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From the FT today:

Ryanair profit warn­ing sends shares tumbling

Ryanair, the lead­ing Euro­pean low cost air­line, warned on Mon­day there was a “sig­nif­i­cant chance” its prof­its would decline next year and could fall by as much as 50 per cent under the impact of ris­ing oil prices and falling fare levels.

The Ryanair share price fell by 12 per cent to €3.18 in early trad­ing. Rival Easy­Jet fell 27½p or nearly 6 per cent to 439¼p.

The decline in Ryanair profit can be traced back directly to Ryanair’s DNA—to use Umair Haque‘s phrase.

Ryanair is noto­ri­ous for charg­ing its cus­tomers exces­sive amounts for any­thing but the fare. Its han­dling of inci­dents has also been dis­as­trous, leav­ing pas­sen­gers stranded and with­out assis­tance at all. Lastly, a glance at pilots and crews bul­letin boards (PPrUne for exam­ple) con­firms the media reports of a rigid and bru­tal per­son­nel management.

Easy­jet for its part started with the same pric­ing strat­egy: select­ing addi­tional items (such as travel insur­ance) by default, charg­ing exces­sive amounts every pos­si­ble time, etc. Per­son­nel man­age­ment wasn’t as bad as Ryanair’s one, but clearly the invest­ment wasn’t significant.

In the then less com­pet­i­tive of 2001–2003, Ryanair con­tin­ued to grew quickly, by slash­ing prices and rein­forc­ing its grip on costs. Easy­jet for its part was promis­ing but fell short of imple­men­ta­tion. It com­petes too closely with Ryanair with­out suc­ceed­ing at keep­ing its costs as low. The 2001–2003 stock prices are graphed below: Easy­jet wasn’t suc­cess­ful because of its DNA. To suc­ceed in Ryanair’s busi­ness model, your DNA has too be the one of a ruth­less com­pany, com­pet­ing vir­tu­ally only on costs and routes, but sac­ri­fic­ing its cul­ture and its rela­tion­ships with customers.

So Easy­jet chose, smartly, to com­pete in an entirely new space: middle-cost, with­out super­flu­ous ser­vice, focused on increas­ing the value it pro­vides to its cus­tomers with­out addi­tional costs. And then, Easyjet’s DNA was in full motion. Con­sider now the travel expe­ri­ence with Easyjet:

• When book­ing online, they don’t try to sell you travel insur­ance. Ryanair adds a very expen­sive one.
• They do make sure you buy lug­gage fees (GBP 3.99 per flight for a 20 kilos bag) online and don’t try to charge you an increased fee for pay­ing at the air­port. Ryanair charges GBP 18.50 for a 15 kilos bag and try to charge it at the air­port (for GBP 30 of course).
• Ryanair of course charges for a long list of items, includ­ing GBP 3 when you check in at the air­port. Most peo­ple dis­cov­ers these fees at the air­port of course.

So Easy­jet com­pares well to Ryanair in terms of fees ? Not only, they inno­vate as well by build­ing strong rela­tion­ships with their cus­tomers. Here’s some extracts from their “Why fly Easy­jet” section:

• No wor­ries if you miss your flight We under­stand how frus­trat­ing it is to miss a flight. That’s why you can catch the next avail­able flight for a flat charge of just £35 if you turn up at the air­port within two hours of your orig­i­nal flight’s sched­uled depar­ture time.
• Arrived at the air­port early? No prob­lem! Your time is impor­tant to you, so if you get to the air­port early you can hop onto an ear­lier flight home free of charge – pro­vided we’ve got a seat avail­able. What’s more: if your out­bound flight was from Lon­don you can now fly home to any of our Lon­don air­ports (Gatwick, Luton, or Stansted) for extreme flex­i­bil­ity if you travel on pub­lic transport!

Amaz­ing how pow­er­ful DNA is.