If Anyone Will Make Low Cost Transatlantic Flying Work, It’s Probably Ryanair

Ryanair

I can’t remember the first time we heard Ryanair chief Michael O’Leary talk about wanting to fly Transatlantic but it’s been something he’s talked about for years. And now, the board has officially voted to make it happen… in the next 5 years. The Atlantic is littered with graves of failed low cost efforts, but if anyone is going to figure out how to make this work, Ryanair is a good candidate.

Atlantic Low Cost Carrier Stormy Seas

The problem with low-cost, long-haul flying is that the longer the flight, the fewer chances there are to cut costs. On longer flights, fuel eats up a greater percentage of total cost than on shorter flights. And there is no low cost fuel (not that you’d want to use, anyway). Sure, there are airplanes that are more fuel efficient, but the tradeoff is a very high capital expense to acquire those aircraft. Just ask Norwegian. It spent a bunch of money on buying those expensive 787s to fly to the US, and it’s still trying to figure out how to make money with them.

There’s also a problem of demand. On longer haul flights, the low fare, leisure demand is much more cyclical than on shorter domestic flights. With Ryanair, people in the UK think nothing of hopping off to Spain for a weekend in the middle of winter. But a longer trip to the US? That’s usually saved for longer breaks often centered around school holidays. During the rest of the year, business demand is stronger but that’s more often in the premium cabin, something that most low cost carriers don’t try to tackle.

But Michael O’Leary is a smart man and he knows all of this to be the case. That’s why he hasn’t started flying Transatlantic yet. He hasn’t been able to make it work on paper, so he has to wait for conditions to be right.

The announcement of board approval mentions that the airline is in talks with the aircraft manufacturers. The problem for Ryanair is finding an airplane that’s fuel efficient enough without having to break the bank to buy the thing. That eliminates the gas-guzzling A340 on the used market. Ryanair is a much bigger fan of buying new and direct anyway. Could the A330neo be a good option? It sure could be. Or maybe the 787 or A350 is a good option. But Ryanair has to wait for demand to die down and the manufacturers to become hungrier. I’m sure the airline has a number in mind and it will wait until it can hit it, however long it may take.

The airplane you choose is one thing, but how you outfit it is equally important (if not more so). In the past, low cost carriers have tried to pack them in. Look at Cebu Pacific which puts 430+ seats on an A330. Some have tried a premium cabin but they’re not very good. Norwegian has a premium economy-style premium cabin on its 787s, but that’s not going to attract anyone with money to spend. It’s also a small percentage of the airplane. That’s really for the coach traveler who wants a bargain on something a bit better. It’s still the leisure traveler that’s the target market.

Air Asia X started moving in the right direction. It has angled flat beds on its A330s. This isn’t world class but with a price difference versus traditional competitors, it’s worth considering. But there are only 12 of these on the entire airplane. It’s insignificant.

Ryanair knows there’s great money to be made up front. Back in 2008, O’Leary gave his famous quote about the ideal premium cabin product… beds and blowjobs. And he wants a bigger percentage of premium cabin seats on each airplane to help generate enough revenue, even with fares being so low compared to competitors in each cabin.

With a product like that at a lower price, Ryanair can attract more business travelers, which helps offset the big demand shifts. And since Ryanair has a huge presence in Europe with an increasingly business-oriented clientele, it can make inroads into a Transatlantic market better than some random upstart like La Compagnie.

In terms of routes, Ryanair wants to serve 12 to 14 cities on both sides of the Pond and then connect those dots. I would assume that the airline would try to leverage its existing passenger base and fly from its strong positions in Europe to larger cities in the US. That’s been confirmed with Ryanair showing interest in places like London/Stansted and Berlin. But I’ve also seen mention of Berlin and Cologne. Those are much newer cities for the airline, but they are cities that Ryanair believes will provide growth within Europe. When flights start several years down the line, you can imagine these will be well-developed.

It will be interesting to see which cities get served in the US. Will Ryanair go toward bigger airports in popular places? There is a higher cost, but again, on longer flights that’s a smaller percentage of the pie than on short haul. And people in Cologne want to go to New York, not Newburgh (or whatever airport it might want to consider). That doesn’t mean it can’t serve smaller airports, but with bigger airplanes on longer routes, it will need as much help as it can get to fill those seats.

Does this mean Ryanair will be successful? I wouldn’t say that. But if anyone is going to crack this nut, there’s a good chance it’ll be Ryanair.

