Ryanair and its transformation into a travel tech company
It was only a matter of time before the Irish low-cost carrier moved into rooms
Ryanair wasn’t lying when it told an audience in London last year that ‘the only essential piece in the connected traveller journey is the customer’. And if you can get that customer to board your plane and then connect the dots by selling them travel insurance, car hire and airport transfers, then chances are you can also flog them a room in a hotel, hostel or villa, and a ticket to a music or sporting event event.
In what has been widely reported, this is the latest move from the airline that is synonymous with the ‘budget’ offer. And if you have a captive audience coming to your site for cheap flights, why not offer rooms too? In fact, the marketeers see no conflict. Ryanair has the status of an institution, as Myles Ritson of brand innovation consultancy Fusion Learning has pointed out.
Not that Michael O’Leary, thankfully, is taking a chance by becoming an hotelier! He is inviting partners. Only the right ones, of course - valued players with the strong accommodation inventories and a good digital presence. Names dropped by Ryanair chief marketing officer, Kenny Jacobs, to Reuters include Airbnb, Hotels.com, Homestay, Hostel World as well as Booking.com. (Ryanair may have just broken off its seven-year relationship with Booking.com, the world leader in online accommodation booking. But, it has, it points out, invited the world’s leading online accommodation booker to be one of the ‘partners’).
Having attacked costs and savaged margins in flights, analysts conclude, Ryanair has to go for richer pickings elsewhere. And at a time when airfares in Europe at least are only going in one direction - down - it seems a ‘natural progression’ is for Ryanair to move on into the higher margin room space.
This isn’t exactly a new strategy for Ryanair. It has, after all, built its business on selling ancillary products (from Ryanair-sized bags to insurance and car hire) first via a billboard style website using, what many would argue, bullying tactics. That was until the digital world gave Ryanair no choice but to move with the times, to join the digital race and to become a bit nicer to customers.
Becoming ‘the Amazon of air travel’ is how Jacobs has been describing this latest ambition to the press. And its strategy - to be ‘the disruptor of the disruptors’ and to ‘disentermediate the disintermediaters’, he told the Financial Times.
At the commission rate of ‘under 10%’, the figure Jacobs gave to Reuters, as against a more normal 20%, that seems right on.
O’Leary has made no secret of his ambition to go for all travel services. So not only has Ryanair recently become nicer to people, it has also been getting to know them better and collecting information. Digital is the key to what it wants to do. Ryanair will use personal data to boost ancillary revenue, hoping to target promotions well enough not to wear out its appeal.
Ryanair has embraced Facebook, Twitter, Instagram and Linked-in and opened up a YouTube channel. Its Ryanair Labs has tapped developers from sources as diverse as Google (which has a European base in Dublin), IBM and even Paddy Power. There is 200-strong team in Ryanair’s HQ working out how to pick up more customers - and money.
As Ryanair repositions itself as a technology company, no wonder O’Leary is so much in favour of a UK vote to remain in the European Union. As Gerard Grech, CEO of Tech City UK, puts it: “The UK is seen as a stepping stone into Europe for many digital companies. Founders want access to the market opportunities in Europe as well as to be able to recruit easily from the pool of talent in the 28 membership countries.”
Central to this tech vision is the Ryanair app. Launched just 18 months ago, it already has over eight million active users with mobile bookings now around 30% of its total. Jacob’s target is 50% of all transactions by next autumn. All the new services will be available on Ryanair.com, though the short-term target is for ancillaries to be around 20% of total revenue.
“We want to take the best of the Booking.com mantra and deliver products beyond flights. You should be able to book, hotels, cars, holidays, taxis, restaurants, all through Ryanair,” Jacobs told Marketing Week.
There is no gainsaying Ryanair’s success with flights. Since launching Always Getting Better three years ago, Ryanair has seen its customer numbers jump from 80 million to over 110 million a year. Traffic figures last month were 10.6 million against 9.5 million in May 2015 and the load factor was an extremely good 94%.
In the year to end-March its revenue rose by 16% to €6.5 billion and profit after tax was 43% higher at €1.24 billion. The shares have been outperforming the rest of the sector.
However, good things don’t last forever. Ryanair warned in its May announcement to shareholders that this year it expected profit after tax to rise ‘only modestly’, say by 13%. Ryanair has cut its costs, but oil prices could rise further and sterling is particularly volatile.
While key summer bookings were on average 2% ahead of the year before, the average fares were, however, lower. O’Leary sees 2016 fares as a whole as being “flat if not slightly down”, and Bloomberg had a figure of 7% lower. Customers adopting a wait-and-see approach, given uncertainty around a possible Brexit, could be a driver.
Cheapflights MD Andrew Shelton told EyeforTravel: “Uncertainty is definitely filtering down to the consumer – after an initial surge of 40% in searches for travel to Europe and a 20% year-on-year increase in the weeks since – we’re finding that Brits are holding off on making a commitment to book. Conversion has remained steady versus this time last year – suggesting that there’s a lot of pent up demand out there as travellers wait and see which way the vote goes on the 24th June.”
Putting more colour into the background to the move into accommodation, O’Leary has been referring to prospects of a ‘fare war in Europe’. Though, of course, as he said in his video on the latest financial results, as ever he ‘expects to win’.