Ryanair Introduces Connections and Prepares for Interlining, But Don’t Expect Crazy Cheap Fares

Ryanair

Connections suck. Oh sure, as a traveler you don’t like them, but I’m looking at it from the other side. Airlines don’t like offering connections because they add operational complexity and cost. What the airlines eventually figure out, however, is that there’s enough commercial benefit to make the effort worthwhile. It appears Ryanair has finally gotten to that point with the introduction of connections on a few routes via Rome. But Ryanair is doing it differently than how more traditional airlines do it. And to understand how it’s different, we’re going to need to dive into a bit of a history lesson first.

The History of Connections, Part I
The big hub-and-spoke airlines learned long ago that connections were vital to their businesses. See, they figured out that if they could have more flights in a market than other airlines, they could get an outsized share of the lucrative business travel spend in that market. But it’s hard to just add a ton of flights in a market when there’s not enough demand for that capacity. Take Dallas/Ft Worth, for example. To really own that market, airlines need to have a lot of frequency in small and large markets. Sure, a big market like Dallas to Houston can probably support a bunch of flights on its own, but what about Nashville? Or Oklahoma City? It’s important to have a lot of flights in every market, but there aren’t going to be enough people flying solely between Dallas/Ft Worth and those cities to fill those seats.

Enter the hub. American might not be able to run a bunch of flights from Dallas/Ft Worth to Nashville based solely on local demand, but once it could start gathering people from LA, San Francisco, Seattle, Albuquerque, etc then it could fill up those airplanes to Nashville with ease. Today, for example, American has 9 flights in that market with 1,336 seats (soon to be 25,482 seats once American finishes adding density to its fleet). That’s a ton of seats, and they’re largely supported by the connections that are offered. This means American can offer a killer schedule for the Metroplex business traveler by filling the extra seats with connections. (The flip side is that American can now get people in Albuquerque to an incredible array of destinations with a single stop, so it’s good news on both fronts.)

The only problem for American is that while there isn’t much competition in the nonstop market from Dallas/Ft Worth to Nashville, there’s a ton of competition for people flying from Albuquerque to Nashville with a stop. So fares are likely to be lower even though costs are higher. (This has changed recently in smaller markets where no low cost competition means connecting fares are higher, but I’m not going to get into that today.) The system works in one sense, but from a consumer perspective, it seems weird and confusing why something that costs so much more to operate would actually have a lower ticket price. After all, the cost differences are somewhat significant when connections are introduced. For a nonstop flight, the airline takes someone’s bags and puts them on the airplane. Then it offloads them on the other end and the traveler picks them up. With connections, airlines need a whole infrastructure to transfer bags. This doesn’t even get into the issue of missed connections and other operational headaches. Flying nonstop is much simpler.

The Ultra Low Cost Carrier Connection Strategy
If you think about it from an ultra low cost carrier perspective, the idea is simple at the beginning. These airlines can cherry pick the routes that have the most traffic and the highest fares. They can avoid all those extra costs of having connections while still having plenty of traffic to fill their airplanes. And without those costs, they can offer fares that are even lower, helping to siphon traffic away from the established airlines while also stimulating new traffic.

Over in Europe, Ryanair became a master at this by serving lower cost airports that weren’t even in a city. Anyone who has been to Hahn Airport, for example, would be hard-pressed to really call that “Frankfurt.” But the fares were low enough that people flocked to Ryanair and took buses into Frankfurt. The same thing occurred at Stansted (London), Charleroi (Brussels), Girona (Barcelona), and in a perverse way that only the Italians could manage, Ciampino, which is an alternate airport that’s actually closer to Rome than the primary airport at Fiumicino.

Ryanair also had the benefit of not trying to explicitly serve the business traveler. So as it grew, it was able to serve more routes that had enough demand for a couple flights a week but not enough for a daily schedule that a business traveler would need. This created whole new markets where British people bought vacation homes in France and Spain. Just the existence of the cheap flights helped to spur growth in demand over what was previously there.

As Ryanair grew, it started running out of good growth opportunities. So it started to look for ways it could grow its revenues. One option was to start flying into primary airports, even if they were more expensive. Today you’ll find Ryanair in Brussels, Barcelona, and Rome/Fiumicino among others. Sure it costs more, but the revenue benefit outweighs the cost. Yet as the airline continues to grow, it needs new outlets to help sustain itself. And now the time for connections — to both other Ryanair flights and flights on other airlines — has arrived.

