Ryanair goes medium haul. Is a Middle East hub the goal as it pushes the limits?


The announcement last week from Ryanair that it intends to include Larnaca, Cyprus in its list of destinations raises some interesting questions. Not least amongst them is, just how far can LCCs travel using the business model that is in place now? So far Ryanair has shied away from long haul (transatlantic) operations, which its management knows would require a significant adjustment to the short/mid haul model, though it still insists it will do it one day. It seems Ryanair (or Michael O'Leary) has spoken to airport management in the U.S., for example Niagara Falls airport, about hosting the first route. Now it appears though that Ryanair may be looking at tapping into the Middle East market, by using Larnaca as a base.

  • Ryanair's announcement to include Larnaca, Cyprus in its list of destinations raises questions about the extent to which low-cost carriers (LCCs) can expand their business model.
  • Ryanair's longest sectors are currently around four hours, but the inclusion of Larnaca as a destination will push this limit.
  • Ryanair's objective may be to connect Britain with Cyprus, given the high number of British visitors to the island.
  • Ryanair's move into Larnaca could potentially establish Cyprus as a regional hub and tap into the Middle East market.
  • Other LCCs, such as EasyJet and Jet2.com, have already extended their average stage lengths, venturing into long-haul routes.
  • Long-haul LCCs face challenges such as reduced cost advantages, competition from legacy airlines, and limited market stimulation.

Stretching the LCC definition - and reducing the cost advantage

While Ryanair remains a short/mid haul carrier, that 'mid' definition is expanding all the time. The perceived wisdom has been that four hours is the maximum stage length for a European LCC flight (although this stage length is relatively common for LCCs in Asia, using the same single aisle aircraft types). Even allowing for the almost mandatory 20-minute turnaround, which Ryanair often achieves with ease, and with full 187-seat loads both in and outbound, an aircraft could only complete one long and two short (two hour return) trips each 14-hour day, or one and a half eight hour return trips that would leave it stranded away from its base overnight - a big cost in crew staging.

At the moment Ryanair's longest sectors, from the UK and Ireland at least, are to points in Finland and the Baltic countries, and to the Canary Islands. The carrier also flies to southern Spain from Scandinavia. All these sectors are close to four hours. The first route to Larnaca will be from Charleroi/Brussels South, commencing in Nov-2010 and expected to deliver 60,000 visitors a year and a claimed EUR350 million over five years to the Cypriot economy.

A second route will be announced shortly. The furthest southeast the airline currently flies is Kos and Rhodes (Greece), both from mainland Europe. This Brussels - Larnaca leg will be one of its longest yet (although it has considered flights to the Cape Verde islands in West Africa from Oporto and Valencia in the past) and will probably come in at over four hours.

Are UK flights the long-term target?

That said, Ryanair's objective here, even though it has been shunning the UK & Ireland in favour of other countries, will surely at some time be to connect Britain with Cyprus, a 4.5 hour flight, and for very good reasons. The number of British visitors to the island, once a colony and where there are still two military bases, is seven times that of the second biggest provider of tourists (Russia) and almost ten times that of Germany, Sweden and even Greece. Belgium barely registers - so just where even 60,000 visitors are coming from is not clear. An agreement has been reached whereby Ryanair will not be permitted to fly on a London route, but the LCC flies from and to many other UK cities.

Ryanair's management will have perceived the weakness of Cyprus Airways and Eurocypria, which seem to be heading for a merger. Both have experienced financial difficulties and it is clear the small island of 800,000 is not big enough for both. In contrast, Ryanair is well versed in making just about any market big enough for itself. Ryanair changes markets, while most other airlines fly them.

And is Ryanair establishing a Middle East hub?

Local sources claim the service, which has been negotiated over a period of three years, is part of Ryanair's strategy to operate to the Middle East and Israel, which would definitely put it firmly in long haul territory. If it is able to do so, it would waste no time declaring Larnaca as a base and to start doing what Cyprus Airways was not able to achieve, namely establishing Cyprus as a regional hub.

Hermes Airports, the Larnaca airport concessionaire that has invested heavily in a new terminal (also at Paphos on the other side of the island), will be pleased it was able to come to an agreement on charges with the world heavyweight champion of price negotiation, aided by the Cyprus government's continuing emergency subsidy of all airlines to the tune of 25% of landing charges plus an additional payment of EUR4 per traveler.

