Analysts said Ryanair, which struck a content agreement with Travelport last week, had little choice but to return to GDS distribution and the agent channel if it wanted to keep growing.
Until recently, the airline had been very successful at marketing itself through price alone, charging extra for anything it could. Its outspoken chief executive, Michael O’Leary, has also deftly played the role of agent provocateur, garnering global headlines and publicity for floating such outlandish ideas as pay toilets on planes and stand-up seating.
But the kinds of growth those tactics fueled in the past have slowed, and the airline recently reported a very unusual third-quarter loss. The incentive behind its return to GDS distribution is a growing appetite for business travelers, who tend to be higher-margin clients than leisure passengers.
Moreover, as GDS business has plateaued in many places, the airline was able to negotiate a better deal this time around than it had in the past.
Ryanair said the Travelport agreement represents improved terms compared with its previous GDS contracts. And, it comes with increased functionality that will enable agents using Travelport to book not just Ryanair seats but all the in-flight ancillaries that help make the low-cost carrier profitable, including checked bags, sports equipment and seat selection.
Lesley Kane, head of corporate travel and groups with Ryanair, said that everything sold on Ryanair.com, except non-air products such as travel insurance, will be available for agent sales in Travelport.
Corporate bookings clout
Currently, Ryanair says that business travelers represent 22% of its business.
The Travelport deal suggests that GDSs still wield great strength when it comes to corporate business. Kane said Ryanair is also talking to Amadeus and Sabre but does not expect to announce any deals with those GDSs before fall.
Travelport is working with Ryanair to deploy Travelport’s Rich Content and Branding product later in the year. Travelport will be phasing in Ryanair fares and its ancillary products and services beginning March 19.
All Travelport-connected agents will have access to Ryanair flights by April 2, and ancillaries will be available then, as well, Kane said. Not all fares will be available in Travelport. “The lowest fares will only be available on www.ryanair.com,” Kane said. “That will always be the case.”
Functionality will be phased in, as well, according to Travelport.
Analysts last week said that Ryanair had little choice but to re-engage with GDSs if it wanted to grow.
“Ryanair has grown as much as it could with direct distribution,” said Bob Offutt, senior technology analyst and editorial director with PhoCusWright.
Henry Harteveldt, industry analyst with Hudson Crossing, said that Ryanair’s organic growth has slowed, and the company knows it has to modify its model.
What’s more, said aviation industry analyst Robert Mann, the move is typical in the evolution of low-cost carriers.
“Having scraped the bottom of the direct-booking barrel, Ryanair now seeks better fares from selected GDSs,” Mann said. “JetBlue and Southwest have selectively done so, as well.”
Back to the future
In the early 2000s, Ryanair had inventory in Galileo, Worldspan, Apollo and Amadeus. At that time, its GDS arrangements were expensive for the carrier, which was paying $3 segment fees and 10% agency commissions. In an era of declining margins — today, Ryanair’s margin stands at 6 euros ($8.30) per passenger — those contracts would have been prohibitively expensive.
“In 2003, we decided to switch it off and go it alone on Ryanair.com, which obviously was very successful,” Kane said.
Ryanair is paying Travelport segment fees, but Kane would not give the exact amount, saying only that the agreement with Travelport was an improvement for the airline compared with previous deals. She added that Ryanair is participating in Travelport in a lower level than it had in the past but one that gives the carrier all the functionality it needs.
Travelport said that low-cost carriers like Ryanair, which do not file their fares using industry standards, connect via an application programming interface. Travelport said there would not be a point-of-sale fee for agents to book Ryanair.
Analysts said that GDSs offer important efficiencies that help airlines in a variety of ways, be it managing spending and cash flow or tracking travelers in the event of an emergency.
In addition, Harteveldt said, “Agents prefer the conveniences and efficiencies of the GDS channel. The GDS allows Ryanair to reach a larger market and, in particular, business travelers, who may pay higher fares and be more likely to take advantage of the airlines’ optional services.”
Adding primary airports
In addition to returning to GDS distribution, Ryanair is making a push for business travelers by adding flights from primary airports such as Rome Fiumicino and Brussels as well as from Madrid and Barcelona, airports that had not been part of its network.
Primary airports are crucial to business travelers, said Brent Eisenach, director of CWT Solutions Group, the Americas.
“Many low-cost carriers operate out of secondary airports and have schedules that may not be adapted to the needs of business travelers,” he said. “Today, low-cost carriers are used infrequently by many of our clients in North America, so we don’t anticipate a big impact in this market in the near future. However, carriers are constantly announcing new routes, many of which are attractive to business travelers, so we expect to see an increase in corporate contracts over time.”
Harteveldt pointed out that the deal also supports recent speculation that the airline aspires to offer long-haul service.
At the same time, corporate buyers want to drive volume to their existing suppliers, Eisenach said. So, if Ryanair truly wants to win business travelers, adapting its route system is key.
Adding primary airports, a fundamental change for Ryanair, has also fueled speculation that the carrier aspires to offer transatlantic service.
“If the airline
decides to enter international long-haul flights, the GDS will help it increase visibility and help it reach customers who might not otherwise consider flying Ryanair,” Harteveldt said.
He predicted that the GDS deal and adding primary airports would be among a number of strategic changes for Ryanair. Right now, most of its flights are point-to-point; being in the GDS could presage a move to connecting flights.
Harteveldt described the Ryanair deal as a coup for Travelport, especially in Europe, which Amadeus dominates. And while that would seem to bode well for the GDS market in general, Offutt pointed out that Sabre’s latest numbers were down in the U.S.
“I think the leading edge shows that we’re going to see more disintermediation,” Offutt said. Consumers will go to airline sites to book ancillaries that they can’t get through GDSs, he said, and at the same time, travel management solutions like Concur enable direct booking plus expense and travel management tools that corporations need.
“GDSs aren’t going to go away, but their transactions will bleed off,” Offutt said.
In addition to going back into one GDS and tweaking its route system, Ryanair has been cultivating a kinder, gentler image, reducing its checked baggage fees, introducing a 24-hour post-booking grace period for minor errors and introducing fully allocated seats — for a price.
To avoid having to line up in order to get a better seat or to sit next to members of their travel party, passengers can now choose their seats for an extra 5 euros.
Follow Kate Rice on Twitter @krtravelweekly.