RyanAir: What happens when you just don’t care…

Michael O’Leary announced a couple of weeks back that he wanted to turn around the ‘abruptness of RyanAir’s culture‘.

So those of you who have heard me speak over the last few years will know that I use RyanAir as a great example of Customer Experience Management done well. Whilst this was initially shocking to many (a few years ago) most people have more recently cottoned on to why and audiences are now beginning to quote RyanAir back to me when I’m looking for examples of CX management.

However the vote as to whether people would invest in them has always been split into two camps.

  1. Just look at their results – they are a successful business, they are profitable and you said it yourself Martin – they have managed their CX very well – we know what to expect when we travel with them and there is a market for their product. So yes I’ll invest – I think they will continue to provide a good return
  2. They treat people like [insert your preferred strong words] – of course I wouldn’t give them my money

Personally I believe it really is as simple as Camp Two ultimately being the right answer however the problem is that Camp One were also ‘right’ – at least on the face of it.  From a short term investment point of view it was easy to see why money should be put into RyanAir.  The reason I believe Camp One have some faulty thinking is explained in my blog post earlier this year on where the money really comes from and why that model is not sustainable in the long-run.

RyanAir have issued a profit warning and are receiving a lot of bad press for their poor customer service.   I believe that this is the beginning of the end for RyanAir being a business that makes a profit out of consistently managing their ‘below benchmark’ CX.  Their business model is cracking (rising fuel prices, regulatory challenges to their revenues and competitive pressure on price) and their customers have no reason to stay other than for price.  We’re not going to see them go bankrupt anytime soon but I think that we will enter an era of discussion of RyanAir as a struggling airline in the face of tougher competition on both price AND service.  It is the latter that RyanAir just has no idea how to respond to.

It’s interesting to watch this unfold because it is, for once, shareholder pressure that is forcing Michael O’Leary to address his poor customer experience and also because I believe that despite his declarations he still doesn’t get it.

O’Leary has said that he wants to stop ‘pissing customers off’ and that this also shouldn’t cost any money.  From anyone else I’d take that as a simple statement of good practice.   From him I can’t help but feel that if it HAD cost any money he wouldn’t have bothered.  I simply don’t believe he cares.

Fundamentally he has a company built on his own personal set of values which show no regard for his customers or employees.  Changing that culture and turning around RyanAir, is going to require that he leaves or has some kind of personal revelation.

Now this HAS happened before with smaller companies but typically with the big ones the CEO moves on and a new culture comes in.  If you want to hear about what a big difference culture CAN make I’d encourage you to watch the video testimonial from Roma Mouldings who attended a 3-Day bootcamp with Zappos Insights – who know a thing or two about Culture’s impact on performance!

9 thoughts on “RyanAir: What happens when you just don’t care…

  1. I edited this to include a reference to Roma Mouldings doing the Zappos Insights bootcamp – which I found since writing this article… very cool testimonial to the power of cultural change…. I’ve another article on it’s way about the actual Financial ROI of culture… stay tuned.

  2. Hi Martin

    Another interesting post that deserves a response.

    I think that you have perhaps let your CX emotions run away with your business common sense.

    Ryanair, love em or hate em, is Europe’s most successful ultra-low cost carrier. It’s costs are half that of Easyjet’s and a fraction of IAG’s (which owns British Airways). Ryanair’s relentless focus on reducing costs means its average fare is only Euro 45, 60% lower than Easyjet’s and 450% lower than IAG’s. This has made Ryanair Europe’s largest international carrier, carrying significantly more passengers than easyjet and IAG combined. It has also resulted in a market capitalisation for Ryanair of USD 13.9 Bn, significantly more than the capitalisations of Easyjet and IAG combined. Not to mince words, the suggestion that Ryanair will go out of business any time soon due to poor customer service is not borne out by the facts.

    Ryanair has grown due to a combination of ultra-low costs, the highest on-time arrival (the No1 factor in JD Power airline satisfaction ratings) and a very large route network. This provides customers with a low price/low service alternative to the full service/full price carriers like British Airways and the middle service/middle price carriers like Easyjet. Customers know exactly what to expect from Ryanair and know what it will cost if they don’t follow the rules. They make their own choices depending upon their price and service sensitivities. In 2012, over 79 million of them did exactly that and chose to fly with Ryanair.