As is often the case, the tourist authority has, again according to local reports, allocated a "significant" marketing spend targeted on the route.

While Hermes Airports will be pleased, the reaction of the hoteliers and bar/restaurant owners will be variable. Along with many other European tourist destinations, Cyprus has witnessed a sharp drop in arrivals in the last two years as travellers opted for cheaper options.

But Cyprus is not really a 'mass tourism market' and has always sought to differentiate itself from the common herd. Most of its hotel properties fall into the four/five star category with a smattering of six-stars. It is more Dubai or Cancun that Benidorm. It isn't really clear yet where this promised new breed of budget vacationer to Cyprus is going to stay the night.

Ryanair is not the only one to go long

But to return to the original proposition, Ryanair is not alone in extending its average stage length. EasyJet already flies from the UK to Cyprus (Paphos) and even beyond, to Sharm-el-Sheikh, Hurghada and Luxor in Egypt; a flight duration of over five hours.

Jet2.com, an LCC that has a very flexible model, also flies to Sharm-el-Sheikh, operates 7-8 hour Christmas charter flights to New York (using the same aircraft that might operate a one-hour leg in Europe) and is starting to venture into the crowded but massive world of Haj flights to Mecca in Saudi Arabia, almost the same distance as New York.

Is this unusual, in comparison, say, to the US? On the face of it, yes. Comparing the grandfather of LCCs, Southwest Airlines, the average aircraft stage length in 2009 was 639 miles, with an average duration of approximately 1.8 hours (though it does still retain a handful of coast-to-coast routes such as Baltimore-Washington to Los Angeles and San Diego and that average is growing).

The blurred vision between short/mid/long haul

It is at this stage that the blurring between short/mid-haul and long haul begins.

Many airlines have tried the long haul LCC concept and almost all have failed, including such notable casualties as Oasis Hong Kong, Zoom, the triumvirate of transatlantic 'low cost business carriers' - Eos, Maxjet and Silverjet and, in a previous era, Freddie Laker's Skytrain and PeoplExpress. Most of them had, in retrospect, vitally flawed models and lacked capital. More recent examples like Iceland Express are still at the bottom of a steep learning curve; British Airways' OpenSkies (another version of the aforementioned triumvirate) appears to succeed - but based on a higher yielding formula. Meanwhile, Norwegian Air Shuttle quietly gets on with its Dubai flights and there is no shortage of aspiring newcomers like Norway's Feel Air.

Cost advantages can be much less than the 50-60% margin achieved by short haul LCCs - as low as 20% - and aspiring long haul LCCs are often up against the adoption of LCC features by legacy airlines, the need for dense markets and feed traffic and the limited potential for market stimulation.

It is perhaps for these reasons that Malaysia's AirAsia X has been the most successful of the long haul LCCs, at least to date. It has the advantage of dense markets with an ever-increasing propensity to fly, situated in a region where the global economic recession did not have such a severe or long lasting impact, and a purpose built hub at Kuala Lumpur that will be replaced by a newer and bigger one. And it links into a de facto hub operation with associated AirAsia's burgeoning short/medium haul hub.

Competing legacy airlines have been less concerned with mimicking the reduced service levels than have their peers in Europe and the airline has found that by judicious choice of routes it has been able to tap into ad-hoc 'feed' with up to 40% of its passengers at London Stansted Airport for example making a separately booked onward trip on a European LCC within 24 hours.

AirAsia X's average stage length, in Aug-2010, was 4,706 km (2941 miles); about 45% longer than Ryanair's proposed London-Larnaca. The carrier has recently introduced (near) lie-flat seats in its low priced premium section, to take advantage of the demand for low priced long haul business-style travel.

New Ryanair explorations are the bottom line

Ryanair has never been about following the herd. But it has the advantage of a ferocious cost culture. And, as opportunities appear where its model should prevail, there will always be a conflict between the management purists and the opportunists.

Whatever the aggressive operator is up to in its Larnaca move, it will be sure to trial the potentials, learn from them and either expand into the opportunity - or exit quickly. And most of its competitors will be watching and learning.

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