Ryanair's Price War
February 1, 2022.
Ryanair has begun what may become an airline price war as it battles to win back customers after the Omicron variant of COVID-19 badly affected business over Christmas. The budget airline's CEO Michael O'Leary said demand has picked up since travel restrictions lifted – but the no-frills airline would have to slash ticket prices to fill planes in the coming months. The strategy follows a difficult quarter that saw many travellers cancel or rearrange flights when the variant emerged.
O'Leary blamed 'media hysteria' over the variant after passenger numbers fell well below expectations in December and January, with 'Omicron' widely reported almost as a disease itself by most mainstream media. The situation was not helped by many politicians worldwide also referring to the variant in a similar light.
Analysts warned that there could be a 'major battle ahead' among budget airlines, all of whom will be trying to boost sales. Some carriers however, may be reluctant to follow Ryanair's lead as they seek to rebuild profits in the wake of government response to Covid-19 worldwide. This year – particularly the peak summer season – will be a crucial opportunity for carriers and holiday companies to get bookings from people eager to go abroad, with travel all but completely curtailed during the pandemic.
O'Leary said Ryanair would require 'significant price stimulation' as the Irish carrier revealed it lost £80million in the last three months of 2021. The company also warned that losses for the full year to the end of March could be as high as £375million – some £210million more than expected.
Suggesting that there could be more travel disruption ahead, O'Leary said: 'This out-turn is hugely sensitive to any further positive or negative Covid news flow and so we would caution all shareholders to expect further Covid disruptions before we here in Europe and the rest of the world can finally declare that the Covid crisis is behind us.'
Ryanair has built its reputation on lowering the basic cost of tickets although it has also become known for charging customers extra fees to increase its revenues. O'Leary pioneered the strategy after joining the airline, using US airline Southwest as his model in the 1990s. Ryanair said earnings from extra fees were 8 per cent higher in the third quarter at around £18 a customer as people spent more for priority booking and reserved seating.
Image - Adrian Dennis
Victoria Scholar, head of investment at Interactive Investor, said: 'Ryanair's decision to slash prices to stimulate demand will no doubt put pressure on its rivals like Easyjet, Jet2 and Wizz Air to follow suit.'
Yesterday several of Ryanair's rivals had offers or sales on their website. Wizz Air was offering 2m seats with a 20 per cent discount, while Jet2 was giving 10 per cent off flights from a range of airports. On the Beach said it would allow customers free airport lounge access and fast-track security. Tui had a range of 'Treat Yourself This Payday' discounts that took between £100 and £350 off bookings depending on their size. Easyjet had 800,000 seats available from £19.99 until yesterday.
Martyn Sumners, executive director of the Association for Independent Travel Operators, said a summer price war would be in 'no-one's interests' after the industry was ravaged by Covid.
Images - © Provided by This Is Money (unless otherwise stated)
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