Am I suggesting that SAS should copy Ryanair? No, definitely not.
Don’t get me wrong, the existence of Ryanair has been tremendously good for the airline passengers of this world. After all, where would we be without the deregulation of 1996 – and someone to exploit it. Back in my years at university I used to go to London for my long summer holidays to brush up my English and make money to sweeten student life in the coming year. Back then, going by aeroplane wasn’t something we students even contemplated for one minute. I would take the train to Esbjerg, then go by overnight boat to Harwich and finally hop on another train in England that would take me into Liverpool Street Station. This would take well over 24 hours, but still cost me 3-5 times less than an plane ticket.
With deregulation came low cost airlines. And mind you, not all of them did too well. Debonair, anyone? An early leader in no-frills airlines, who flew out of London Luton, but ended up bankrupt in 1999 having to dismiss some 500 employees? Or BA’s low cost subsidiary Go? Or last year’s collapse of Sterling Airlines? The point is this; simply being a low cost airline doesn’t automatically make you successful.
The illusion of free
Part of what Ryanair is really good at is the “illusion of free”. They can always quote prices on certain routes at €1 against competitors’ €50 ot €100. “Go to Rome, from €13″, whereas in reality most people will pay €113 for just the raw ticket. Then come online check-in fees, payment handling fees, checked baggage fees, infant fees, infant equipment fees, sports equipment fees, seat charges and you end up paying €180. Then you may arrive 75 km from the city you really wanted to go to and it may cost you an additional €100 return to get to and from the airport. The point is, people still have the illusion of free – or nearly free. It’s all about the way we (the travellers) think about the money we spend on a trip. In our minds we like to work in easy numbers and we like to think that we save money and make good deals. It’s almost as if we want to convince ourselves (or our wives or husbands) that we are being wise with our money.
It’s exactly the same mechanism in action when people decide to go to Italy by car. They end up with a myriad of expenses (petrol, hotels, bar drinks, meals (many), snacks (many), sweets (many) investing in DVD players for the kids etc.), but when they compare the “main numbers”, it’s a really good deal. In most cases it’s actually not. That’s why the illusion of free is so effective: We travellers want to fool ourselves, because we want to go on that trip. We’ll justify it and close our eyes on those “few” extra charges.
As the expression suggests, the “illusion of free” is just an illusion. Of course someone has to pay, especially when you see the financial success of Ryanair. Part of the secret is the use of revenue management. Seconds after Manchester United has drawn AC Milan in Champions League, the Ryanair revenue manager responsible for the route Manchester-Milan will ramp up prices by several hundred percent 1-4 days before and after the match. Most airlines these days have some form of revenue management, but some, like Ryanair, are particularly good (some may say ruthless) at applying it.
Ryanair is also second to none at advertising the illusion of free – and at ridiculing their competitors for being the exact opposite. Ryanair’s real edge is not being cheap – it’s giving us all (including their competitors) the illusion that they’re cheap. In strategy terms they have built a blue ocean on the combination of illusion of free, on managing revenue and on constantly provoking conventions in the media.
When I say that SAS must beat Ryanair at its own game, I’m not suggesting that they should copy Ryanair’s competitive parameters. It would, of course, never work and they would just end up being a failed me-too service. Some have tried to copy Ryanair and failed for various reasons, mainly because they didn’t understand the true reasons for Ryanair’s success or because they weren’t prepared to be as ruthless as Ryanair about it.
SAS must be true to their DNA
If SAS really, really want to strike back and drive long-term success, they must identify their own blue ocean differentiators. And in order to be credible at that, they must be authentic and true to their own airline DNA of being a service company. If they don’t, I’m pretty sure they will fail. On the other hand I’m equally certain that there’s another blue ocean waiting around the corner for SAS. And one of the key words is convenience. Convenience is hugely important to today’s consumer and air traveller – and we (the air travellers) are actually prepared to pay a certain premium for real (not fake) convenience. The trick is to offer convenience which doesn’t add significant cost to the airline company’s cost base.
Now, a good starting point is to start highlighting the convenience of not having to pay for checked baggage at the airport. Or the fee of €10, we once had to pay in cash as we went through customs at Knock Airport in Ireland (an almost exclusive Ryanair hub) for the ongoing development of the airport. Ryanair, of course, claimed that this had nothing to do with their ticket prices or fees, but a qualified guess is that the fee was introduced by the airport, because Ryanair had negotiated low/non-existent airport fees with Knock. At the end of the day, it was part of the price.
My point is that I believe Ryanair may be about to have taken their strategy to the point where inconvenience simply cannot be offset by the illusion of free. Rumoured to be one of their next money-making schemes is making passengers pay to use the toilet. My guess is that Ryanair
In one of my next blogs I will explore and examine the areas available to SAS if they are determined to win the battle of the blue oceans.