The Ryanair Twist on Connections
The initial test involves just a few routes flowing over Rome. (See, Alitalia, who needs you?) People flying from Alicante, Barcelona, Bari, Brussels, Catania, Comiso, Malta, and Palermo can connect to each other via Fiumicino. But this isn’t Ryanair following the script of hub-and-spoke airlines of years’ past. Just look at the pricing.

I looked at several routes, and they’re all roughly pricing in a similar manner. There is no discount for connections. If you want to connect from, say, Catania to Barcelona via Rome, you’re going to pay the sum of the local fares in each market plus a small premium (been around 10 euros on the options I’ve seen, but it varies) for the privilege of pricing them together on one ticket. Ryanair isn’t alone here, though it’s a bit more subtle than what some others have done. Notably, AirAsia actually sells its connecting service as an additional branded product called FLY-THRU.

From a cost perspective, treating connections are a more expensive, premium product makes sense. But from a revenue perspective it doesn’t… if you’re thinking with a traditional mindset. Ryanair may be roughly price-competitive with other airlines on the route (except Vueling which flies it nonstop), but in most cases I’ve seen, the layovers are pretty lengthy. And Ryanair is never about being competitive. It’s about having really, really cheap fares that undercut everyone. I assume Ryanair is just looking at this differently than a traditional airline would. It’s not trying to build a business travel schedule. It doesn’t need extra volume to fluff out a flight schedule. But if it can get a few people at a premium to what it sells in the local markets, then that will help it grow and add flights over time. If not, so be it. It’s not worth it for Ryanair to offer super cheap connections just to try to goose the size of the network. It only wants profitable connections.

Right now this is just a test, but when you think about the power of the Ryanair network, even one person each day on some of these routes will aggregate enough in Rome to help fill an airplane, especially once it rolls out to the whole network… and beyond.

It’s not just Ryanair’s own flights that are in play here. Ryanair just started selling Air Europa flights from Madrid to South America on its website. This may seem odd since it doesn’t involve connections or Ryanair flights at all. For example, see this:

But that’s because this is again a test. Later this year, you’ll be able to buy connections from Ryanair flights on to these long-haul Air Europa flights at Ryanair.com. Other airlines will follow. With such a large network of options, even tiny numbers can add up quickly and provide a benefit to the Ryanair network.

For Ryanair, this is a different path than others have taken. It has already built a massive and successful European network. But if it can get more passengers to fill its airplanes, whether from its own connections or from other airlines, then it will be able to keep up the growth rate that it needs to keep costs lower. And it can do it profitably.

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30 comments on “Ryanair Introduces Connections and Prepares for Interlining, But Don’t Expect Crazy Cheap Fares

    1. That was my thought. I’m starting to see it less but when I lived in a different market and my drive was +1hr to the hub airport or 1hr to the small market airport I’d often go out to the smaller airport just to ride a 50 seater for 30 min to connect onto the flight I was originally looking at. For the “inconvenience” the airline often discounted the fare by $100 or more. In that sense I like what Ryanair is doing. It’s grounded in logic from a layman’s perspective, which is rare in the airline business.

  1. The reason why Rome Ciampino became the alternate airport in Rome is because while it’s closer to the city center, it was runway length limited, like Midway because it’s located in a built up area of Rome’s immediate suburbs. As someone who travels for work a lot to Italy, I’m looking forward to the connections Ryanair will soon offer & have actually started flying them domestically within the last year or two now that they’ve switched to Fiumicino, which is better connected to the city of Rome.

  2. What’s nice in your example is that you gain flight time by connecting : 1h20 + 1h55 > 3h10. Ok, not by much, but still !!!… : do they allow you to jump from one plane to the other ???!!! :-)

  3. Norwegian does something similiar with connections – if you want it all on a single ticket, you have to pay extra for the privilege. Of course you can save the money and self-connect, but Norwegian won’t help if things go wrong.

  4. Ryanair is adding connections because it is an easy way to grow its revenue base relative to adding new flights. Unlike legacy airlines, LCCs and ULCCs can selectively sell connections. They do not operate a network in the same sense that legacy hub and spoke carriers do. Ryanair has a relatively small presence in large airports where they compete with legacy carrier hubs so selling connections helps them strengthen their competitive offering by using their own hubs or focus cities in secondary airports. Given that they are testing their ability to manage the complexity of connecting passengers and clearly believe they can justify the cost, there is no limit. Just as with legacy airlines, if the incremental revenue for a connection is higher than other opportunities including carrying multiple locals, they will sell connections

  5. I’m surprised that it’s only a 10 euro premium for connections. Seems like the additional labor and complexity might cost more than that.