    Ryanair’s recent profit warning has to be looked at in the context of the evolving aviation market as a whole. O’Leary said the warning was due to a combination of weak Sterling, falling passenger numbers and high fuel prices. This coincided with the sorry tale of the unsympathetic treatment of a doctor who had to return early to arrange the funeral of a relative killed in a bombing in the middle-East conflict. Not a good week for Ryanair. In response to shareholder unease, O’Leary announced a new focus on improved service and the appointment of a Marketing Director to take over the job of getting Ryanair’s message out from O’Leary himself.

    The biggest customer complaint about Ryanair’s service is not about the check-in, gate or flying experience, but about the web booking experience. O’Leary duly announced that the customer service improvements will focus on making the web experience simpler, easier and faster to use. But don’t expect it to remove the hundreds of ancillary charges that so often feature in anguished tales of customer woe; as the recent Ideaworks Yearbook of Ancillary Revenues shows, Ryanair derives 25% of its profit from selling these ancillaries.

    Were shareholders right to voice concern over Ryanair’s infamously unsympathetic customer service? In the midst of a rapidly evolving European airline industry, I am not so sure.

    European airlines are in the middle of a once-in-a-generation restructuring that affects all of them. Full service carriers like British Airways can’t make any money on their short-haul routes and, unable to reduce costs any further, are either pulling out of routes entirely or transferring operations to low cost carrier partners. Faced with inexorably rising operating costs, airlines have responded by unbundling their flights and selling the individual components in a long list of ancillary services. O’Leary has suggested that he would like to offer flights for free and only charge for ancillaries. Some US carriers, like Spirit, are close to doing this already. Carriers like Easyjet are caught between the full service carriers going down-market and the ultra low costs carriers like Ryanair with their emphasis on rock-bottom prices, add-on ancillaries (and newly improved web services).

    Customers have become accustomed to paying prices for flights that are sometimes less than the actual cost of travel. With the bleak outlook for the weak UK economy, they are unlikely to go back to paying higher prices in the near future. At the end of the day, customers are free to make their own choices. But I can’t see them abandoning Ryanair’s ultra low prices any time soon, irrespective of what they read in the press.

    Next time you think of pillorying Ryanair for their poor service, I suggest you pop down to Stansted airport and watch in amazement at the vast sea of Ryanair passengers voting with their wallets. Many of them wouldn’t be able to afford to fly at all if it weren’t for Ryanair. For these customers, ultra low prices are king. So much for the death of Ryanair. Long live Ryanair, long live Michael O’Leary!

    Graham Hill
    @grahamhill

    PS. Just for the record. I take around 50 return flights per year from my home in Cologne, Germany. Most of the business flights are taken with Germanwings (my local middle cost/middle service carrier), Easyjet and a mixture of low cost carriers. Most of my personal flights are taken with Germanwings and Ryanair. I can’t remember the last time I flew with British Airways or Lufthansa.

  3. Graham,

    Always good to have some challenge – this is of course the point of the blog – to generate some discussion. Your response is not an untypical analysis of the RyanAir situation – but a deeper analysis of their company returns, regulatory reports and investigations (journalistic and regulatory) suggested to me the model is not necessarily sustainable.

    On the CX Emotions – long may I continue to bring the emotion in order to balance the on-the-face-of-it rational arguments (because it turns out that some of those rational arguments don’t hold up rationally on closer inspection AND some of the emotional arguments support better performance in ‘rational’ metrics).

    The business model is profitable – I do not deny this. The revenue model is not necessarily sustainable to regulatory and competitive threats (see my other post). I do not believe that RyanAir customers will, for the most part, decide to pay significantly more for their flights just so they are treated more nicely – I do think they will choose a competitive pricing that offers better service – it’s just not available yet.

    I do not trust RyanAir’s metrics
    – if you extend the scheduled time for a flight beyond what time it actually takes then you will be more on-time – (not an uncommon practice in the industry – they are not alone)
    – if you make it extremely hard to complain then you will have lower complaints
    – whilst you are the only one offering the price advantage you will have a good share of the market (but that IS your competitive advantage so you have no-where to go but down)

    I do not believe that a company with a negative culture has a robust operating model – therefore this represents another operating risk – their pilots are very dissatisfied, are disdainful of their customers, their crew have been shown to take shortcuts and literally not care.

    There is plenty of evidence that CX leaders and positive performance enhancing cultures outstrip the market in terms of returns and key financial metrics (subject of yet another post to come) and so I believe as an investor there is a viable choice for investors to make to avoid companies like RyanAir and still make money.

    So I would not invest in them, and I take even an initial profit warning as a small kink in the armour of a company who got away with ‘looking successful’ whilst treating customers and staff like crap by taking advantage of the job market and the lower-end price sensitivity in the consumer marketplace.

