Ryanair and EOS -- great airline models

Two exciting airline business models -- one Irish and one American -- will hopefully come to Canada one day.

Paradoxically, Europe's most profitable airline, Ryanair, gives away 25% of its flights for free. In the last 12 months, it has flown 35 million passengers to more than 100 European destinations for an average cost of just US$53.

"I flew Ryanair from London to Ireland and they charged me one Pence (a little more than two Canadian pennies)," said a friend recently. "I went online at their site and when I booked my flight they charged me next to nothing. This was because I had booked in advance."

On its current website, Ryanair says it will give away four million tickets between October to December for only 19 Pence apiece. Passengers wishing to take advantage of these freebies must book during off-peak times of the day, well in advance of their trip and between cities that have lots of vacancies.

Ryanair's strategy is inspired. By giving away flights, it has created a huge storm of publicity in Europe, built huge traffic to its site and filled their flights. In essence, Ryanair has people racing to fill its airplanes way ahead of time.

The Irish company was founded by the Ryan family years ago in Dublin and is now a successful public company, listed on the Dublin Exchange. Latest results are 2006 revenues of E1.69 billion (Euros); profits of E302 million and 35 million passengers. At the same time, the airline enjoys a 22% net profit margin, compared with Southwest Airlines' net of 7.2%.

The rest struggle. There is no other airline like it. Revenues increased by 12% despite a 74-per-cent fuel cost hike that year. Traffic growth increased 26% along its 330 routes. The fleet now numbers 103 aircraft and Ryan Air (ryanair.com) is adding 46 new routes this year.

In March, Ryanair CEO Michael O'Leary said he wanted to make air travel completely free one day, then promised by the end of 2010 that 50% of Ryanair's customers would fly at no cost to themselves. This is accomplished by a number of techniques. He calls the company the "Wal-Mart of flying" because it assiduously watches costs. Some 98% of flights are booked online which saves a bundle every year. The Irish airline, however, charges for services other than tickets. It sells seat-back advertising and charges for food, beverages and baggage check-in services. Charging US$3.50 per bag discourages check-in which reduces the aircraft's weight, thus reducing fuel costs. It gets a percentage of car rental or hotel bookings made by its passengers through its site too and has even "sold" some of its planes' fusilages as gigantic billboards to be painted by advertisers.

In 2007, on-flight gambling will be available, allowing the airline to earn a small percentage of the house proceeds. The airline, like Southwest, also uses only one type of aircraft to keep maintenance costs lower and only flies between small, secondary airports.

Another innovator is newly-launched EOS Inc. which dramatically undercuts big airlines by offering a business-only transAtlantic service between New York City and London. EOS is not a no-frills operator like Ryanair but a high-end one.

In October, the airline began operating a service between John F. Kennedy International Airport and London Stansted Airport, with one daily flight in each direction. It has three Boeing 757s.

"Eos" was the Greek Goddess who heralded the arrival of dawn. Fares are US$6,500 round trip, roughly 20% below the big airlines' high-end business fares. Even better than such a savings, these flights are more like a journey on a private jet than a trip flown on a commercial carrier.

Each 757 can fly up to 220 passengers but EOS only has 48 seats on board. These are configured into seating areas with fold-out tables so that passengers can hold meetings or eat around a table. In addition, passengers' seats fold out to private, 78-inch beds. Bathrooms have fresh flowers, shaving cream and disposable razors by the sink. The meals are gourmet and passengers can cuddle up with cashmere blankets in their mini-suites.

The airline was started by a director of strategy at British Airways in 2004 and the management team includes a number of former airline executives who plan to expand their fleet to 20 planes within five years.

EOS provides its business class passengers with a number of advantages. Savings are available for those booking seven days in advance, and even greater if bookings are made 14 days ahead of time. There are weekend specials too. But fares are flexible and unrestricted. EOS permits one-way travel, does not require a minimum stay or a Saturday night stay.

Meanwhile, the world's "legacy" carriers lost about US$42 billion last year collectively.