Pricing strategies of low-cost airlines: the Ryanair case

The aim of this study is to analyse the pricing policy adopted by Ryanair, the main low-cost carrier in Europe. The first part of the study reviews the results of literature addressing the subject of dynamic pricing, with specific reference to the air transport industry. The methodological section contains the models of reference for determining the optimal price and the demand function regarding the individual routes. The second part describes and analyses the data base that was used, giving price information relating to all Ryanair’s European flights from 1st July 2005 to 30th June 2006. In the empirical analysis section there is an estimation of the optimal pricing curve for each monitored route, by means of a family of hyperbolic curves as described in the literature. Subsequently, the parameters of the estimated price functions are connected with specific aspects relating to routes, competition, airports and served territories. The analysis shows that a positive correlation exists between the average price of each single route and its length, the frequency of flights operating on that specific route and the percentage of fully booked flights; greater the impact the carrier has on operations at the airports of departure and arrival, more negative is the correlation. With reference to the intensity of the dynamic pricing phenomena, the correlation to route length and frequency of flights is negative. Viceversa, greater the competition, higher are the discounts given on advance bookings, a variable which is not correlated to the level of average prices. Finally, the cost component relating to taxes and fares of the carrier is positively correlated to prices, to the degree of dynamic pricing activity and to the percentage of fully booked flights. To put it briefly, the study confirms the European low fare airline leader’s attention to the latent demand in the air transport industry and to the context in which it operates.