    If SWA can be a low cost carrier and run a sustainable business model – then someone else in Europe can too – Hopefully we won’t see RyanAir in it’s current form for too much longer and someone will find a way to serve up affordable air travel that is delivered with respect to customers and staff – i.e. people in this ‘Market’ (cheap flights) will have a viable choice to make.

    Look forward to continuing the debate with you sometime soon in RL over a few drinks – should be good!

    Martin

  4. Hi Martin

    Thanks for your comment. Here is my reply.

    I am intrigued by your suggestion that my analysis of Ryanair’s situation is somehow superficial. I spend a significant part of my consulting life helping low-cost carriers restructure and turnaround their service operations. Ryanair is invariably the 900lb gorilla in the low cost waiting room. Its overwhelming cost, cash and network advantages over practically all of its competitors, both large and small, means that the only way they can effectively compete is on factors other than cost.

    The FSCs like british Airways compete largely on alliances, long-haul networks and loyalty programmes for their high value customers. The LCCs like Easyjet compete largely on value for money, short-haul networks and ancillaries. Hybrid models are also starting to appear whereby FSCs offer reduced services at LCC like prices whilst LCCs offer FSC Economy class like service at higher prices. Today’s British Airways Economy class experience is much closer to Easyjet than it is to British Airways Business class, let alone First. In stark contrast, the ultra LCCs like Ryanair and Wizz, thanks to their revenue growth outstripping their cost growth, compete very effectively on pricing power.

    I would like to believe that ‘nice companies’ with a customer-oriented culture should do better in business than those that don’t. It seems right and proper in our liberal Western society driven more by Kant’s Categorical Imperative than by Friedman’s dictum that “the business of business is business”. Sadly, we have to rely on hard-nosed evidence, not on wishful thinking. Unfortunately, with a few notable exceptions such as the widely discussed Zappos, the evidence from both dry academic studies and juicy corporate reports suggest that being nice does not automatically result in being successful. As Jim Heskett found in his research on cultures and performance over the past two decades, it is developing a coherent, focused cultue that drives performance, not a focus on customers per se. Like it or not, nobody can mistake Ryanair’s overwhelming focus on ultra-low-costs. And that is partly why it is and will likely continue to be successful.

    If I may be so bold, the mistake that you seem to make is to try to retrofit the abundant evidence that a customer-focus doesn’t automatically lead to business success, to support your own personal preference to the contrary. This is a common failure in abductive thinking that many with a service design background share, steeped as they are in the wistful folklore of customers rather than the brutal economics of business. Perhaps the best way out of this customer-focused cu de sac is to look to economists like Michael Porter with his insightful new work on Shared Value, or better still, to service academics like Steve Vargo, Bob Lusch and Irene Ng with their emphasis on mutual value co-creation. There is no real reason why customers and companies can’t both have their cake and eat it. But it requires a much deeper understanding of the relationships between customers, journeys, touchpoints, value, resources, capabilities, collaboration and service ecosystems than we can possibly cover in a blog post and a handful of comments. It requires a good chat over coffee & cakes.

    I look forward to discussing these things with you in person, over a coffee & cakes in London.

    Graham Hill
    @grahamhill

  5. Graham,

    Your comments, analysis and thought process are clearly anything but superficial – and my saying a ‘but a deeper analysis’ implied you hadn’t done so – my apologies.

    I was genuinely thinking MORE about the fact that many people do make roughly the same ‘case’ in a superficial way because it seems to make sense when it may only do so in the short-term.

    The rest is as you say best for tea and cakes – although I don’t want to close down other people commenting on this – I believe that Graham and I have a bit more tea to drink – it would make for an interesting podcast…. just a thought!

    Martin

  6. Hi Martin

    THE EVOLUTION OF CUSTOMER-FOCUS

    Interest in becoming customer-focused seems to come in waves. I remember the first wave in the early 80s when I worked for British Airways. King & Marshall’s turnaround of the ailing airline was largely based on Marshall’s experience doing the same at Avis previously. It was a textbook turnaround that pulled all the people, process and technology levers whilst redeveloping British Airways’ services, the likes of which I have never seen nor heard of since. It culminated in the successful flotation of British Airways a few years later. Other companies attempted to do the same, but most struggled with the development of the required capabilities.

