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Ryanair enlightenment could put Warsaw in the black

The idea of a business paying its customers is surreal. But for Kel Ryan of the Irish low-cost carrier Ryanair, it is part of a business philosophy that has turned the company his family founded into Europe's most profitable airline.

"We are constantly driving down costs and prices," said Ryan in an interview with the Business Journal at BAA London Stansted Airport. "Thanks to the airports we choose, and the efficiency of our staff, we have even started to pay our customers to fly with us." Strange, but true.

It is not only the way that Ryanair sells tickets to tourists that has changed air travel. It is also the way it 'sells' tourists to cities. With a city like Strasbourg paying Ryanair zl.5.6 million (€1.2 million) in return for Ryanair's delivery of tens of thousands of money-spending tourists, Ryanair has been able to give away seats for free, and even pay for them to be taken. The arrangement, dubbed a 'subsidy' by Ryanair's rivals, has since been pronounced illegal by the French courts.

"Our good friends at Ryanair don't predict the economy," reads a Boeing accolade. "Instead, they deliver superior economics to their customers everyday."

This 'superior economics' does not necessarily try to create profit from customers, it enables the carrier to charge a given market a fee for taking customers there. Clearly, this arrangement is especially viable when the city has a financial interest in the airport.

Indeed, Ryanair's revolutionary business model has inspired a host of Central European upstarts to take the international revolution home, from AirBaltic in Latvia to JAT in Serbia, and Air Polonia here in Poland. But for the low-cost model to work in its purest form, a low cost terminal is required.

When the Modlin site is described to him, Ryan accepts that, "...it sounds like our kind of place." Ryan, who oversaw Ryanair's move to the new London airport of Stansted in 1989 boasts that "...all we need is a metal shed, a strip of concrete and we can begin flying."

In Ryan's experience, the move to a new, unheard of airport got things going for his business. With the older London hubs of Heathrow and Gatwick congested, causing high costs and delays, Stansted became the ideal location for Ryanair's model, a scenario that could well be repeated this year at Warsaw Modlin, provided a leap of faith is taken by the authorities.

Like Stansted, Modlin is relatively far from the city center, but has remarkably good rail and road access, and thus looks set to play the same trump card as Stansted. "Stansted's connection with London was the prime consideration," says Ryan. "People now travel 100km to get a deal. It's true in Tokyo and London and it will be true everywhere else. The idea that the old established airports are more central isn't right. They are congested and expensive."

The impact of thousands of new visitors coming to Warsaw would be enormous. In 2002, the department of commerce in Strasbourg offered €1.4 million for Ryanair.

The arrangement proved so effective that Air France, concerned that its "mini me" (Ryan's words) low-cost carrier Brit Air was facing competition, lobbied the French government to ban the agreement as an illegal subsidy. According to Ryan, the number of tourists flying in from London has plummeted, to the detriment of everyone, except the French flag carrier.

At Hahn, a former military airbase near Frankfurt-am-Main in Germany, the United States Air Force left seven hundred people unemployed when they moved in the early 90s. Now 1400 work there, servicing forty routes. The project was the brainchild of the city. In the words of Ryan, "The City got off their arses and did it. That's what other cities have to do because we don't have time to hang around."

One development of this shift in business thinking is that cities are now approaching low budget airlines rather than the carriers approaching the city. Apparently, Ryanair has "...over thirty European airports pitching to them" to service their cities. Although he does not have the time or the need to lobby cities such as Warsaw to find funding for new airport developments such as Modlin, Ryan admits that he will soon be "...looking for a new hub somewhere in Europe."

Despite persistent rumors in the press over the last two years that Ryanair is on its way, Ryan says that there are two main reasons why his airline has not flown to Poland. The first is logistical, in that a route with a two-hour flying time can produce four flights per aircraft in ten hours, whereas even slightly longer flights, for example the two-and-a-half hours to Warsaw, can only yield three flights across the same time period. A difference of 25 percent fewer tickets sold.

The solution to this is to create new hubs further east: enter Modlin's - and Warsaw's - big opportunity. And yet, the second reason why the Ryanair revolution has not yet come to Poland is that "... the airports aren't used to our kind of deal. They normally offer a one-year contract but that's no use. We need to be sure that we can keep the fares level or even cheaper for the next ten or fifteen years."

With regard to Air Polonia, offering Poland's first low-fare route, Ryan is positive. "If their cost base is right, the market is big enough and they can survive side by side with us."

(WBJ 12.i.04)

 
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