WHAT’S AT STAKE BETWEEN RYANAIR AND TRAVEL AGENCIES

ABSTRACT

The debate between Ryanair and the Travel agencies is not simply a mean to achieve media coverage, but a ferocious fight to preserve the feasibility of a business model, which requires selling directly to the public.

maletas

From August 25, Ryanair will only accept bookings made directly via their own website, rejecting all the reservations made by travel agencies.

Legal considerations aside, this decision, aired by the airline with its usual rude verbosity (it described travel agencies as “sector parasites” and “dead wood”) has triggered considerable debate involving consumer associations and Public Administration, even though the latter do not seem to be in a hurry to take a stand.

Travel agencies say that many customers do not feel comfortable shopping online, and thus are happy to pay for the services provided by the agencies.

What’s this not about?

This is not a debate among online companies, since half of the sales made by accessing Ryanair’s website are made by travel agencies that also use other trading channels.

It is also nothing new that a third party without prior agreement sells one company’s products, such as, for example, Hacendado tissues at petrol stations..

Then, travel agencies do not demand any margin or commission fee (which they did with Iberia and Spanair), as they find it completely normal to charge a fee for their services.

And some may even think that this is all too much hassle about nothing, as sales made by travel agencies do not even reach 1% of Ryanair’s overall turnover.

So, what’s all the fuss about then?

This is basically guerrilla warfare between companies based on virtually identical business models, based on three key issues:

First, they all sell comprehensive travel solutions including flight, accommodation, car rental, insurance products, etc.

Second, they all follow Lebowitz’ theory (the benefits of online presence): the more customers a company has, the more benefits each customer can enjoy —this is what Movistar states. The company that attracts many customers (for example, offering cheap flights) can redirect their customers to other companies that are willing to pay commission fees or bonuses for induced sales. Thus, all extra income is essential for the financial feasibility of any such company. And what travel agencies are precisely doing is to jeopardize Ryanair’s said key extra income!

And thirdly, they need to sell directly to the public. That is, by selling tickets via travel agencies, Ryanair loses customer knowledge and decreases their “sell-ability”.

However, the airline is at a disadvantage: their website does not sell competitors’ flights. Therefore, the options they offer are limited, even if they include hotels, insurance products, etc.

This business models requires large volumes and thirsts to become the leading reference. This is precisely what is at stake here.

.

Lluis Martinez-Ribes

Source: Expansion

19 August 2008