[Original Atlantic Ocean photo via Shutterstock and Original Ryanair aircraft photo via Markus Mainka / Shutterstock.com]

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49 comments on “If Anyone Will Make Low Cost Transatlantic Flying Work, It’s Probably Ryanair

  1. I really would like to see Ryanair fly across the Atlantic because I live in the Azores, in the middle of the Atlantic and there is a monopoly of airline companies here. Sata is the only provider for flights among the islands and TAP has the monopoly of travels to and from the Portuguese mainland. We need more competition, so the prices may decrease!

  2. I still don’t think it will work. MO’L has got the right idea with needing premium seats to subsidise the back-of-the-bus, but he needs corporate contracts with big businesses to fill those seats. It’s not like premium passengers grow on trees – they mostly either are corporates tied to a specific airline (and one that has a wide network of business routes) or individuals who are tied to specific FFPs/alliances. This is why the smaller premium-only players failed – not lack of recognition. In fact, Maxjet and Eos did have some corporate contracts, but they still failed, because the bankers who could have flown them preferred to fly BA, American or United out of Heathrow (much more convenient for stockbroker belt in the south and west) and earn miles – in any case, the big players all unofficially matched the discounter fares for their best corporate accounts

    Anyway, Ryanair has been much slower with corporate contracts and corporate accounts than easyJet. At least easyJet flies multiple flights a day to primary airports that business people want to go to. As a top 10 BA corporate customer, my issue with Ryanair is that they don’t fly anywhere useful, and, even when they go to a more convenient airport, they have an unreliable schedule (3 times a week at different times of day). At best, the airline attracts the odd flight and smaller SMEs who are saving money

    So the only passengers he’ll attract into premium longhaul are occasional Y pax and SMEs who are buying up – they are few and far between on long haul routes (and premium economy serves them well, esp with the prospect of op-ups to business class)

    Of course, if Ryanair was to join one of the airline alliances… But I suspect M’OL will sooner turn in his grave

    1. kt74 – Remember though, we’re still probably 4 or 5 years out, so by then you’d expect Ryanair to have made much greater inroads into the corporate market.

  3. Forgotten in this discussion of aircraft types is a longer range version of the 737-8 that Boeing has started shopping to various airlines as a 757 replacement and A-321LR competitor. The trip costs would be dramatically lower than the 787 and they would also have the benefit of type commonality with the existing fleet. Especially if they are going to fly out of and into smaller cities the smaller plane might be a better alternative.

    Alternately if they are going to go widebody my money would be on the 787-10 (off to a slow sales start and perfect for the Trans Atlantic Routes) or the A-330 Neo.

    1. 757s are marginal from TXL right now anyways, unless you want to make stops in Gander a lot of the winter. Not sure the 737 MAX 8 is going to have 757 range TATL… plus you’d lose seats compared to a 757-200.

    2. 121 Pilot – I would be surprised to see them go narrowbody here. Yes, trip costs on the 737 are lower but the seat costs are higher than on a widebody. Volume is the name of the game to keep costs low here. Plus, even with 757-style range you’re still not going to get too deep into Europe or the US before running out of range.

  4. The theory is great but the practicalities are very different. On transatlantic routes, the largest proportion of the air fare is not the fare earned by the airline itself but the taxes and fees attached to it. This makes reducing fares much more difficult. From the UK, the departure tax alone is £69, then there are US arrival and departure taxes and fees, Norwegian the current economy operator, says these account for £126 of the total price and even in these low cost oil days, they charge a fuel surcharge of £50. This means the lowest actual cost, as opposed to the ‘fare’ will be around £200 each way, very little less than some of the big guys charge now at low season.

    At least Ryanair recognise that they need a different name, no one who has flown one of their 189 seat B737’s would ever contemplate flying for 7 or 9 hours in similar conditions. I wish them well but not convinced that all economy, or indeed all ‘business class’ such as La Compagnie will ever survive in the cut throat transatlantic market

    1. Alan – Yes taxes are high, but that’s the case on short haul as well. What’s important to note here is that Ryanair is incredibly good at generating ancillary revenue. A quarter of its revenue in 2013 was from ancillary fees, and Ryanair is much more inventive in that sense than Norwegian has been.

      1. And of course, in the US a good chunk of the taxes are based on a % of the ticket price, ancillary revenue is not taxed. So if you charge $1 for a flight to London but add $300 in fees, that significantly lowers the taxes and gives a price advantage without cutting into profits.