    Also, I imagine that we will shortly see reports telling people that they can save money by booking the legs independently… Forgetting to mention that doing so will largely eliminate the possibility of RyanAir helping the pax in the event something goes wrong.

  6. I’m sure you could write a book on “connections,” what they are, or what the airline wants you to believe they are, but probably aren’t. UA is the champion of the “change-of-gauge” flight. They operate like any connection; you have to change planes at the intermediate stop, but because they have the same flight number into and out of the stop, you get to market them through the OAG as a “direct flight,” just like a nonstop. You can get placement in a the city-pair listing, where you wouldn’t if you called them what they really are: “connections.” The DOT “disclosure” regs are like most regs, legally proper, but you have to be willing to really look to find out what you might be missing, and by then, you’ve probably already bought what you wouldn’t have if you knew upfront.

    1. jaybru – It’s a lot better than the old days where airlines used to just make up flight numbers. I seem to recall Delta doing this with 6000 series flights. You would have, say, flight 10 Atlanta to London. But then you’d have Delta 6010 LAX to London through Atlanta or 6110 SFO to London via Atlanta. It would look like a through flight when there were just a million different flight numbers for each flight to game the system. That, thankfully, is gone.

    2. YES – so true about United. I recall taking a BOS-NRT “direct” flight which stopped at ORD, where not only did you change aircraft but terminal as well. On the return, NRT-ORD landed in Terminal 5 where you cleared customs/immigration, then had to get to Terminal 1 for the “continuation” of the flight to BOS – on a (much) different aircraft. It was pure nonsense, but done for the reasons that you describe above.

      1. I think UA used to screw you on mileage accrual, maybe they still would. If you had the “direct” BOS-NRT, you only got credit for the great circle distance from BOS-NRT, not BOS-ORD-NRT.

        1. I remember United used to give you the great circle distance. It seems over the last few years, I’ve been credited for each segment even if the flight number didn’t change. And I’ve flown United a lot- over 1 million flight miles since 1986. I have noticed lots of these little change over theyears.

  7. Hi Brett—
    Your piece gets at two critical underlying issues:
    (1) “business model” is critical because it drives how the airline thinks about “route profitability”. In a classic US legacy hub, the mentality was always “maximize profitability of the total network” Thus no one cared that short haul feeder routes had worse route P&Ls because they had large “network contribution”, and the higher incremental costs of hub infrastructure was ignored because it was integral to the business model. In a Ryanair-type case, there’s much more of an incremental focus (does this aircraft/route/crew base meet minimum financial targets?) thus much more focus on the high incremental cost of passenger transfers. Your article correctly notes that the bottom line financial issues are identical in both cases, but the US domestic mindset will tend to ignore incremental infrastructure costs that actually hurt the bottom line, while the Ryanair mindset will be biased against adding costs, even when they improve the P&L. Yes, Ryanair appears to be trying to think outside their traditional business model box, but will the low-service, cost-avoidance thinking that’s ingrained in the their culture prevent them from actually providing an acceptable transfer product to the customers who want it?
    (2) internal calculations of route profitability are highly sensitive to length of haul (and aircraft size which is also driven by LOH). Interline connections between longhaul carriers and shorthaul feeders always seemed to be a natural opportunity but never, ever worked, because the portion of an intercontinental fare that was prorated to the shorthaul connection was always too small. Your post correctly shows that Ryanair needs a premium over the full local Rome-Catania fare to make a transfer business worthwhile. When Alitalia sells a connecting LAX-FCO-CTA ticket, only a tiny fraction of the fare Ryanair needs gets internally allocated to AZ’s FCO-FCO flight (but they don’t care because selling that ticket helps maximize AZ’s overall network profitability). In pre-alliance days IATA carriers had to interline, but those IATA fares were always close to “full Y”. The success of the original 90s alliances (KL-NW, DL-SR) was because for the first time they sold the full range of super-saver discount fares in markets where previously only high interline fares had been available. But the alliance fares only worked in cases (always on the Atlantic) where both partners (e.g. NW and KL) were offering each other roughly equal sets of short haul connections and had roughly equal longhaul capacity, so the short-haul/long-haul P&L disparity problem was washed out. Outside the Atlantic consumers never got any similar benefits from these alliances except for the platinum FF/front cabin pax (who had been perfectly well served by IATA-era interlining). Why would UA let SQ or NH fill domestic feeder flights when they’d probably only get $20-25 per pax?
    So the idea of Ryanair, or any other LCC providing short haul feed to independent longhaul carriers makes absolutely no sense, unless they’ve discovered an economic solution that no one else has ever seen. Any while developing intra-company FR-to-FR transfer traffic makes some sense on paper, the barriers to successful large scale implantation seem daunting.

