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Ryanair - how can they fly with their prices?

 article about how does ryanair earn money
It was a cold winter night when I boarded yet another four-hour Ryanair flight to Malta. I had paid EUR 15 for my ticket plus roughly EUR 10 for extras like priority boarding and seat selection. The night was cold with around 10 minus degrees. While waiting in the plane for it to take off, having watched a lot of Air Crash Investigation series, I was looking out the window to make sure they actually do the deicing thingy. You know, if they don't do it, the plane might crash and stuff. Or if they do do it and then the plane doesn't take off within half an hour or so, it would need another deicing. The cost of deicing is around $5000-$10000. That's where my mind started wondering how Ryanair stays in the air.

I was thinking - so let's say the flight is not full, so there's around 100 people aboard. Let's say they all pay just EUR 25 total for the flight (although we all know some might be 15, some might be paying 150, but just to consider). This case Ryanair makes EUR 2500 while deicing costs twice as much. How can it be viable?

Operation costs on Ryanair


While the exact numbers are in big part guesses, we can make some estimations as to the costs of things based on available data from other airlines. Ryanair is currently mainly flying Boing 737-800s. So what is the cost for a random flight? Fuel consumption for a medium haul flight for 737 is roughly 18.5 liters per seat per hour or roughly around 2.5 liters per 100 km per seat. In 2015 a liter of jet fuel cost EUR 0.40. Note that at present there is no tax on aviation fuel in Europe. So if the airplane was full, just the airplane fuel cost for my four-hour flight would be roughly EUR 30.

But let's take a look of total hourly expenses. The plane uses roughly EUR 1000 (or up to double that) worth of fuel an hour, cockpit crew and flight attendants for Ryanair probably around EUR 200-400 an hour. Maintenance cost of the airframe and engine are around EUR 300. Cost of aircraft depreciation around EUR 250. So the total cost of keeping the airplane in the air for an hour is roughly EUR 2000 for Ryanair. So for my four-hour flight it would EUR 8000 plus let's say the EUR 5000 deicing (one-time fee). There are also insurance costs plus most likely also other costs like Aircraft traffic servicing costs, reservations and sales costs, a number of indirect costs. So I wouldn't be surprised if the cost of operating an a 737 for an hour during winter would be in the range of EUR 5000 - EUR 15 000 an hour. During summer and in warmer climate, you can of course remove he deicing cost, so potentially around EUR 2000 - EUR 4000/hour.

So how does Ryanair actually make money with their prices? We'll get to that in a moment. But first let's look at Ryanair's fleet.

Ryanair's fleet


Ryanair has a fleet of roughly 400 aircrafts (according to Wikipedia, 443) with average age of ...depending on which source we decide to believe, around 5.5 to 7.5 years. It's worth noticing that the average age of aircraft flying in Europe is 10 years, in North America the magic number is 12. The oldest fleet in the world belongs to Allegiant Air with average age of 19.8 years, followed by Delta Air Lines with 17 years.

While most airlines like to lease their planes, Ryanair owns roughly 90% of their airplanes. That's part of their business model - they use their planes for around five years and then sell them before their value has dropped too much.

Currently Ryanair operates more than 600 000 flights per year.

Ryanair is also very good at negotiating deals with Boeing and buying large packs of 737s at the same time. While for example the Boeing's 737-800 model list price can be $89 million, with regular bulk orders Ryanair probably isn't paying much more than $40 - $50 million for each plane.

So how does Ryanair make money?


How does Ryanair make money to keep their planes in the air? It's worth mentioning that Ryanair's LT-Debt-to-Total-Asset declined from Sept 2017 to Sept 2018 from 0.32 to 0.27, meaning that the company is becoming less and less dependent on debt to grow their business.

Ryanair's operating income was €1.667 billion in 2018. Operating income is the profit Ryanair generates from its operations without taking into account interest or tax expenses (Operating Income = Gross Income " Operating Expenses " Depreciation and Amortization)

Did you know? Ryanair's average cost per one passenger is EUR 42.62. And this number is higher than the average number they actually earn from selling seats - which in 2018 was EUR 39.40. So selling airline seats doesn't actually cover Ryanair's cost per passenger.

But at the same time, according to data I could find, Ryanair earns roughly EUR 3000 per aircraft per day.

To keep their costs down, Ryanair
1. Flies a single type aircraft - which means that servicing costs are lower.
2. Lands mostly at underserved airports and saves on landing fees by doing that.
3. Avoids unionization and market labor regulation.
4. Buys airplanes on bulk prices and sells them while they are still quite new for decent prices.

And here's how Ryanair actually makes money


As you just read, Ryanair loses money from ticket sales, they lose roughly EUR 3 from every passenger. Ryanair earn around 27% of its total revenues through Ancillary revenues. They earn around EUR 1.5 billion in non-fare revenues like baggage charges, seat selection priority boarding, credit card fees; EUR 180 million in on-board sales; and EUR 85 million in commissions from car rentals and hotels.

What about Ryanair's safety record?


So far, Ryanair has a pretty good safety record. While they have had problems like everyone else, including emergency landings and near-misses, so far there have been no fatalities.


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