        CF: how are fees taxed in the EU?

  5. Your logic is a bit of a tautology Brett, saying that by virtue of pursuing this plan it must be a good idea. The reality is that the long-haul market has only been exploded by companies with hubs in geographically convenient locations; its why we all had a long discussion the other day about the Gulf carriers. For the transatlantic market that is the Icelandic carriers who have the convenience of a very favorable hub location and the ability to bank flights to and from the country. If you are talking about running a hub operation into Europe, why would you choose the company in the UK or in Norwegian’s bizarre case, Ireland? You really need a location where the flights coming in and out are roughly equal.

    The comparison to Asian carriers is also not apt, one due to the sheer volume of pax, as well as the abundance of high demand, short haul flights allowing for feed into long haul flights. When you are making money hand over fist transporting people across the Philippine islands, or bouncing around SE Asia, offering a long-haul product to supplement isn’t an insane venture on top of it.

  6. LCCs already exist on longhaul, they are called the Economy sections of B773s/B744s/A333s/A388s operated by legacy airlines on intercontinental routes. The seat-mile costs of such large aircraft flying 16+ hours per day is on par with anything Ryanair can come up with on a 8 hour sector. The high utilisation cost advantage of LCCs on shorthaul is wiped out on longhaul.

    Air Asia X is finding this out the hard way.

  7. I agree that O’Leary is probably the guy to figure this out but I still put the odds kinda low. A ULCC for trans-atlantic flying is going to be nearly 100% leisure. Can you build a regular schedule on that? I don’t know but I’m kind of doubting it.

    For cheap flights across the pond isn’t Thomas Cook already doing that with charter flights? To me that’s where the budget/leisure traveler goes for their European (or American) vacation. Ryanair has a European network that can feed a charter flight out of a lower cost airport. Why not go that route?

    1. A – Yeah the charters are trying to serve this market to some extent, but most are heavily reliant upon packaging. They also serve more traditional markets like Florida. I’m guessing if Ryanair wants to serve 12+ cities in the US, it’s going to have to go into some new markets.

      Not saying it’ll work. i just give Ryanair better chances than most. But I agree – chances are still low.

    1. Baba Booey – I can’t imagine cargo is really going to be a consideration here. Maybe Ryanair will find cargo to be a good extra source of revenue but I wouldn’t think it would be an important part of the plan to start.

  8. Ryanair will get there some day, but if they fly Berlin-New York nonstop, how are they any different than Norwegian? The LCC long haul space is out there and Ryanair does have a loyal following. We’ve have Laker Airways, PeoplExpress and now Norwegian, but if this is a seasonal market for these leisure pax, why would Ryanair buy a new fleet? Use 737s and partner with Frontier at a connect point like Manchester, NH.

    1. Mike – How are they different from Norwegian? Cheaper aircraft, more premium seating, and better ancillary revenue generation. That plus I would assume a stronger customer base within Europe.

  9. I don’t see it happening with Ryanair. Besides, as other have commented, there are already long haul LCC offerings, both from the legacies as well as the likes of Thomson, TUI and Jet2.Com (a lot of this seasonal, and tied to package holidays). Jet2.Com flies seasonally from LBA to Newark (New York) on a 757 with shell seats and not a lot of leg room but most seats are sold packaged with hotel as stated. You can however buy just a seat and torture yourself for little money.

    The other thing is, Ryanair is already in “long haul” as well: Gran Canaria to Oslo is close to 6 hours, as is Paphos (Greece) to Manchester. So clearly there are people out there who are “OK” with 6 hours in cramped conditions.

  10. Wide body or narrow body? Primary North American airports or secondary? All these questions and more have yet to be answered.

    However, showing People Express in the ocean is a bit of a misnomer IMO. PE had many factors leading to it’s takeover by CO, not really sure TATL ops had much to do with it. EWR-LGW and BRU were cash positive for the most part, it was PE’s operation as a whole that was falling apart for various reasons.

    I’m personally hoping Ryanair does both narrow and widebody, opening TATL service to US markets without any, or much service. PVD, ISP, MHT, BUF, CLE, PIT, STL, MKE etc …

  11. Cranky – You dismiss Norwegian, especially regarding their expensive 787s, but then you generally suggest the same approach for Ryanair. Are you suggesting if Norwegian figured out the premium passenger issue, that they might be able to pull it off?

