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  • 1.This E-note has been written by Roman from Air Observerhttp://twitter.com/AirObserver http://airobserver.wordpress.com/ Ryanair Business ModelUnder a NewLight 1|Page

2. Thisdocument summarizes a new approach in analyzing Ryanairs business model. It is based on one year of research. This is also based on my experience with the AirObserver blog, a platform where I haveRyanair Main Destinations discussed and analysed the low cost business model for over a year now. I would nonetheless like to thank specialists and aviation aficionados that have helped me to formalize this note.Im aware that thousands of documents on Ryanairs business model have already been published. Even more reports and notes have been written about the low cost airline business model. However, I believe no work is formulated as clearly as this one.Ryanair Key Figures Source: Air DB Ryanair Passenger TrafficSource: RyanairAnnual Report 2|Page 3. Elements commonly admitted as basis for Ryanairs business success Most Ryanair business model analyses focus on the understanding of key historical characteristics of the Main Airports Deserved by Ryanair low cost airline business model. They often explain Ryanairs success thanks to the facts listed below. Unique aircraft type with lower maintenance costs/crew training costs High density to increase profitability Every additional service is charged Online services only Small regional airports with direct access to planes/lower airport fees Routes through secondary and smaller airports Short turnaround and maximum utilization of aircrafts Continuous innovative measures to increase ancillary revenues Non-unionized labour force Source: Air DBI wont develop on them further as I think thatalbeit they are important, they are not crucial tothe understanding of Ryanairs success. Moreover,you should be able to easily find them on theInternet. Ryanair Main Destinations Why Focus on Ryanair? Many analyses I have read describe Ryanair as the most successful airline in the last twenty years. Indeed, Ryanair is the fastest growing airline in Europe. Since 2004, the Irish low cost airline more than doubled its number of passengers, from 33M up to 73M, expected this year.However, what such analyses have failed to point out is just how the airline achieved such ongoing success. Journalists who work on Ryanair case usually only focused on few elements of its business, but they mainly fail to analyse entire Ryanair business model.Source: Air DB3|Page 4. The Truth Behind Ryanair Business Model The element which has never been highlighted in most Ryanair analysis I have read is the importance of subsidies in Ryanair business model.Subsidies are a big part of Ryanairs revenues. Indeed, while Ryanair declared 663M of ancillary revenues in its last annual report (around 22% of Ryanairs. revenues) in 2009, Ryanair earned more than 664M in subsidies the same year. It means that subsidies are at least as important as ancillary revenues and represent around 22% of Ryanairs revenues.However, it does not appear in its Summary Operating and Financial Overview where Ryanair only mentions two sources of revenue, Scheduled Revenues and Ancillary Revenues. Moreover, in its 2008 report, Ryanair also clearly assures that it does not receive any state aids. Ryanair claims that it does not receive any State Aid or any subsidies. Clearly, the Irish carrier plays on words here. Indeed, the French government did Source: Ryanair not give them subsidies, but local authorities did. Therefore, money received does not come from the State, but from Regions. The point remains the same: it comes from public money A Which Budget Airline Market Analyst Source: Les Echos4|Page 5. Questionable Subsidies: Ryanairs Backbone InFrance, French Regional Audit Courts haveconducted investigations, which have allowed to measure the percentage of subsidies represented in Ryanairs overall revenue. A total of 25 reports have pointed out the existence of unlawful agreementsbetween Ryanair and Chambers of commerce and industriy. In France, Ryanair has received 35M in public money in 2008 Without publicmoney, Ryanair wouldhave declared lossesbetween 179M and165M in 2008 An Industrialised Process All Over Europe Ostende Airport,Belgium, gave 1,148M Ryanair not only receives subsidies from French public authorities. Ryanair receives public money from almostto Ryanair. every airport across Europe it operates from, which accounts for millions of Euros in revenues. Even if such Reus Airport, Spain, data is hard to find, several cases have surfaced. To give more tangible evidence, I chose to highlight examples in gave 14M to which Ryanair received large amounts from airports.Ryanair. In Italy for example, an article mentioned the interesting case of Alghero Airport. The European Girona Airport, Commission, in its introductive investigation, declares that between 2002 and 2006, Ryanair received 8Spain, gave 13,94M millions Euros in public money to operate from Algheroto Ryanair Airport. Alghero is just one of hundreds of such cases. 