RyanAir Online Pricing Strategy : Up and Down Prices
The Low-cost strategy of RyanAir is conceived with the view to face fixed costs in the Airline industry.
Indeed, the higher the volume of sales, the lower operational costs are in their budget. This is the reason why RyanAir’s main focus is to provide the cheapest tickets as possible on the web, using a specific pricing strategy.
Online Pricing Mechanism
RyanAir is #1 European low-cost carrier and targets a budget conscious audience whose only interest is to get from point A to point B. It is frequently reported that prices on this type of market are volatile, which raises the following question:
How does RyanAir sets its tariffs?
Dynamic pricing techniques
RyanAir applies the Dynamic pricing concept also called “real-time pricing” which consists of charging different prices for the exact same service.
This form of price discrimination is controlled by software agents that gather data and use an algorythm to adjust pricing according to different parameters:
In order to set its prices, the firm takes into consideration the following factors:
The demand level of passengers
How close the departure date is from the purchase
The day of the week and time of the day the ticket is purchased
Competitor’s Pricing
How tickets prices fall and rise
We all notice that as the departure date approaches, the Fares tend to increase.
Nevertheless, it seems to not always be the case…..
You could not have paid less than me, you booked weeks later!
Who has ever overheard passengers saying this to each other ?
The Level of Demand
According to this graph, which introduces three popular destinations for tourists originating in London, it is clear that prices can increase and decrease many times within a period of 6 weeks. As a result a flight to Barcelona with Ryanair would be cheaper when the consumer buy it about 3 weeks before the take-off date than 6 weeks.
This is typically related to the current level of demand as Michael Cawley, RyanAir’s deputy chief executive explains about the target for passengers buying seats “if we are above the demand level, we can increase the fare, because we need to slow down the rate of booking, or if we are below, we need to reduce the fares”. RyanAir is profitable when its fleet of aircrafts are in the air and not on the ground.
Generally speaking, the flight’s seats is comparable to the sale of “perishable assets” as fewer passengers means less profit but also fewer opportunities to sell additional items onboard.
The Departure Date
Furthermore, it is also evident from the graph that the closer the departure date, the higher the price. This observation derives from the availability of seats within a plane. So, the more the seat’s numbers decrease, the more it increases the amount of money that consumers are willing to pay in order to secure the trip.
Best time to book
A plane’s ticket price varies depending on the day of the week and when the customer buys it. Saturdays and Sundays are typically the busiest and most expensive days. Thus, it is wiser to fly out during the middle of the week as RyanAir generally offers lower prices over 90 days leading to the flight date. (Journal of Air transport Management, 2009).
One other aspect of RyanAir’s low-cost strategy is to offer flights that leave whether they are very early in the morning , or very late at night. This is due to the fact that no one wants to fly at 5 am or 10 pm. Consequently, it is worthwhile to fly during that time schedule when travellers are on a tight budget.
The customer destination
There is a positive correlation between fares and the length of the journey. The further the destination is, the higher the price will be to support the fuel fees. In addition to this, the airports used by RyanAir such as “Beauvais” in Paris instead of Paris Charles de Gaulles or “Ciampino” rather than “Fiumicino” in Rome allow the firm to lower its costs to rent certain airports and thus help drive the prices down.
Competitor’s pricing
RyanAir has several competitors operating in the same marketplace. Even though they target similar consumers and operate within the same routes, it does not influence the average online prices offered by the company, but rather results in granting further discounts on advance booking to attract as many consumers as possible.
In conclusion, Michael O’Leary succeeded in copying the “no frills” model of Southwest airline in the 90’s as RyanAir is currently #1 low-cost carrier in Europe. The most important lesson to remember is that adopting a low-cost strategy can match with a goal in mind for high profits.
References
- P.MALIGHETTI, S.PALEARI, R. REDONDI. (2009). “Journal of Air transport Management. Pricing strategies of low-cost airlines: The RyanAir case study”. Article available here. (Accessed on November 7 th 2016)
- E. WEIDEMA. (2014). “Case study Ryanair change’s to a no frill business strategy”. Article available here. (Accessed on November 11th 2016)
- M. ROUSSE. (2015). “Dynamic Pricing”. Blog available here. (Accessed on November 14th 2016)
- All Rights Reserved @ ChinaAbout.Net.(2016). “Pricing strategy of Ryanair”. Article available here. (Accessed on November 14th 2016)