    1. OhioExile – Not at all. Though I don’t know how much Norwegian paid for the 787s, I’m going to bet it was way too much. Ryanair is very good at beating Boeing into submission and getting great deals. That can make a huge difference. Also, I think Ryanair will be much better at generating ancillary revenue (I know I sound like a broken record in the comments here today). Route selection is another big question mark. We’ll have to see how that plays out.

      1. CF – They also may have leverage over Boeing if the 737MAX they ordered are even a day late or a pound heavy.

        I’m surprised that no one’s discussed how curious the timing is, though: 5 years is right around the perfect time for Ryanair to get the last-run 777 (pre-X) slots. Ryanair’s delays in ordering the MAX show that it’s not always looking for the lowest-fuel option out there, plus a lot of the routes that Ryanair is looking at won’t be anywhere near the 777’s max range (even TXL-LAX is JUST A HAIR under what the 777-300 (non-ER) can do in theory; but I doubt they’d try it).

        Boeing is getting concerned with filling those last remaining 777 slots; the PIP they just announced shows they’re working at it. Ryanair has experience playing hardball with Boeing, and are probably thinking they can get a deal on the 777s if they haven’t sold already (though I’m sure that we’ll see O’Leary doing some very public tire kicking of say, an A330/350 just as he “wondered” – outloud and frequently – about the A320neo.

        I’m betting anything they’re looking at the 777s first; and 5 years is just enough time for them to get those last slots and get comfortable with the aircraft. The downside is they’d be committing to larger cities for both pairs, but at the same time, I’m betting on a 3x-weekly flight you could fill a plane from any mid-sized city craving service to Europe (St. Louis is a big one here; but any other ‘de-hubbed’ city is a good first bet). They’d also probably focus on ‘sun cities’ in the US.

        1. TimH – Yes, great point on the 777. But that is one big airplane. Seems to me it would be tougher to fill that. Then again, maybe Ryanair would take those 777s if it could get a smoking deal on 787s as well. Round out the 777 production line and get taken care of on the other side. You can see how that might end up working.

          1. I’m not sure if Boeing is even making a 777-200ER anymore, but it’s not THAT much bigger than a 787-9, which is where the ‘sweet spot’ really is for the 787 family in terms of fuel economy. I could see a mix of 777-200ER and 787-9 later on; alternately, if the 787-8 is what interests Ryanair (which it may if it wants to do ‘2nd-city’ pairs which is kinda Ryanair’s bread and butter in Europe), there’s also the possibility of agreeing to the higher weight ‘white elephants’ parked on the tarmac in Everett right now in exchange for big discounts down the line; the problem with that is that I think there’s only 6 of them, Ryanair would be left with some odd planes in its fleet which is the exact opposite of it’s strategy to date, and Boeing wants those gone NOW, so Ryanair would be left with only a couple aircraft in the near future along with more coming in subsequent years.

      2. The order book for 787’s is insane, and the order book for the 777X is already filling up. This isn’t like the 737 market where you are competing against smaller operations and can throw large orders around easily. How are they going to compete with the Gulf carriers and the Asian carriers that are putting down huge numbers for orders and are already in the intercontinental long haul market? I’m imagining an attempt at ordering numbers in line with Emirates would be disastrous.

    1. True, but a TON of US airports have these facilities by virtue of the occasional Mexico/Caribbean flight and ZERO European service… in addition to cities that have been de-hubbed/ignored by the merging US legacy carriers and have no direct European service (CVG, MEM, STL, AUS, SAT, BUF, etc etc).

      So, describing cities as “Secondary” just because they aren’t existing airport hubs or major international gateways isn’t really accurate.

  12. Lumping Laker in with the failures isn’t really fair. Laker was brought down by dirty tricks from a consortium of the US and UK governments, and the entrenched established carriers.

    First British Airways (no DC10s) conspired to keep DC10s grounded in the UK for 6 months after the AA accident, knowing that would cripple Laker. Then Thatcher passed legislation to prevent Laker from suing the US airlines for anti-trust. so she could complete some defence deal with Reagan (who insisted she put to a stop to Laker in order for the deal to go through). Sir Freddie was so pissed at the supposedly pro-business UK government that he actually moved away!

  13. This will work. The issues surround getting slots at major US airports and buying the right aircraft. Traditionally they are a Boeing airline and it wouldn’t surprise me to go for the 787 in some capacity although the 10 might be too big. Remember Scoot are using the 8 and 9 in Singapore. O’Leary also dislikes leasing so I imagine the company would look to buy if possible.

