Marketing

There are no flat bed seats, no free champagne and no left turn. But Ryanair still claims it is offering a business service. On Wednesday the low-cost Irish airline unveiled Business Plus, a service designed to lure the famously bare-bones airline passengers who usually fly business class on other carriers and are used to curtain dividers, hot towels, free meals and other perks. None of those frills will be part of the Ryanair package. Instead, according to Kenny Jacobs, the airline’s chief marketing officer, what potential business class travellers want are flexible tickets, multiple same-day return flights, fast-track security, priority boarding and seats near the exits and over the wings, which have more legroom. In other words, Business Plus will be business class flying – Ryanair style. ‘There was no demand for some of the traditional trappings of the business class product – the bad sandwiches, the bad coffee,’ says Mr Jacobs. ‘What [passengers] wanted us to do was to tweak the schedules to make them more business-friendly. This is a big segment for us, and we want to tailor that service to the needs of business passengers. The numbers stack up from our point of view.’ Ryanair is playing catch-up after admitting that rival easyJet has taken the lead in attracting business passengers. The Irish airline is trying to make inroads into the lucrative market as part of an overhaul to increase its appeal and soften its image for poor service and peremptory treatment of passengers. The ‘caring, cuddly, sharing’ Ryanair includes offering allocated seating and mobile boarding passes, revamping its website, as well as giving families some incentives such as discounts and warming babies’ bottles. Enticing business class passengers from their cosseted ways is tough, as easyJet has found. It has lifted the proportion of business travellers it carries from 18 per cent to 20 per cent over the past few years. Stephen Furlong, an analyst at Davy, the Dublin brokerage, says that for low-fares airlines, winning business passengers ‘is a slow, incremental grind’. Moreover, some airlines are moving in the opposite direction. Aer Lingus and SAS no longer offer the full business class service on short-haul flights. Mr Jacobs says a quarter of the 86m passengers Ryanair has carried over the past year are ‘business travellers’, but they are paying standard fares, which start at €19.99. Ryanair will have to convince more of them to pay the higher fare – the cheapest Business Plus ticket will cost €69.99. That is less than the business ticket on traditional carriers, but it does not include incentives such as loyalty programmes. ‘It will be tough to get business class passengers the flag carriers to come across to Ryanair,’ says David Holohan, who follows the company for Merrion Capital in Dublin. He says that if the Ryanair offering succeeds in luring more higher-paying passengers, the rewards could be significant given the gap between Business Plus and regular fares. But he says the airline would be doing well to get 5 per cent of its passengers to pay the higher business product fare regularly. One factor that may count against Ryanair is that it often flies to out-of-the-way airports. EasyJet has been building positions at primary airports for years; they now account for 70 per cent of its destinations. Ryanair is trying to increase its share of primary airports, and says it will move from 35 per cent to 45 per cent within two years. But Michael O’Leary, chief executive, says Ryanair will not fly to Europe’s three main business hub airports – London Heathrow, Paris Charles de Gaulle and Frankfurt. The toughest challenge then for Ryanair may be to make its business product work even if it does not serve Europe’s main business airports. Oliver Sleath, airlines analyst at Barclays, says: ‘Ryanair is coming at this with a brand that will take some time to improve, and a network/frequency offering that is fundamentally less attractive, although evolving quickly.’ ‘Wait and see if easyJet can materially drive up their share of business passengers before assuming Ryanair will be successful. ’Mr O’Leary does not sound entirely convinced that being nice will make Ryanair more money, but he is willing to give it a try. In Dublin last week to announce new routes, he said his staff had assured him that if he kept up his efforts to be ‘caring, cuddly and sharing’, Ryanair would win more business passengers from Aer Lingus, its local rival. ‘So I am doing my level best, and funnily enough it’s working,’ he said. That boast is about to be put to the test. Ride of private equity heavyweight Bonderman David Bonderman, the 71-year-old chairman of Ryanair, has been an ever-present figure at the Irish low-cost airline. The co-founder of Texas-based buyout group TPG Capital, who has chaired the company for 18 years, personally invested £1m for a 20 per cent stake in the low-cost airline in 1996, when the founding Ryan family was looking for a partner to boost the company’s expansion internationally. Airlines have always been the sweet spot of the private equity financier. The former lawyer rose to prominence in the US with the turnround of Continental Airlines in 1993, making almost 12 times his original investment. Back in 1996, Ryanair’s founders managed to get Mr Bonderman to drop a planned venture he was negotiating with Richard Branson to back their company instead, writes Siobhan Creaton in her book, ‘Ryanair: How a small Irish airline conquered the world’. The financier participated in a refinancing of the company and bought a stake alongside the family and the management. A year later, Ryanair became a public company and Mr Bonderman’s stake was worth £60m. Since then the company’s share price has surged from €0.4 to €7.1, bringing its market capitalisation to €9.6bn. The US financier, whose private equity firm is now seeking $10bn for a new leveraged buyout fund, has since sold down his stake to 0.55 per cent, which is worth €54m. However, addressing the International Air Transport Association in 2006, Mr Bonderman said: ‘It’s time to sell, ladies and gentlemen,’ he told his audience in Paris. ‘This is as good as it gets in the airline industry. It’s only going to get worse.’

1 What is the rationale behind Ryanair’s decision to compete in the business segment?

2 How attractive do you assess the business segment to be to Ryanair and why?

3 What targeting strategy is Ryanair trying to pursue? What difficulties do you anticipate Ryanair will face in following such a strategy?

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