How does Ryanair make so much money?

Loathed by many of its passengers, it’s a wonder Ryanair is still in business, let alone making a profit. So how does Europe’s most successful budget airline keep making cash when the world’s against it?

In its latest headline-grabbing move, Ryanair has announced that it plans to offer trans-atlantic flights from just £10.

Whether it's just another clever PR move by the airline or whether it will genuinely provide cheap flights to America, remains to be seen.

But one things for sure: the controversial airline has managed to make a lot of money, in an age of austerity and high fuel costs, with lower fares than almost anyone else.

So how have they done it? It can’t just be the charges....

Where it started

Established in 1985, Ryanair initially started flying between Waterford in Ireland and London Gatwick with just one plane. It added another plane and another route, Dublin to Luton, the following year.

Although passenger numbers were increasing, Ryanair generally ran at a loss in the first few years. Michael O’Leary, then deputy chief executive (now chief executive) was tasked with making the airline profitable.

In 1991 he headed to the US where he studied the business model of Dallas’ no-frills Southwest Airlines. Southwest was run on four key principles – and it was these, rigorously implemented with a few innovations of its own, that have seen Ryanair become the most successful airline of the last 20 years.

Principle 1: Use one type of plane
Aeroplanes are expensive, so to save money Ryanair only uses one sort of plane. That keeps down maintenance costs and also means that – because it’s making huge orders – it can negotiate great deals from manufacturers. It also keeps a new fleet, to keep maintenance and fuel bills as low as possible.

Principle 2: Turn aircraft around fast
Once you’ve spent the money on the planes, you need to get the most out of them.

So Ryanair turns its planes round fast, getting them back in the air and flying full of passengers as soon as possible.

That means more trips per plane with the added benefit of getting more trips out of of your staff.

Take its attitude towards hold luggage, for example. Hold luggage takes time to load and unload - it also adds weight to the plane meaning you pay more in fuel per trip.

So less hold luggage means less time in the airport and less time refuelling fuel per flight (not to mention the price of fuel). So they charge for it not just to earn cash, but to save time.

Principle 3: Keep overheads down
Flying to airports near cities results in higher airport fees, so Ryanair doesn’t if it can help it.

Its website is functional, not flashy – as is its advertising. In fact, why bother paying for advertising at all when a controversial chief executive can get you publicity for free? Think about it for a second - when did you last see a Ryanair advert on television? And when did you last see a BA one?

Customers book online, without using travel agents. The company has no airport check in desks either, saving more money.

But what if you could go further than just saving money on airport fees? Ryanair brings so many passengers to an airport, many regional ones are prepared to pay for the privilege of having them fly there.

Some reports put the amount of money Ryanair makes from regional airports across Europe in the hundreds of millions – meaning the carrier makes as much from them as the “added extra” charges that drive passengers up the wall (although apparently not into the arms of rival airlines).

Ryanair emphasises that any money it receives from airports is above board and not state aid or in breach of competition laws.

Staff costs are also kept as low as is reasonable. Things like uniforms, training, drinking water while on the plane and the like are frequently the responsibility of the employee to pay for, or deducted from salaries, rather than provided by the company.

Ryanair also works its staff hard – like its planes. Once someone is fully trained up, it’s a waste to not have them working and earning money for the company. That said, the company can be a good payer. Ryanair has often described its pilots as the best-paid in Europe.

Principle 4: Ditch air miles
Every mile you fly costs both in fuel and in time. So for every mile less you fly you not only use less fuel, but you can get more cash-generating trips in for your costly aircraft and crew.

Those out-of-city airports not only save cash in fees, they mean more flights per plane, per day – and so more money for the company.

Low prices

Once you've reduced all the costs you can and squeezed as many flights in as possible, it would be a shame to fly with a half-empty plane.

As such, Ryanair structures its ticket prices to try and ensure the planes are as full as possible - offering cheap seats rather than leaving them empty for the sake of keeping a single ticket price.

Years of experience and analysis mean that rather than offering last-minute bargains, the airline is more likely to offer cheap deals far in advance - after all once someone's bought a ticket, it means you can start offering extras...

The charges

There’s no getting round it – Ryanair’s charges are a serious earner. Low headline prices can be subsidised by extras. After all the total amount raised from passengers, per trip, is not the same as what they paid in ticket costs alone.

So-called ‘ancillary sales’ shot up 15% in the three months to July, netting the company £223 million in the quarter alone, and accounting for nearly a third of its income.

It’s easy to see why. Take one of its bargain basement flights from Bristol airport to Barcelona Reus, for example.

The flight costs £9.99 each way but by the time you’ve added on a £6 admin fee (unless you have a Ryanair Cash Passport), £10 for reserved seating, and £15 to check-in a 15kg bag, the total jumps to £40.99 each way or £81.98 for a return journey.

On top of that there are additional fees for infants, sports equipment, heavier bags, forgetting to print your boarding pass, priority boarding… the list goes on.

During the booking process Ryanair will also try and flog you travel insurance, car hire and travel luggage. A text message confirming your flight details will set you back another £1.50.

Admittedly many of the additional fees are avoidable with a bit of forward planning, ruthless packing and a grudging acceptance that you might be split up from your family and friends for the duration of the flight.

In fact, studies have shown Ryanair can cost more than British Airways for the same flight, if optional extras are included.

What’s next for Ryanair?

While it’s not popular, there’s little argument that Ryanair’s business model is sound. Hammer costs at every turn, get as much as you can out of your staff and equipment and provide nothing you don’t have to for passengers – they’re paying for the trip alone and not the experience.

As such, O’Leary has plenty of plans up his sleeve to get more from his ‘assets’ including the likes of removing one or two toilets from each plane to make way for extra seats or widening the doors on planes to allow passengers to disembark in twos, shortening the turn-around time at airports.

Whether you love it or hate it, Ryanair knows what it is and so do its millions and millions of passengers. The cheapest way to get from A to (at least vaguely near) B.