    The current Ryanair business model dominates, love it or hate it but can they storm the transatlantic market? Maybe they look at it as connecting US travelers to a few major hubs in Europe driving traffic to Ryanair as opposed to the other way around? It’s the most profitable market of all so let’s see if they can crack it.

        1. It all really depends on what secondary airport it is. The US has several “secondary airports” like Midway, Newark and Oakland but even these may be to expensive. Then again flying into the likes of Buffalo Niagara and Bob Hope certainly won’t attract many fliers. The difference with Europe is that many of these Ryanair secondary airports are designed especially to host the LCC and have necessary links to the cities to be served. Its near impossible that airports in the US would change to suit Ryanair. It looks like they need find the right balance in an airport between cost and demand

        2. I think Frontier’s attempts at using tertiary airports has been a mixed bag, and they seem to be pulling back from that strategy. As the other commenter pointed out, the difficulty is that in many tertiary airports there are no substantial transit links, and once you figure in renting a car, gas, distance, time spent, it is hard to see the cost savings.

          If anything I see a reverse trend in America happening of increasing consolidation to airports serving a very large regional footprint. Ironically I think transit will only facilitate this fact as if its easier to get TO a major city from the burbs, most people will simply choose to use the major airport that already has the widest variety of flights and the most services. In that regard smaller airports may become more and more functionally useless.

  14. All I can say is Aer Lingus better prepare themselves for an all-out transatlantic war in Dublin. IAG isn’t looking so bad now. If Ryanair tackle cities like Berlin and London, it’s likely AirBerlin and Virgin Atlantic may suffer due to their fragility right now

  15. Agree! My nickle bed says that if ANYONE can make the x-pond work, within the ULCC model, is is Irish Mikey! Since Mikey is patient and misses NO opportunity to squeeze the last dime from every deal, the rest of my bet ays that he will: 2) Stick with Boeing airframes, 2) wait for the 788 and 789 prices to drop (perhaps when the 787-10 finally arrives) and then 3) use a combination of new and used 788 and 789 airplanes for this venture. (Ryanair may also be a potential candidate to buy some of the slightly obese ‘terrible teens’ early 787-8s that remain parked at Paine Field. -If the price is right.
    O’Leary has another advantage in his pocket… The long-haul across the North Atlantic is typically 6 – 8.5 hours, depending upon the specific city pair. At the right price point, I believe the leisure flyer can tolerate the discomforts of Ryanair that long. Beyond about 8 hours, meaning North Amerika to Asia and points South, flights of 9-12+ hours, the leisure flyer’s tolerance drops like a rock. I think he will do it – and probably sooner than the suggested 4-5 years. While no fan of his model, I could and would tolerate it from the East Coast to a al most any second string city in Europe, continuing on as necessary and most likely by rail. We easily forget that Europe’s inter-city distances are much shorter than ours – and they have a rail system that works extremely well. (There ain’t no Amtrak in Europe!!) He do it – and sooner rather than later. (SLAM! There is my nickel.) -C.

      1. Bit of well-played free advertising, eh? O’Leary always has a reason for doing something. And it’s usually well thought out

  16. I actually hope that Ryanair will never have transatlantic flight. I use the the company very often as I travel for my work and I am a fan. The think is that I am a bit scared of their ideas for having standing up passengers so the airbus can be completely filled with people. In my opinion this is insane… and I don’t know what other ideas like this they might have. Airbuses are small planes made for not such long flights so I don’t know if it is a good idea.

  17. Not just no, hell no! Ryanair may be cheap, but they suck. First of all, this is an airline which has contemplated charging to use the latrine. Seriously? No.2 They are so anal about carry on luggage that they actually weigh carry on bags. They also have this ridiculous concept where if you don’t check in online and print your boarding pass, it will cost you 20 euros. That is one expensive boarding pass. Ryanair is also an airline which thinks it would be a good idea to offer standing seats. They are actually trying to lobby the European Union to allow standing seats. So far, the EU has balked at the idea, and I for one applaud them. Seats should never be treated as a luxury. No, if any low cost carrier offers transatlantic flights, my money is on Southwest. Why? Southwest is inexpensive. They offer 2 free pieces of luggage and they already have experience with international travel. Southwest flies to Canada, Mexico and the Caribbean countries. How is Southwest a low cost carrier? Not by scrimping on basic services. They emphasize efficiency and above all, they don’t waste space on nonsense like a first class cabin.

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