Ryanair’s CEO says he will raise the price of plane tickets

“Management perceived a consumer under significant pressure, with spending falling due to the impact of higher interest rates and inflation,” according to an analyst note from research firm Bernstein this week. “Consumer pressure is and has been the biggest story of sluggish yields.”

When the airline reported its first-quarter profits, Ryanair’s chief financial officer, Neil Sorahan, blamed “frugal” consumers for slow sales.

“People want to get out there, but they’re just a little bit more cautious about how they spend their money,” Sorahan said on an earnings call.

A typical Ryanair ticket currently costs only about $50, or €44, but the airline’s outspoken chief executive, Michael O’Leary, told Bernstein at the company’s Strategic Decisions Conference that he could see a price increases of more than 30% on average over the next four to five. years. The move would push prices to $61.50 or $67.10, or between €55 and €60. Ryanair and Bernstein analysts did not respond wealthhis request for comment.

“Budget airlines, like other companies, raise prices when conditions are right,” Peter Follows, author of Results, not reportshe said wealth. “It can be a more direct way to increase profitability than cutting costs.”

“But it has inherent risks,” warned Follows, who is also the CEO of Carpedia, a management consulting firm that serves Delta, Fedex and ASL Distribution.

The risk in rising prices

Price increases are typically driven by increases in operating costs, such as fuel prices, airport taxes and other operating expenses, Follows said. This means that companies like Ryanair are trying to turn some of their customers away.

“The danger with price gouging is that it can change consumer behavior,” Follows said. “If prices become too high, consumers look for alternatives (such as) other carriers, other modes of travel or less travel. If that leads to lower demand, then you will eventually spiral back.”

Meanwhile, Ryanair’s competitor EasyJet has raised prices, but for different reasons. EasyJet reported a stunning third quarter that ended June 30, with a 16 percent rise in pre-tax profit to nearly $314 million, while also selling 1.5 million more tickets.

“Price increases can benefit in the short term,” Follows said. “But like the hotel industry, it will require a careful balancing of supply and demand – or, in more pragmatic terms, profitability and customer satisfaction.”

Other Ryanair challenges

As well as consumer fatigue, O’Leary also blamed the airline’s poor performance on its fallout with online travel agencies (OTAs) including Kiwi, Lastminute and Opodo. These OTAs suddenly removed Ryanair flights from their websites this summer after the airline accused them of being “pirates” and “cheating” customers with higher fees.

The loss of OTA bookings “had a greater impact on (Ryanair) than Michael O’Leary had anticipated,” according to the Berstein memo.

However, “OTAs need Ryanair more than Ryanair needs them,” O’Leary told Berstein. The airline currently only offers OTA flights through eDreams and Booking.com, but O’Leary expects to sign more “eventually”.

Apart from the OTA drama, Ryanair is facing some internal turmoil. O’Leary recently acknowledged that his tendency toward anger could hurt the company’s bottom line.

“There is always a flow of news at Ryanair,” O’Leary said during the company’s annual general meeting. “We fight some union or some minister or I call a minister an idiot or they call me an idiot.”

But he also claims that his tantrums and outspoken nature turned out well in the end.

“The funny thing I’ve learned over the years is that bad advertising sells a lot more seats than good advertising,” O’Leary said. The Wall Street Journal.