There is a long-awaited wave of positivity washing over the travel industry. While there are still some notable struggles, there is a significant return to profit. The International Air Transport Association (IATA) revealed that commercial airlines ended 2023 with a net profit of $27.4 billion, a major turnaround on the $3.5 billion loss of 2022.
Individual airlines are enjoying some stability. Emirates saw $4.7 billion in profits in 2023, British Airways’ owner IAG saw 2023 operating profits triple from the previous year, and EasyJet saw total revenue increasing by 42%, partly due to the 221% growth of EasyJet holidays. The latter is a venture that has now piqued Ryanair’s interest too.
The airline is enjoying rude health at present with profits up last year 34% but could that figure be boosted yet further, as CEO Michael O’Leary suggested in September, by the addition of a package holiday arm?
Offering holidays isn’t new for Ryanair. There was a Ryanair Holidays offshoot back in 2016, however it only lasted a mere two months, with the company returning to focus on flights. Its renewed interest is somewhat surprising, given Ryanair DAC CEO, Steve Miller’s assertion as recently as May 2024 that “we’re in the airline business, not the package holiday business”.
Follow the leader at your own risk
There’s certainly an argument for going down the package route. Jet2, arguably the UK’s most successful package holiday brands saw revenues in the high profit package part of its business rise 15% for year end March 2024. The company stated in its annual report that “the end-to-end package holiday is a resilient and popular product…even during uncertain economic times.”
However Ryanair risks being the follower in the market. It’s a common trait in industries – copy the leader – but the result is often suboptimal as the first mover captures the market and a sense of “me too” desperation saturates the market with cannibalisation between suppliers diminishing the overall opportunity.
While this could be a beneficial investment for Ryanair, the key to succeeding will be in delivering the Ryanair innovation magic on top.
And this starts with a USP (unique selling proposition). This is the essence of what makes your product or service better than competitors, to differentiate rather than copy. Only through differentiation will Ryanair capture more than their fair share of the market.
This could centre around focussing further on delivering exceptional customer experience. It’s the small inconveniences that make the difference to the customer experience in any service sector.
According to research from Travelport, 63% of passengers say free carry-on or checked bags is a deciding factor when booking flights, while 50% want free change and cancellation and free seat selection. These are more important than legroom or inflight entertainment. Small concessions to passengers in areas that don’t materially impact the airline’s cost to fly have the potential to be a big winner in a highly competitive market.
A focus on innovation and technology
Ryanair’s relentless pursuit of market share and cost savings may have taken the airline’s focus away from innovation. Companies often lose their innovation gene as they grow and systemise for efficiency. It’s key that they create an environment for innovation to happen, and build bridges from there to their highly efficient systems and operations, to maintain the sweet spot between high efficiency and high effectiveness.
This could be by focussing more attention to how advanced technology like AI can be embedded within the company. From personalised marketing to intelligent recommendations for add-on services, AI can help airlines to tailor their offerings to individual customer preferences. There is enormous potential in harnessing AI to analyse a passenger’s previous bookings, browsing history, and other data to offer personalised flight and holiday packages, improving conversion rates and customer loyalty.
And we can’t ignore AI’s capability to increase operational efficiency. This includes enhancing crew scheduling or streamlining processes, and even forecasting operational difficulties, so that there is a significant limit to delays – or other challenges – that may hinder the customer experience.
Ryanair has created a niche, leading the budget air travel sector with its pricing strategy, innovation, business model execution and cost management strategies. But while launching new offerings like package deals could boost short-term profits, this airline risks papering over the deeper operational and customer experience challenges that could erode brand trust over the long term. In the worst case, they could even accelerate them. It’s time for Ryanair to let go of its reputation as the carrier passengers love to hate and start to think about undertaking its own low-cost transformation.
