Ryanair case to benefit Polish low-fare airlines
Earlier this month, the Commission decided that the unique way in which Ryanair is able to keep fares low and even pay its travelers to fly represents an illegal subsidy that prevents fair competition. For Poland, successful variants of the Ryanair low-fare model look set to emerge now that the prospect of vicious competition from the European market leader is less likely.
Ryanair has pioneered a new business model in which cities pay the airline to transport tourists, resulting in startlingly low fares and surges in travel and tourism-related industries.
"The ruling... was bad news for consumers, for competition, and disastrous for publicly owned airports," Ryanair CEO Michael O'Leary, said in an opinion contribution to The Wall Street Journal Europe, on February 9.
But Air Polonia would not go so far. "Ryanair does not represent the entire European low-fare business," says Kłopotowski. "They are the market leader and had every chance of establishing a monopoly if they were able to continue as they were. Now the playing field is more level."
With only two aircraft, Air Polonia cannot hope to offer European cities the assurance of bringing in hundreds of tourists every day, and so a 'subsidy' deal based on the Ryanair model is practically impossible.
But according to O'Leary's public protest, "Ryanair has not and does not receive subsidies at Brussels Charleroi." His argument runs that five years ago nobody flew to Charleroi. Ryanair negotiated a reduction of airport charges, a cost reduction that translated into a price reduction and the famous surge in demand, profit, and economic prosperity.
Ryanair caricatures the EC ruling as a hangover from command economics. "The former Eastern Bloc states applied this 'equal treatment' ideology for 50 years and all it resulted in was economic ruin," writes O'Leary.
GetJet, the low cost airline formed out of Silesian Air and due to service Katowice airport, rules out receiving money that could be construed as a subsidy. "I have the impression that something was not quite right about Ryanair's deal with Charleroi," says GetJet spokesman Adam Warzecha. "According to our plans, we don't need to emulate that and we don't want to get involved with business that is not transparent."
GetJet's version of the low-cost model is so extreme that it will not even put up the cost of buying its own aircraft and hiring airline staff. Currently, GetJet is in the process of negotiating a 'wet hire' of aircraft and staff from an established Western European carrier. Warzecha hopes that as business picks up he will be able to move on to dry hire (providing his own staff) and eventually ownership and operation of the aircraft.
Throughout the EU Commission proceedings, Ryanair and Charleroi have maintained that all 'subsidies' had been fairly available for competition, although Ryanair was the only airline that was committed to the arrangement.
Air Polonia itself is about to open a Warsaw-Charleroi route, with unsubsidized one-way flights beginning before the end of March for as little as zł.55 (E12). However, Kłopotowski admits that less than twenty percent of tickets sold will be at the lowest fare price, and that tickets will be on sale for up to zł.773 (E168).
This contrasts wildly with Kel Ryan's boast in an interview with the Business Journal in December that at least seventy percent of his seats are sold at the advertised, lowest fares; a figure directly related to Ryanair's extremely low costs and non-ticket revenues.
This is where Ryanair likes to differentiate itself from other airlines that are often included in the same bracket.
Kłopotowski agrees that increasing the number of low-price seats could increase demand, but that the gambit of offering them is too risky for such a small operation. "At this point we just don't know if we'd increase demand enough in response to more low-priced seats," says Kłopotowski. "A gamble like that could ruin us."
Nevertheless, time is running out for Air Polonia and, unless it makes the most of its early entry into the market, it will face fierce competition from local start-ups such as Wizz Air and GetJet; and even more severely, from established foreign low-fare companies such as Ryanair, EasyJet and Air Berlin.
One strategy that Air Polonia has in mind is that of becoming a shuttle for major centers such as Frankfurt Hahn and Charleroi. "If we could co-operate with timetabling with the big European low-costers, we would be able to feed passengers from these major centers to and from Warsaw," says Kłopotowski. "That would benefit the established airlines and it would be a way of us securing our place in the market."
If the Charleroi ruling is upheld, the pressure of consumer demand, so evident by the tens of thousands of new travelers that the Ryanair system has been responsible for creating, may strengthen the possibility of the creation of private airports. The much debated plan for a future second Warsaw airport is still a financial uncertainty. Private finance for airport construction and maintenance may now not be such a far-fetched idea given that it is perhaps the only way that we will ever see a return to the Ryanair model in its most successful form.
"When our first arrangement with Ryanair took place in 2001, it was a fantastic chance for Charleroi, but now we don't want to hold a Ryanair monopoly," says Pierre Fernémont, spokesman for Charleroi airport. "The decision gives other airlines like Air Polonia a better chance." In this new era, while the cities and their airports will not be reducing prices for the air customer, prices will continue to be driven down in the long term as competition is given a chance to grow.
Furthermore, added services will again become important for a market which is competing for customers ever more fiercely.
Bartłomiej Rzepecki, spokesman of Jet Service Poland, the airline services provider, argues that there are now fresh opportunities for his business too, the very complementary businesses that the Ryanair stoics have cut back on in order to drive down costs. Rzepecki argues that while cost-cutting is important, it can only be achieved if replaced by efficiency and expertise if standards are to be maintained in the face of competition. "The competing airlines will need to offer promotions and other bonus programs," says Rzepecki. "Airlines which are not ready for long-term investments cannot survive the battle which is coming."
