Monday, October 02, 2006

Ryanair and revenue stream innovation

Irish low-cost carrier, Ryanair, is not only a highly successful airline but also very adept at business model innovation. Last week the airline announced that it had entered into a 5 year agreement with InviseoMedia to install seat-back advertising in its entire fleet. With the potential for advertisers to reach out to more than 40 million passengers this is surely to be a successful venture for Ryanair. The advertisements will be displayed on the tray tables and provide passengers with a moment of relief from the journey. This is not the first attempt by an airline to incorporate secondary revenue from advertising. America West implemented the concept in 2003 with a deal inked with Sky Media. Vanguard and Sun Country in the US resorted to selling ad space on overhead bins, while many have seen some of the colorful aircraft in Southwest's fleet. I read at one time that an airline was resorting to PA announcements from flight attendants promoting credit card applications, however I have been unable to find the source.

These are examples of airlines attempting to innovate the revenue stream of the business model. Historically, airlines have relied upon ticket revenue from passengers to pay the expenses, however with increased yield dilution airlines have been forced to be creative. Some carry cargo in the belly, others carry mail, and some carry both, along with baggage. Many of Europe's low-cost airlines have been aggressively attacking secondary revenue sources. Ryanair has even announced that its long-term goal is to potentially provide free airline tickets, while making enough secondary revenue to cover the expenses. This may sound extreme but such business model innovation can be an industry upset. There are numerous industries whose main product/service only provide a portion of total revenue. Some airlines have chosen to focus their attention on expanding their secondary revenue sources as a form of business model innovation. At the recent World Low Cost Airlines Congress 2007 there was an entire session devoted to this particular topic.

One interesting exercise is to look at Ryanair's website and count the number of services you can buy. I counted nearly 20. And remember, every interested customer who clicks on a link is putting a few cents in Ryanair's pockets.

1 comment:

Anonymous said...

Ryanair business model under a new light,