Ryanair’s digital investments continue to pay off, despite Brexit woes

Profile picture for user ddpreez By Derek du Preez November 6, 2016
Summary:
The European budget airline has said that it will shift growth away from the UK next year, but continues to focus on a digital customer experience.

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A decade ago, the brand ‘Ryanair’ filled many a traveller with dread - where customers often sacrificed on all the frills in exchange for rock bottom prices. However, three years ago budget airline Ryanair recognised that customer attitudes were shifting and that cheap and cheerful wasn’t going to cut it in the era of digital and customer experience.

As such, Ryanair embarked on its Always Getting Better programme, which focused on creating an in-house digital team, building a new and improved digital platform and providing a more seamless customer journey and user experience across all channels.

In recent quarters the company has pushed this further with a focus on personalization, via the use of My Ryanair, it’s customer membership programme.

And the results have been evident, with quarter after quarter delivering strong results for the airline. All the while still managing to reduce fares for travellers.

The company’s H1 results for FY17, released today, were no different. The airline even said it would deliver profitable growth across Europe, despite speaking against the negative consequences of a ‘hard Brexit’ (where the UK withdraws from the EU to the point where it doesn’t have access to the single market anymore).

Despite this CEO Michael O’Leary did warn that Ryanair would be “pivoting some growth away from the UK next year”, reducing planned growth in the region in 2017 from 12% to 5%. He said:

It’s hard to know, and we are speculating, Brexit is over two years away still. But if there’s a hard Brexit, we may have to relook at the three domestic routes that we operate. We may have to find a UK AOC for those three routes. We wouldn’t expect many other changes. There’s a possible consequence for UK shareholders on our share register. However, the impact on our UK competitors will be much more severe. For example, Easy Jet has about 40% of its capacity operating on intra-EU routes, and we would find it difficult for a UK registered airline would be able to operate intra-EU routes in a hard Brexit scenario.

But despite Brexit woes, O’Leary was pleased with the airline’s performance. He said:

We’ve delivered a credible and robust performance in the first half of the year. The second half of the year will be difficult in a weaker pricing environment, but we believe that Ryanair, with a huge cost advantage over every other competitor in Europe, is positioned to grow strongly, safely and profitably.

For the period April to September, Ryanair reported a 7% increase in H1 profits to €1,168m. Average fares fell 10%.

AGB and Labs continues to perform

Ryanair placed notable emphasis on the Always Getting Better (AGB) programme and its investment in an in-house digital team - in the form of Ryanair Labs - during the results presentation and Q&A this week.

CEO O’Leary and Chief Financial Officer Neil Sorahan, spoke about the growth in the ryanair.com website, the impact on conversion rates, the growth in ancillary sales because of digital investments and the continued focus on personalization.

The results highlight that in Q3 the airline will make membership of My Ryanair automatic for all customer bookings, so that it can continue to tailor services and improve offers for each customer. This will enable Ryanair to provide services that include automatic check in, better fares and a wider choice of accommodation on the recently launched Ryanair Rooms.

CFO Sorahan explained that My Ryanair isn’t a loyalty programme, like you would find with other airlines that collect miles and tier points. Instead it’s about tailoring for returning Ryanair customers. He said:

No it’s not a traditional points system. The real objective of My Ryanair is to tailor products and offers on an individual basis. We now have 15 million people signed up and expect to grow that to 25 million by 2017.

We are doing more personalised offers, we are sending out about 50 million emails a month now to our various customers, which is helping penetration.

Ryanair also now claims that because of the ‘continued heavy investment’ in Ryanair Labs, ryanair.com has recently overtaken Southwest airlines to become the world’s largest airline website. It also said that its mobile app was the 8th largest UK travel app by usage in September 2016, which it claims is ahead of easyJet (20th) and BA (37th).

The results also state that 93% of all customer bookings are now directly on ryanair.com. The results read:

Ryanair Labs has delivered a significant upward shift in web visits, app bookings, as well as ancillary services by boosting the sales of reserved seats, Business/Leisure Plus products and fast track services which customers can buy at discounted rates during the booking process. As a direct result of this increased customer demand for travel related services, we are raising our medium term guidance for ancillary sales from 20% to 30% of revenues, over the next 4 years to March 2020.

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Ryanair will also continue to grow its recently launched Ryanair Rooms. CEO O’Leary said that the platform has “technically performed well”, but that the launch in October was a “quiet launch”. It currently has two suppliers on the system, but it hopes that this will grow to five suppliers by the end of March, which O’Leary says will ‘deliver significantly more volume across a range of accommodation’.

Sorahan added:

Labs are delivering in the form of the world’s most visited airline website. Our mobile app is also popular. And we are now in year three of the Always Getting Better programme. All of these are helping to drive the acquisition of passengers and indeed the conversion into various products - we saw reserved seating did well in the first half of this year, as did priority boarding. We can expect those to continue.

We’ve recently soft-launched Ryanair Rooms, which is performing relatively well, and we expect this to help us acquire, convert and retain more customers as we grow to 200 million by March 2024. Ryanair had 45 million visits in September, well ahead of BA with 15 million visits.

And I suppose the proof in the pudding is in the eating, in the results. Conversion is strong, reserved seating - we hit 2.9 million seats reserved, which was almost 50% increase on the same period last year. And priority boarding at 508,000 was well up on the 223,000 on the prior year.

My take

Brexit is a headache for Ryanair, but with a captive European market it will likely just focus its attention elsewhere. This is also a good example of how investment in digital can lead to not only an improved customer experience for customers, but also reduced costs.