Ryanair has pioneered a new business model in which cities pay the airline to transport tourists, resulting in startlingly low fares and surges in travel and tourism-related industries.
"The ruling... was bad news for consumers, for competition, and disastrous for publicly owned airports," Ryanair CEO Michael O'Leary, said in an opinion contribution to The Wall Street Journal Europe, on February 9.
But Air Polonia would not go so far. "Ryanair does not represent the entire European low-fare business," says Kłopotowski. "They are the market leader and had every chance of establishing a monopoly if they were able to continue as they were. Now the playing field is more level."
With only two aircraft, Air Polonia cannot hope to offer European cities the assurance of bringing in hundreds of tourists every day, and so a 'subsidy' deal based on the Ryanair model is practically impossible.
But according to O'Leary's public protest, "Ryanair has not and does not receive subsidies at Brussels Charleroi." His argument runs that five years ago nobody flew to Charleroi. Ryanair negotiated a reduction of airport charges, a cost reduction that translated into a price reduction and the famous surge in demand, profit, and economic prosperity.
Ryanair caricatures the EC ruling as a hangover from command economics. "The former Eastern Bloc states applied this 'equal treatment' ideology for 50 years and all it resulted in was economic ruin," writes O'Leary.
GetJet, the low cost airline formed out of Silesian Air and due to service Katowice airport, rules out receiving money that could be construed as a subsidy. "I have the impression that something was not quite right about Ryanair's deal with Charleroi," says GetJet spokesman Adam Warzecha. "According to our plans, we don't need to emulate that and we don't want to get involved with business that is not transparent."
GetJet's version of the low-cost model is so extreme that it will not even put up the cost of buying its own aircraft and hiring airline staff. Currently, GetJet is in the process of negotiating a 'wet hire' of aircraft and staff from an established Western European carrier. Warzecha hopes that as business picks up he will be able to move on to dry hire (providing his own staff) and eventually ownership and operation of the aircraft.
Throughout the EU Commission proceedings, Ryanair and Charleroi have maintained that all 'subsidies' had been fairly available for competition, although Ryanair was the only airline that was committed to the arrangement.
Air Polonia itself is about to open a Warsaw-Charleroi route, with unsubsidized one-way flights beginning before the end of March for as little as zł.55 (E12). However, Kłopotowski admits that less than twenty percent of tickets sold will be at the lowest fare price, and that tickets will be on sale for up to zł.773 (E168).
This contrasts wildly with Kel Ryan's boast in an interview with the Business Journal in December that at least seventy percent of his seats are sold at the advertised, lowest fares; a figure directly related to Ryanair's extremely low costs and non-ticket revenues.
This is where Ryanair likes to differentiate itself from other airlines that are often included in the same bracket.
Kłopotowski agrees that increasing the number of low-price seats could increase demand, but that the gambit of offering them is too risky for such a small operation. "At this point we just don't know if we'd increase demand enough in response to more low-priced seats," says Kłopotowski. "A gamble like that could ruin us."
Nevertheless, time is running out for Air Polonia and, unless it makes the most of its early entry into the market, it will face fierce competition from local start-ups such as Wizz Air and GetJet; and even more severely, from established foreign low-fare companies such as Ryanair, EasyJet and Air Berlin.
One strategy that Air Polonia has in mind is that of becoming a shuttle for major centers such as Frankfurt Hahn and Charleroi. "If we could co-operate with timetabling with the big European low-costers, we would be able to feed passengers from these major centers to and from Warsaw," says Kłopotowski. "That would benefit the established airlines and it would be a way of us securing our place in the market."
If the Charleroi ruling is upheld, the pressure of consumer demand, so evident by the tens of thousands of new travelers that the Ryanair system has been responsible for creating, may strengthen the possibility of the creation of private airports. The much debated plan for a future second Warsaw airport is still a financial uncertainty. Private finance for airport construction and maintenance may now not be such a far-fetched idea given that it is perhaps the only way that we will ever see a return to the Ryanair model in its most successful form.
"When our first arrangement with Ryanair took place in 2001, it was a fantastic chance for Charleroi, but now we don't want to hold a Ryanair monopoly," says Pierre Fernémont, spokesman for Charleroi airport. "The decision gives other airlines like Air Polonia a better chance." In this new era, while the cities and their airports will not be reducing prices for the air customer, prices will continue to be driven down in the long term as competition is given a chance to grow.
Furthermore, added services will again become important for a market which is competing for customers ever more fiercely.
Bartłomiej Rzepecki, spokesman of Jet Service Poland, the airline services provider, argues that there are now fresh opportunities for his business too, the very complementary businesses that the Ryanair stoics have cut back on in order to drive down costs. Rzepecki argues that while cost-cutting is important, it can only be achieved if replaced by efficiency and expertise if standards are to be maintained in the face of competition. "The competing airlines will need to offer promotions and other bonus programs," says Rzepecki. "Airlines which are not ready for long-term investments cannot survive the battle which is coming."
