When Ryanair introduced its two-bag policy in 2013, allowing passengers to take one carry-on and a small bag onboard for free, bargain-hunters everywhere rejoiced. And then that joy swiftly turned to rage.
It turns out low ticket costs combined with the new luggage regime resulted in a surge of seats being filled – 97 per cent in August 2017, versus 82 per cent in 2013. Unsurprisingly, pretty much all those passengers wanted their luggage to have a free ride, resulting in a bizarre system of Ryanair staff stalking queuing passengers at the gate, tags in hand, ready to take the luggage to the hold because of limited cabin space. On some flights, up to half of passengers stand to have their luggage taken off them.
Almost four years on, Ryanair is addressing the problem.
Anyone that wants to guarantee space in the cabin, in addition to their small bag, will have to pay £5 for priority boarding from November 1. Everyone else can still take a small bag on, but will have to check in their carry-on at the departure gate which, of course, is what arbitrarily happens already. That bag must be under 10kg, but Ryanair is also reducing checked baggage fees in an attempt to encourage more sales. The check-in bag allowance will increase from 15kg to 20kg, while the fee for luggage in the hold will be reduced from £35 to £25 (though it’s unclear what the charges will be if you want to buy this after purchasing a ticket, online or at the airport where fees are historically up to £50). Ryanair claims the move will reduce delays and cost it €50m (£46m) a year. Still following? Allow us to explain.
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We’re programmed not to trust low-cost airlines’ intentions, so what’s really happening here? “The rate for checked luggage has always been too high for most passengers and the allowance to bring a wheelie and ‘personal bag’ on board was always going to lead to the customer behaviour, and concomitant delay problems we see today,” says professor Keith Mason of Cranfield University’s Centre for Air Transport Management. Ryanair’s business model is reliant on a large chunk of customers spending on additional services – including checked in luggage. We can see from the airline’s first quarter financial report for this year that this has not been the case. “While Q1 average fares rose by one per cent to just over €40, this was due to a strong April (boosted by Easter) offset by adverse sterling, lower bag revenue as more customers switch to our 2 free carry-on bag policy,” CEO Michael O’Leary said earlier this year.
Profits have been significantly up for Ryanair in recent years, with ancillary services up 13 per cent in 2017 versus 2016 and making up 27 per cent of total revenues. So, Ryanair is looking to keep pushing that revenue stream after predicting that fares will decline in 2018 as a result of a weak Sterling and other factors. It also predicts it will have €70m less to pay in fuel costs in 2018, so lower fares are, in fact, not so much of a sacrifice, making any hike in ancillary revenue a boon.
But will the luggage cost change work for the company?
“They have created the issue of cabin luggage and now are making efforts to reverse it,” Mason explains. “The reduction in hold luggage fee is not sufficient (in my mind, and before any research has been conducted or passengers preferences revealed) to move a significant amount of passenger to pay for hold luggage that do not currently do so.”
What he does predict, is that passengers will simply take less onboard or hope to have their luggage taken off them at the gate. And, as with other free services that have proven popular, that service will doubtful remain free for long. “The evidence of history is that new services introduced for free tend, if popular, to be charged for, first at a low ‘at cost’ price and then raised,” Mason says.
Is Ryanair really going to sacrifice an estimated €50m a year as a result of reduced checked bag fees?
There’s absolutely no way to tell. Ryanair is not sharing any more information with the public or journalists. However if, as Ryanair’s Kenny Jacobs said in last week’s announcement, the changes are designed to “eliminate flight delays being caused by not having sufficient overhead cabin space on busy flights to accommodate over 360 (182 customers x 2 bags) carry-on bags”, no one is paying for hold luggage anyway… or not a significant number. Since Ryanair has predicted a lowering of fuel costs and other operating costs, it has room to manoeuvre and offset any losses.
“They are in a lucky position – they are a very high margin, profitable airline so they can afford to take a revenue hit and it doesn’t impact much,” says Tim Coombs, managing director of Aviation Economics.
How big of a deal are the delays Ryanair keeps talking about?
Ryanair has, in the past, portrayed itself as the most punctual airline in Europe. That reputation has been somewhat tarnished in recent years with a Civil Aviation Authority report showing 83.9 per cent of its flights were on time in 2016. So is Ryanair concerned about customers being put off? More likely, it’s the airports Ryanair doesn’t want to rub up the wrong way.
“They are running an operation turning around an aircraft in 25 mins or so, so this has become a pinch point,” Coombs says. Speeding up turnaround, including refuelling and safety checks, are within Ryanair’s powers. Passenger boarding is where Ryanair has been struggling, with customers repacking luggage to squeeze a carry-on on, or having to be persuaded to part with it.
As Ryanair increasingly flies from more congested airports – not just secondary airports, as was the original Ryanair model – it is under pressure to fit into takeoff slots on time. It doesn’t suffer direct costs and penalties as a result, but Ryanair’s swift turnaround time is a selling point to new hubs it goes to for business. “In terms of when they negotiate, they will say ‘we are efficient in using airport infrastructure and can turn it around in a shorter period of time than other airlines’,” Coombs says. “It’s part of how they negotiate lower landing charges as an efficient user. If it takes them 45-50 minutes to turn round an aircraft, that’s the same time as less well-managed carriers in Europe.”
Ryanair’s O’Leary warned in an investors letter earlier this year that, in the face of uncertain Brexit negotiations, “we will continue to pivot our growth away from the UK in 2017 and 2018 to capitalise on the many growth opportunities elsewhere in Europe”. Therefore, remaining an attractive sell to airports is paramount.
So the new luggage model will neatly fix all delay issues. Right?
None of this will really work unless more passengers fork out for checked-in luggage. Ryanair’s new system still leaves cabin luggage as the most attractive option. For the vast majority that have been filling the cabin with carry-ons to avoid paying up to £50 for a piece of checked-in luggage, the most sensible options will be to pay £5 for priority boarding and cabin luggage, or wait for their luggage to be taken off them at the gate for free, which is happening everyday anyway. How this will possibly speed up boarding is hard to see. Aside from reducing passenger arguments – if you don’t pay £5 you can now not expect to carry your luggage onboard, even if you are at the front of the queue.
So really, the key statement in Ryanair’s PR effort, is this: “We believe offering bigger bags at reduced fees will encourage more customers to consider checking-in a bag.” A predicted loss based on a small number of passengers paying for checked-in luggage, versus the potential revenue when people tire of waiting at the carousel for their tiny, tiny, 10kg bags, seems a fair bet.
“At the end of the day, Ryanair is obviously interested in generating ancillary revenue in all the forms they do – it’s an important part of the business model,” Coombs says. “They will be flexible in terms of looking at fees in the future.”