    1. Sorry, don’t agree. “Interline connections…never, ever worked”….yes, they did. “..portion of an intercontinental fare that was prorated to the short-haul connection was always too small.” No it wasn’t. Sure, prorate on mileage or weighted mileage was a terrible deal for the short-haul carrier but under IATA rules they could file a proviso i.e. don’t care what the long-haul charges the passenger but I need $xx on this leg and I won’t accept less. They also drew up many bilaterals which were confidential between the two carriers involved and not filed with IATA. These were pre-agreed fare splits on each specific connecting route. Internally, airlines can decide for themsleves how to prorate the fares for connections through their hubs which has nothing to do with IATA. It’s a management decision, but then management has to bear that decision in mind when they look at route profitability.

      1. As my post said, they worked fine at traditional IATA fide fare levels, but never worked economically post-Laker when the transatlantic carriers began aggressive discounting (super savers, etc). When we began the NW-KL alliance and worked to figure out where the potential for traffic growth was, this is what we discovered. We weren’t attracting any traffic in Chicago-Munich markets (no one then operated nonstops but multiple carriers had online one stops with low fares) but we got lots of traffic from hundreds of small St.Louis-Stuttgart markets where no one had online one-stops, and the lowest fare available was an IATA 14-day AP fare, often twice as high as the online super saver fares available.

    2. Hubert – I get what Ryanair is doing here. It does make some sense for Ryanair because it has nothing to lose. If Air Europa can’t fill its flights to Madrid or Norwegian can’t fill its long haul flights to Edinburgh, then Ryanair will gladly help fill those seats as long as it gets its going rate. I don’t think we’re talking about joint fares here. We’re just talking about the sum of locals

    3. business model is exactly right!

      Network profitability in a hub-spoke model implies average revenue relative to average cost. It means revenue (or pricing) is based on origin-destination demand and competition, not the cost to provide the service. As long as the total revenue > total cost, it is worthwhile. Even at marginal cost, it can be worthwhile as it brings network effects (use of larger planes) to lower costs for other passengers.

      Point to Point flying, like low-cost Ryanair, implies that a connecting passenger cannibalizes the prospect of an o/d nonstop customer. This drives the incentive to price by cost, meaning prevaling fares for each segment, plus some added fee for the risk and handling of the connection (missed connections, baggage, etc.)

  8. lol on the 25,482 daily capacity at BNA :)

    And thanks for picking one of my regular routes – I fly ABQ-DFW-BNA for work regularly.

    1. If you’re talking about Ryanair: they normally have ‘batches’ of flights coming in and going out. So, between 9am and 10am they have 10 flights, then nothing until 1pm when they have 15, etc. So that’s probably why Ryanair (at least on the smaller airports in their systems) has long lay-overs.

    2. David – As Jorg says, this isn’t intentional. It’s just the way the schedules fall. Ryanair isn’t trying to optimize for connecting times. It’s just the way the schedule works for local traffic.

      1. interesting as I would assume this sort of model has higher costs – need to staff more people for peak rush (i.e. more ticket counter space, more gates in use simultaneously) as well as potential for longer block times if planes are stacking up behind each other. I’m sure they are using some optimization program which defines the schedule, but curious what parameters and constraints they have defined that lead to this model.

        1. Ryanair staff up at ticket counters ?!?! I think you might want to come visit somewhere like London Stansted at 6 am on a Saturday morning in the warmer months of the year, to see how things work…
          Most of the ground staff are paid little more than the minimum legal wage and are often from an outsourced handling agent

  9. American is going from 1,336 to 25,482 seats just by adding density? Those are going to be some awfully dense planes!

    1. I heard they are going to lease a bunch of A380s from EK to put on the DFW- BNA route so that would explain Cranky’s numbers. :-)

      1. Methinks that the revival of the Trump Air Shuttle with A380s running flights every 15 minutes between Boston, NYC, and DC would be a great April 1st post for Brett.

  10. This reminds me of the pre-deregulation days. For example, United didn’t serve Nashville at the time. But you could fly from San Francisco to Chicago on United and then connect to Delta or Eastern for the final leg to Nashville.

    I understand the brand desire of having your brand on a plane to a smaller community, but I always have wondered why regional airlines didn’t sell “code share” to smaller markets on the same plane — i.e., Delta and United on a regional jet to say, Cincinnati.

  11. CF, you could mention how EU flight delay compensation rules drive costs here for Ryanair.

    Connecting flights = two opportunities to delay a passenger = two opportunities to pay out pricey compensation

    The United States has no such statutory compensation.

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