Making Money By Offering Free Airfare

 Posted by on 13 April 2006 at 6:22 pm  Uncategorized
Apr 132006

The controversial Irish airline Ryanair is moving towards a fascinating business model in which the airfare is free. They make money by charging for ancillary services, including baggage check-in and food, having advertisements on seat-backs, affiliate programs with hotels and rental car agencies, etc.

Already a quarter of their passengers pay zero for airfare (those fares can be found on their reservation website), and they expect that by 2010 over half of their customers will fly for free. Plus they’re making a ton of money with this approach:

Even more impressive, Ryanair’s $368 million in net earnings gave the airline an industry-leading 22 percent net profit margin. (By comparison, Southwest Airlines’s net margin was 7.2 percent.) “Ryanair has the strongest financials in the European airline industry,” says James Parker, an equity analyst with Raymond James.

…For passengers seeking distraction, Ryanair intends to offer in-flight gambling in 2007, with the airline earning a tiny cut off of each wager. [CEO Michael] O’Leary thinks gambling could double Ryanair’s profits over the next decade, but he’s not stopping there.

Capitalism is wonderful.

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