    Interest in the benefits of a customer-focus was resurrected in the mid-90s, after the wave of business process reengineering had cut costs to the bone. When there are no further costs to cut, management has to look elsewhere for a temporary competitive advantage. The Marketing Science Institute commissioned a programme of research from leading academics to look at the factors that drove a market orientation. The findings, reported in many papers and a book on ‘Developing a Market Orientation’, suggested that whilst having a focus on customers was an important driver of market orientation it was not by itself enough. Successful service organisations are like an iceberg; the glistening white service that the customer sees needs to be supported by a much larger service system hidden out of sight behind the line of visibility. The service system is constructed of families of complementary capabilities that together allow a business to create value for both customers and itself.

    Each wave of interest in developing a customer-focus tends to be driven by a different group of managers who, armed with their own interests, take a different approach to it. That is good as each wave builds on what was learned in the previous waves, but it is also bad as business tends to forget the detail of what worked, what didn’t and why. I have seen similar waves in a number of different management areas.

    We are currently in a new wave of interest in developing a customer-focus. If the first one was driven by restructuring and the second by post-reengineering competitiveness, this one seems to be driven the evolution of CRM (encompassing Marketing, Sales and Service) to Customer Experience Management, and more recently, CEM’s sibling Service Design. I do hope that the current crop of managers leading this wave of interest in customer-focus stop, study and think about the lessons to be learned from the previous waves. Although I do see this in many CEM practitioners, sadly, I don’t see it in quite so many Service Design practitioners.

    Graham Hill
    @grahamhill

  7. Graham,

    Much I agree with in this analysis and you have taken the time to articulate a level of detail beyond my previous comments. Let me clarify though, I do not believe ‘putting the customer at the heart of the business’ = ‘excluding all other aspects of a successful business’ and whilst many put this discussion across in that way my colleagues and I at Comotion are all about the balance. Of all the examples that are oft-quoted for excelling at customer experience, for putting the ‘human’ at the heart of their business there is also a great strategy, kick-arse operation and other leading edge capabilities within the business. There is no substitute for these things – however these companies would argue that they are successful at this because of where they put the customer.

    I have to say I disagree with the rather fatalistic and extrapolated conclusions that data and computer generated insight will replace human insight (at least that’s how I read it) and on that front I place my trust in organisations balancing their ‘big-data’ with their traditional ethnography. As such Service Designers have a great future ahead of them within the ecosystem – I just think we haven’t yet nailed the ecosystem.

    Martin

  8. I believe the explanations for businesses like RyanAir are quite simple. In certain markets customers tend to choose simply based on price. This can lead to a short term success for a low cost competitor. If you look at the evolution of the airline industry, things changed dramatically after internet bookings took over from travel agencies. This also coincided with the introduction of CRM at Airlines and the frequent flyer programs.

    Just like crappy restaurants located in tourist spots, there is a poor feedback loop for weeding out airlines targeting tourists (and infrequent business or corporate booked travelers) that fail to deliver as expected. That is until some feedback loop is introduced. In San Francisco many US tourists now use Yelp, and the European tourists are the only ones left going to the crappy restaurants.

    Short term profits (several years) are not a sign of a sustainable business. In fact, I’d suggest any investor look closely at any company that disrupts a market and ask if they have a long term advantage based on cost alone. I should note that SouthWest Airlines has a very high NPS. Does RyanAir?

  9. Again Jon – thanks for the comment. I agree and I like the distinction about the feedback loop – it is this loop that will create the case for the opportunity for challenge to the low-cost/crappy service incumbent.

    I do think RyanAir are worried, they seem to be wavering from their steadfast position of ‘we don’t care’ to ‘we might care if it saves our bacon’.

    I can almost hear Graham Hill typing furiously about NPS – will he comment? I’ve tended to stay out of the debate about NPS being/not-being the ultimate metric of customer experience.

    I tend to look at (here comes the science ;-) ) :-
    a) do more people say good and great things about a company than their competitors
    b) are they sustainably profitable
    c) do less people say bad and terrible things about the company than their competitors

    You can do this with NPS (other brands and services are available no affiliation or recommendation intended) but I know a lot of people are still struggling to link NPS directly with the bottom line financials in a true cause and effect way. I’m hoping to do a podcast soon with a great chap who has got 85% of the way there – total stats/analytics geek!

    We do see a number of reports now about the link between stock market performance, core P&L metrics and Culture and or independent CX rankings. I think that is most interesting – and have started a series of posts on this – the first of which looks at ‘Shareholder Value’ as a value destroying metric… the forthcoming posts will look at the culture and cx rankings stock market performance links.

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