Saturday, July 1, 2017

Boeing's Single Aisle Aficionado Michael O'Leary, Ryanair-Ancillary

Learn what ancillary means and understand the future of airline bottom lines. Typically an airline relies on the ticket prices. Passenger wonder how come they can fly to and from Europe to the US for under a "C-note" (100)?  

Primary ancillary definition:

"providing necessary support to the primary activities or operation of an organization, institution, industry, or system."

Press Quote:

"Mr O'Leary has previously speculated that one day Ryanair passengers would be able to fly without having to pay for their tickets, with the airline generating all its revenue from ancillary services."

So how can airlines reduce ticket prices competing in the busy origin and destination air travel market? 

Answer: By ancillary revenue stream complimenting ticket prices and offsetting ticket price reduction.

Ancillary means services from the primary product. A hotel will often contain restaurants, barber and gift  shops supplanting room rates in a competitive market place. Disneyland Anaheim, California has "The California Experience" with its hotels, food establishments and gift shops. Not forgetting external revenue streams from movie making, special events and conventions. The Ryan Air executive sees a way to fly across the Atlantic on the back of ancillary projects. The ticket price could be supported by fees, service opportunity and terminal markets.

Photo Below: Dublin's Terminal 1 floor space awaiting O'Leary's idea for ancillary centers targeting passengers coming and going. 

Image result for dublin ryanair terminal 1

Brain Storming Session Begins:

Ryan Air could lease-on to airport terminal space which would include its passenger market place on Ryan's Air's turf. It could make partnerships with hoteliers for room bookings. 

Dublin Terminal 1 a blur of passengers seeking to unload revenue.
Image result for dublin ryanair terminal 1

Restaurants in or near an airport may be owned by an airline. Clothing shops would be on a Ryan Air ancillary wish list. Once having a mega web of Ryan Air ancillary market places which are designed for its passengers, then possibly ticket prices will fall further. The strategy is to get people on a seat so they will be exposed to other Ryan Air profit centers. 

A profit synergy exist and O'leary is shopping its potential. The key is free seats so Ryan Air passengers will spend  money on Ryan Air ancillary and convenience profit centers.

"People, just don't stand there, spend money you are flying free today!
Image result for Ryanair terminal crowd

Long Range ancillary goals:

  • Resorts (destination)
  • Lodging (origin and destination)
  • Amusement ( destination)
  • Business centers (destination)
  • Convention halls (destination)

Short Term Ancillary Goals/Terminals (origin and destinations):

Ryan Air Tickets is an automatic discount for each profit center transaction.

Profit centers:

  • Restaurants 
  • Shops
  • Kiosks
  • Travel Services
  • Car Rentals

These are just to name a few as O'Leary brain-storming continues. The long term goal is either as a franchisee participant or a direct ownership in selected markets. A ticket seat purchased for a nominal free such as (€50) covers the seat, luggage and on-board supplies. The seat is free (fee waived) when booking a Ryan Air hotel room or renting cars from its ground transportation division.

It can't be helped to think airlines have already explored the ancillary business model. If O'Leary is thinking this, then it has flagged that a business concept is in incubation. So far airlines sell a seat and fly. The money stream ends at arrival. Ryan Air must be looking at providing a seat as a access point for the beginning of collecting ancillary revenue. 

A further image emerges where you arrive at an airport serving Ryan Air where there are a Ryan Air concierge desks much looking like a boarding desk in the terminal. What the 'company" concierge will do is rent your car, find a room or arrange your dining at your destination's regional footprint. Of course, only with Ryan Air ancillary affiliates. Needing clothing and a haircut could be arranged within the terminal floor space, since traveling all day with just a carry-on and looking well past the 5:00 pm shadows. The whole concept is taking care of the passenger with a seamless experience allowing more time for the passenger to go do what the passenger needs to do. 

In fact if pre-package travel occurs then expect your luggage to be in your hotel room upon your hotel arrival.

The tipping can occur as ad hoc with each service rendered or it can be like a cruise ship business model where an amount can be bundled-up for all tips encountered during a trip on a company "travel card", which would be another ancillary service provided for a small fee. Its transaction card (credit card) is only good at airline affiliated point of sale centers (food or service tipping...). 

Welcome to a Ryan Air Visa card (another ancillary profit center).

Lost? no problem go to an airline terminal kiosk and summon a concierge or book a room directly (of course for airline ticket holders at a discount). The list becomes endless for what an airline like Ryan Air could build in its business portfolio. If a passenger flew free to a destination it would want to seek discounted ancillary services affiliated with the airline. Every transaction contributes to the airplane ticket price at the back-end. If a passenger goes rogue upon arrival it would experience higher costs associated with a trip on the destination street. The idea is to get the traveler/passenger onto the airline network which pays for the no cost seat as the passenger travels beyond the airport. 

Doing an European trip typically may cost 5,000 for the duration, but through the airline seat purchase it may only cost €3,500 in this example. The trip cost is incentivised with everything the airline has in its portfolio for that destination or its airports. The theme is why book with some airline other than the sponsoring airline for your travel.

Time to let your imagination take this story forward.

Bonus addendum:

A working model of what could be. Every ancillary revenue returns a 10% contribution from passengers travel expenditure to the hosting airline.

Based on seven days which contributes more money towards an airline seat cost using its ancillary services, a sliding scale for each day in travel status could be used. A per diem flight chart would charge 300 dollars for the round Trip if returning during first three day traveling, since since a passenger uses ancillary services less than three days a ticket charge is fixed amount which would not exceed 300 total round-trip ticket charge. A non participating passenger ticket would be full market fare for those not booking flight on the airline program. Traveling on day 4,5,and 6 would would slide the ticket cost downward, reducing the per diem ticket rate by 50 for each day beyond day 3. Therefore, returning on day 4 would cost 150, on day 5 100 and day six 50. The seventh day travelling using airline ancillary services, is a return ticket with no charge return. This also assumes no charge on the first out bound leg.

Round Trip Ticket scale:

Over-night (day 1) trip ticket price using ancillary services is 300.
Night Two 250
Night Three 200
Night 4 150
Night 5 100
Night 6 50
Flight day 7 No charge showing on airline credit card. the return ticket indicates airline ancillary services were used every day during a passenger's travel status, which covers the cost of an airline round trip fare. Credit account is settled during each monthly cycle with net fare showing on the passenger airline card.

A day without making an airline's ancillary service transaction (equaling a motel room or car rental), is not counted as a day in airline travel status for a trip.

Common sense drives this model. Use the airline ancillary services for reducing total ticket price to 0.00 if staying seven days while using the airline sponsored food, room, or car rental  each day during a passenger's travel status. Any break in the airline service use will add a premium charge of 50 to the ticket charges added to the airline credit card until airline services are used for up to seven days.

A net effect is in action. If staying in Europe a month a passenger needs only to stay on the airline ancillary system for seven days for a free ticket back home, otherwise anything less than seven days on the system would add a charge back of 50 for every day less than the seven days up to 300 when not booking a motel room or car through the service.

A passenger will earn credit by using the airline ancillary services rendered including food and other purchases at the airline discount. Points may be collected for from monetary values which will be applied to a ticket reduction up to 300.

Otherwise a round trip ticket to Europe costs 300 while each day using the airline's "primary" ancillary services credits back 50 per day until ticket price is covered during a passengers 7 day travel status.