Friday, October 17, 2008

Price of Ryanair Tickets

Yesterday, I was buying a Ryanair Ticket to Frankfurt, and was surprised at how many different ways they try to make the ticket price more expensive. It makes interesting economics.

From: Leeds to Alicante on 22nd and 24rd Nov
  • the cost of the Air fares was £0.00
Taxes and Fees were £46.41. This involves:
  • 37.67 GBP Tax and Fees
  • 8.74 GBP Insurance/Wheelchair Levy/Aviation Insurance
Airport Taxes

As an economist, I actually don't mind paying airport taxes. Flying has a significant negative externality of greater air pollution and contribution to global warming. The tax makes people pay the social cost of flying. They also raise revenue for the government. If the government were to abolish taxes on flights, it would simply require higher taxes elsewhere. (see: 10 Reasons not to cut petrol tax)

Extra Fees for Ryanair
  • Checking in One Bag - £24. Extra luggage does incur a marginal cost of more fuel needed for heavier weight of plane and increased time involved in check in. This is important for Ryanair which rely on quick turnovers. But, I'm sure the cost is not £24. By the way, if you wanted to take a sports bag. The cost will be £50.
  • Priority Boarding Be First Passenger - £8.00. This is an interesting ploy. For £8 you can check in quicker and spend more time in duty free and cafes. It is a classic case of price discrimination. It is a way to find passengers who don't mind paying more. Some customers may think £8.00 is not very much so they will pay, even though the benefit is relatively small. For customers whose demand is elastic (sensitive to price changes), they will not pay. Ryanair will definitely profit from this scheme. Overall customers don't get to fly any quicker, it just means some can pay for the privilege to 'jump the queue.' This has been labelled 'Perkonomics' charging customers to get fringe benefits. - see article in Independent
  • People may say it is unfair, but on the other hand you could argue by charging rich customers an extra £8, they are effectively subsidising lower fares for poor people. If they couldn't gain £8 surplus payments from people willing to pay, the basic ticket price wouldn't be £0.
  • Insurance - £7.37 Unless you only fly once a year, it nearly always makes sense to get insurance for a whole year. You can get an annual insurance policy for £40 or less. Buying insurance per flight is a very expensive way to get insurance.
  • Credit Card charge £8.00 This is a cheeky way to get more money out of you. When you are all ready to pay, you realise whatever method of payment you make there is a charge of £8.00. Even when I choose debit card they wanted to charge £8.00. This is bad because the cost to them is much lower. Debit card charge is no more than 50p. A Credit card is about 2% of price. So they are definitely charging more than the cost. But, when you've got all the way to the end, who is going to pull out because of an additional £8.00 charge? If you knew at the start you had to pay and £8.00 some may not buy. So leaving this charge to the end is clever.
Total Cost of Ryanair
  • Air Fares = £0.00
  • Taxes and Fees = £46.41
  • One Bag = £24.
  • Priority boarding = £8.00
  • Insurance £7.37
  • Credit Card Charge = £8.00
  • Total = £93.78
Other ways to make money for Ryanair - Selling food, drinks, lottery tickets.

It's like the old adage of a cinema who offer cheap tickets so they can make profit selling popcorn and cola. Ryanair offer 'free flights' because they make so much money charging for extras.

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