Ryanair's Better Customer Service Might Cost Discount Airliner Profits
Ryanair Holdings , the Irish low-fares airline, regularly courts controversy and CEO Michael O'Leary often appears to revel in it. They may offer some of the lowest fares in Europe, but there's still a price to pay; notably high charges for baggage or a reprint of your boarding pass, uncomfortable seating, and poor customer service. Add to that marketing campaigns such as the cabin crew bikini calendars and the rumor mill churning out gems like no seats and standing flights for short distances and paying for the toilets on board and you have a good idea of what to expect.
Despite these furors, Ryanair has stood proud and profits have been reasonably healthy over the past few years. The company even made a bid to fully take over Aer Lingus, which would have yielded serious gains for O'Leary and Ryanair, namely several direct routes to the U.S. and Canada and dozens of carrier agreements with the likes of United. Alas, it wasn't to be their day and competition concerns ruled otherwise.
Now the airline is making an effort to give itself a makeover mostly in the customer experience department. While it may very well come at the expense of profits, Ryanair will trudge on. However, O'Leary is quick to point out that these efforts are merely to improve public image and his company will not be overhauled or subject to a "grand transformation."
Nevertheless, the changes detailed below are expected to come at the same time as the company's first drop in profits in five years. Is Ryanair looking at the long term and willing to take a hit in the interim so as to draw more customers on board in the coming years? Shareholders hope the company knows what it's doing because Ryanair issued a profit warning in early November, with share prices falling 10% as the airline warned of profit guidance declining from €570 million to €510 million.
The changes on the horizon
Most of the changes affect the in-flight experience -- the airline will now allow a second carry-on bag at no extra cost, for example. Ryanair's flights were once notorious for the cabin crew offering scratch cards to customers mid-flight, along with PA notices throughout the flight. Now the airline is introducing "quiet flights," where announcements will be restricted to mandatory safety notices and lights will be dimmed -- but only flights prior to 8 a.m. and after 9 p.m. will get the quiet treatment.
Interestingly, all flights will have allocated seats starting in February. This will certainly change the queuing experience for a Ryanair flight, as customers will have their seats assigned instead of passengers cramming the aisles as they scoped out the best available options. Under the old system, a handful of seats could be reserved ... at an extra price, of course.
Consumers were happiest with the news about a drop in fees, namely those related to checking in. Like most airlines, Ryanair allows customers to check-in online before their flight and print the boarding pass. However if you forgot to print it or just lost it, you were looking at a €75 ($101) charge at the airport. This fee has now been reduced to €15 ($20), but if you haven't checked-in at all prior to arrival then you're looking at a €70 ($94) charge.
The company's website has also been harshly criticized through the years, with unnecessary security checks and a lengthy booking process that takes the user through several drawn-out stages. The website has been redesigned, including the removal of its reCAPTCHA, which often had an ad embedded in it.
Ryanair's view of the future
Ryanair could expect to make up the ground after the Irish government abolished the €3 travel tax levied on passengers in October's budget. Meanwhile, the airline recently secured new routes from Knock Airport, in the west of Ireland, to Glasgow, Eindhoven, and Kaunas.
On Nov. 14, Ryanair also announced 300 new jobs in Dublin and nine new routes from the Irish capital to Almeria, Bari, Basel, Bucharest, Chania, Comiso, Lisbon, Marrakesh, and Prague. The airlines expects to attract 700,000 new passengers. O'Leary has credited the scrapping of the travel tax for aiding this expansion. However, the abolition of the travel, while welcomed by the aviation and tourism trades, may end up being reintroduced to address climate change, so the airline is certainly striking while the iron is hot and introducing new routes while they can afford them.
Finally, it's important to note that Ryanair isn't in a unique position anymore. There are now plenty of airlines offering similar routes at similar prices; EasyJet immediately springs to mind. So while the airline hasn't exactly lost its unique selling point, it has much fiercer competition. If you look at some busy routes between London Gatwick (an airport that Ryanair frequently flies out of) and Dublin, Ireland, there isn't a huge difference in fare prices. Return flights over the same weekend offered on the Ryanair website were compared with other airlines on Skyscanner. Aer Lingus in fact came up cheaper at €99 ($133) while Ryanair was at €111 ($149). Meanwhile, routes from London to airports in Germany were much more in Ryanair's favor, compared against other airlines like Norwegian.
The customer service changes may create a more attractive package for Ryanair customers, where the experience could be on par with Aer Lingus, whose customer service practices are much better.
The year ahead will be an intriguing one for Ryanair -- will the company up the competition once again taking a small hit on profits in the short term? And will all the changes truly make a difference? What's your preferred airline for your European routes and why?
One stock ready to soar
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!
The article Ryanair's Better Customer Service Might Cost Discount Airliner Profits originally appeared on Fool.com.Fool contributor Jonathan Keane has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.