5|Page 6. Why Subsidies are so Important in Analysing Ryanairs Business Model?This is the crucial part of this note. To consider subsidies as a major source of revenue for Ryanair, will change the way you analyse its business model. Ryanair does not have the same business model than any other airline. Sure Ryanair needs to fill its planes, but it does not need to sell seats at a price that covers its costs. In other words, Ryanair can sell at a loss. Indeed, Ryanair can't sustain such cheap fares just by charging for Coke and nuts alone.Whats in it for Ryanair?When Ryanair settles a contract with public authorities of a given country, its main engagement is to assure a certain number of passengers. If Ryanair fails, it doesnt receive public subsidies. Hence for Ryanair, the most important thing is to fill the planes, the price at which it can accomplish this is only secondary.Some French Regional Audit Courts reports reveal the truth about its economic model: bringing passengers into a given airport in order to receive a substantial amount of financial aid. Garca Lorca Granada-JanAirport, Spain, gave 1,345M toRyanair Faro Airport, Portugal, gave 3M to Ryanair Malta Airport gave1.2M to Ryanair Paris-Vatry Airport, France, gave 2M to Ryanair Why Do Airports Pay? Most of the time, airports see Ryanair as an easy way to attract passengers and to increase traffic. Airports that call on Ryanair are, for the most part, often struggling and view Ryanair as their last chance for survival. However, for those who have experienced Ryanairs methods, desperation often comes at a price, a price that could rush them close to bankruptcy as Alghero airport in Italy.Angouleme Airport, Poitiers Airport, Cuidad Real airport, Garca Lorca Granada-Jan airport and Shannon are some examples.Recently, according to Arojournal, a French aviation web site, Ryanair will receive 2 million Euros worth of subsidies from Paris Vatry Airport. The agreement only covers three months of operations. In compensation, Ryanair will have to carry 15 000 passengers. 6|Page 7. Ryanair and Airports' Relationships Source: Air Observer What if 22% ofRyanairs revenueswere to disappearfrom one day to the Basics of Ryanair'snext? Business modelNow,you know why Ryanair needs to offer such low fares. You know that airports are often victims of Ryanair ways, also due to short term management vision from small airport CEOs.At this stage, something even more important has to be highlighted. What if Ryanairs subsidies were not legal? What if 22% of Ryanair revenues were based on illegal processes and undeclared public money? What would happen if politics discovered this?The answer is simple. Ryanair would be forced to find other sources of revenue than public funds. Ryanairs future would therefore be up in the air. Source: Air Observer7|Page 8. A Model Partly Based on Public Subsidies is QuestionableIn the last year, I have read a lot on the low cost airlinemarket and its leader, Ryanair. I gradually gainedvaluable knowledge of how Ryanair works,communicates, and dominates its competitors. Its themost fascinating case study Ive ever looked at so closely. This page will show in detail why public money receivedby Ryanair does not comply with legislation and goesagainst lawful and fair competition. Why are Ryanairs public subsidies illegal? To legally receive public money, three conditionsmust be met. Should only one of these conditions notbe respected, the whole of the subsidies move into anillegal agreement that creates unfair competition. These three conditions are:The company must declare all public aids to theEuropean Commission. It's a fact that Ryanair and itspartners have never declared any of their grants. Allregional chamber reports point this out.Subsidies have to be strictly limited to 3 years (5years in special cases). Once more, Ryanair's practicesare illegal. The first contract between the Frenchregional airport of Beauvais and Ryanair was signed inthe very late 90s. Ryanair has been operating out ofBeauvais since 1997, which means that Ryanairs beensubsidized for 13 years now! Lastly, subsidies have to be regressive, whichmeans that each year, the amount has to be significantlylower than the previous one. Here again, is a rule thatRyanair and its partners have never respected.Should a private company base its business on public subsidies? Interesting question, but not the matter I wish to discuss. Indeed, some Ryanair "evangelists" will argue thatRyanair is not alone in receiving public money, national legacy airlines such as BA, Air France KLM or Lufthansa alsodo. Rather than giving into their criticisms and engaging in a sterile debate, I prefer to anticipate their argumentsand counter them beforehand.My point here is not to discuss whether or not Ryanairs aids are justified. This is an economical debate. Rather, Iseek to underline in what ways these aids are illegal; that these aids constitute an important part of Ryanair'srevenues, making its business legally unsustainable. Of course, legacy airlines as British Airways also receivesubsidies, but in a legal framework. I agree with people who argue that some of the major European legacy airlinesdo not use them efficiently, but thats a different matter. 