One of the most important elements which has never been highlighted in most Ryanair analysis is the importance of subsidies in Ryanair business model.

Indeed, most analysts describe Ryanair as the most successful airline in the last twenty years. It is true that Ryanair is the fastest growing airline in Europe: since 2004, the Irish low cost airline more than doubled its number of passengers, from 33m up to 73m, expected this year.

However, what such analysts have failed to point out is just how the airline achieved such ongoing success. Journalists who work on Ryanair case usually only focused on few elements of its business, but they mainly fail to analyse entire Ryanair business model.

Why Subsidies are so important in Analysing Ryanair’s Business Model?

If subsidies are so important, this is because they represent a very significant part of Ryanair’s revenues.

While Ryanair declared €663m of ancillary revenues in its last annual report in 2009, Ryanair earned more than €664m in subsidies the same year. It means that subsidies are at least as important as ancillary revenues and represent around 22% of Ryanair’s revenues.

In France for instance, French Regional Audit Courts have conducted investigations, which revealed that a total of 25 airports have signed unlawful agreements with Ryanair for an amount estimated around €35m. But Ryanair not only receives subsidies from French public authorities, it also receives public money from almost every airport across Europe it operates from. This is what one can call an “Industrialised” process.

It is also important because I think that a model partly based on public subsidies is questionable. According to the  European legislation, to legally receive public money three conditions  have to be respected. Ryanair does not respect any of these conditions.

While 7 investigations are currently open over Ryanair’s subsidies in Europe, it is now clear that there are doubts about strength of Ryanair business model. Indeed, what if Ryanair’s subsidies were not legal? What if 22% of Ryanair revenues were based on illegal processes and undeclared public money? What would happen if politics discovered this?

Until now, subsidies have allowed Ryanair to dominate the low cost market and develop its own unique business model. It has also allowed Ryanair to withhold a strategic advantage over other airlines. But in a close future, Ryanair could meet difficulties. Indeed, O’Leary has set up a model based on addictive growth. A model which has furthermore based itself on questionable subsidies. I guess it’s safe to assume that 22% of Ryanair’s revenues (earned through subsdies) are unsustainable.

This article is based on the e-note Ryanair Business Model Under a New light by Roman from AirObserver

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