As Ryanair’s profits soar, are analysts right to attribute it to its new customer-friendly policy?

 
Milorad Ajder

Milorad Ajder is managing director of the Ipsos Mori Reputation Centre, says Yes

The penny dropped for Ryanair when it was forced to issue a profit warning in September 2013. Until then, it had prospered on the back of a no-nonsense offer, where price was the only thing that mattered to customers. All well and good until EasyJet showed that good service did not have to be a casualty of delivering competitive fares. So a company that seemed to revel in telling the customer where to get off started to re-evaluate its way of doing business. Chief executive Michael O’Leary, spotting the change in the wind, began the process of overhauling Ryanair’s approach to customer service. He understood that its reputation was rapidly becoming a liability and that he needed to act fast, removing the adversarial perception of the brand and putting it back on the side of the customer. Growing profits indicate he has succeeded – the new “nicer” Ryanair has reaffirmed that well-worn but still absolutely relevant adage: the customer is always king.

Joe Stelzer is managing partner of Cavendish Corporate Finance, says No

Ryanair’s consumer-friendly initiatives likely helped the airline record such a positive set of results, but these are not the only factors. The backdrop of stronger economic growth and the rise in business confidence last year would have helped increase the airline’s load factors, particularly given its push to attract business passengers. Lower fuel costs also played a big part in the profit rise, with the impact of lower oil prices driving down Ryanair’s overall costs by 5 per cent – a notable reduction. It will also have benefited from the more favourable sterling exchange rate against the euro. Service improvements, such as allowing more carry-on baggage and allocated seating, may have helped, but some fares and fees have been lowered too. I suspect, in passengers’ minds, the benefit of the reduced charges outweighed the soft service improvements – and this classic combination of lower costs and lower fares driving volume worked a treat for the airline.

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