8|Page 9. Illegal Subsidies: Ryanairs Achilles Heel?Most analyses dont take this issue into account. However, several courts have already brought up the matter of Ryanairs subsidies, namely in Spain, France, Germany and Italy. Although several investigations, till now, Ryanair has always managed to slip through the cracks. This is due to irregularities because airports are failing to declare subsidies to the European Commission itself. Indeed, according to a French union, among the 25 airports out of which Ryanair operates, only one has declared the subsidies to the European Commission, so even the European Commission doesnt know that Ryanair receives such amount of public money.Until now, subsidies haveallowed Ryanair to dominate the 7 investigations low cost market and develop its are currently open own unique business model. Ithas allowed Ryanair to withhold a over Ryanairs strategic advantage over other subsidies in Europe.airlines. Airlines that have neverbeen shy to voice out: Air France,Lufthansa, Spanair, Vueling andAir Berlin are companies thatunderstood how difficult it is tocompete with Ryanairs publicfinancial support. Airlines have expressed their concerns about this unfair advantage that Ryanair has managed to build up all over Europe. Some airlines, namely Air France KLM or Air Berlin, have formally complained to the European Commission. Others have simply expressed their disappointment and grief through the media. For most airlines, tackling Ryanair is a dangerous game that could easily end up turning against them. Indeed, Ryanair is a master communicator and avid PR stuntman that always gets the last word. This explains why some airlines prefer to be tactful when it comes to criticizing Ryanair. Opaque subsidies Ryanair received to operate in certain airports create only an artificial traffic Alvaro Middleman, Air Berlin Executive for Spain and Portugal ConclusionI found this quote on the Ryanair Business model, which I believe summarizes perfectly the issue discussed:Ryanair has established the first efficient and industrialized public subsidies collector on a European scale. Its interesting to notice that Ryanair is among those which beneficiated the most of deregulation of the market, but meantime among those which obtain the most of subsidies. A Which Budget Airline Market Analyst 9|Page 10. Thank you for reading this note, if you like what you read, spread the word. If not, please, take the time to leave feedback! To contact me: http://airobserver.wordpress.com/ http://twitter.com/AirObserver [email protected] mentioned in this note: Ryanair traffic is to surpass Air France's oneLow-cost carriers: European Subsidies, AlgheroSources and documentation Airport Case StudyAir-scoop Swot of Ryanair The best source is obviously my blog but other French state should make Ryanair respect the law websites and articles are very interesting!says UnionRyanair to cancel Prague flights in fee dispute Articles from my blog used in this note: Ryanair's business model undermined by theFrench financial courtsFrench MP wants an investigation over Ryanairs Los pilotos de Vueling y Spanair piden que no sesubsidies subvencione a RyanairRyanairs French public aidsLa verdad de Ryanair: Ryanair "chantajea a lasRyanair incurs wrath of French political before instituciones y empresarios de Granada"major on-coming electionRyanair faces 'blackmail' protests over attempts toRyanair and Barcelona: a story of unrequited love?increase feesA new case of Ryanair blackmail at AngoulemeRebelin area contra RyanairAirport Ryanair's phoney war with Boeing just a lot of hotAnother take on Ryanairs financial performance airRyanair signals new strategy by ending Boeing talks Reports: Ryanair to hold talks over lax Italian ID rowAir France accuses Ryanair of blackmailThe Best Way to Deal with Low Cost Carriers Small European airports fed up with Ryanair?French Regional Audit Court reportThe subsidies that keep Ryanair profits airborneRyanair flies high on subsidies Websites:Ryanair est redevenu la compagnie la plus rentableAir Scoop d'EuropeAir PanoramaLow cost PortugalRyanair subsidies figures :Todo low cost OstendeAnnaAeoro Paris VatryPlane Grazy FaroAirline PostGironaWhich BudgetReusSimpliflyingGarca Lorca Granada-JanMalta10 | P a g e