2 years ago, this percentage was even higher...
This is why, when AVIANCA, a Colombian carrier, wanted to open to markets in the country,
the government forced them to start a brand new company with their headquarters in Brazil.
Thus, AVIANCA and AVIANCA
BRAZIL are two entirely different companies despite the fact that they belong the same
group...
But Brazil is not the only country that protects their own airlines...
Until the year 2016, Argentinians who wanted to fly could only choose between two companies:
ARGENTINA LATAM, a private carrier, and AEROLINEAS ARGENTINAS, a state owned airline.
For decades, the CRISTINA FERNANDEZ DE KIRCHNER administration made sure no other airline
could compete with these airlines...
And the same goes for the airports...
Remember when I said that Ryanair could cut cost thanks to taking off and landing at cheap
airports?
Well… this is possible because in Europe, 1 out of 4 airports are managed by a marriage
between the governments and private companies.
Thanks to this, airports must
compete with each others by offering better services and lower fares.
It’s not by chance that half of European air traffic comes from private airports.
Latin America is a different animal though.
Most of their airports are managed, solely, by the government.
If there is no competition, they simply have no interest in reducing fares...
In other words…
Ryanair has failed to have an effect on this region because of politics.
And what are the consequences?
Well… despite the fact that many Latin American countries have grown economically in the
past years, flying is still a privilege for the rich.
So now the question is…
Do you think Latin America should liberalize its air space?
Do you think everyone could benefit from having a company like Ryanir operate in his or her
country?
Well, please, leave your answers in the comment section below.
Meanwhile, if you want to know how Ireland stepped out of poverty and became the powerhouse
it is today, well, click on this video.
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