Ryanair: being nice pays off

Europe’s biggest budget airline has reported a 32% jump in first-half profits and lifted its annual earnings forecast by 20% to €750m-€770m. Ryanair (LSE: RYA) said that a strategic overhaul and a revamp of its customer service were the main reasons for its sharply improved performance.

“If I’d known being nicer to customers was going to work so well”, said CEO Michael O’ Leary, “I would have started many years ago.” The shares jumped by 7% on the news.

What the commentators said

If this is what can be done by being nice to people, said Nils Pratley in The Guardian, perhaps O’Leary could “estimate how much shareholder value Ryanair squandered over two decades by being so objectionable”.

Last year, the firm decided “to woo customers fed up with feeling more like cargo than people”, said Olaf Storbeck on Breakingviews. That meant lower add-on charges and a smoother, more flexible travel experience. It has increased flights to major airports, having hitherto concentrated on smaller ones.

These changes have helped entice business passengers, said Thao Hua in The Wall Street Journal. And Ryanair’s odds of gaining market share in this area look good.

Its low cost base bodes well, especially since many major carriers have cut capacity on European routes to concentrate on more lucrative long-distance routes. As Lufthansa has shed routes in Germany, for example, Ryanair has gained a bigger foothold.

The firm should now pay attention to keeping its staff happy, said Storbeck. It has a “long history of strained labour relations”. Pilots are reputedly especially unhappy. Employees comprise just 10% of operating costs. “Ryanair can afford to invest in keeping them content.”