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Better keep some loose change handy. Ryanair (RYAAY) confirms it's moving ahead with its...

Better keep some loose change handy. Ryanair (RYAAY) confirms it's moving ahead with its controversial plan to charge customers for the use of airplane bathrooms.
Comments (4)
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    So common decency has gone the way of the almighty--Euro.

     

    But wait until the first lawsuit of a passenger that didn't have change, and had a major "accident."
    9 Apr 2010, 11:59 AM Reply Like
  • Burning Madolf
    , contributor
    Comments (200) | Send Message
     
    Or just used the isle or an empty seat.
    9 Apr 2010, 12:02 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (5788) | Send Message
     
    insane... why don't they just raise the ticket prices? Instead their going to waste a ton of money installing coin operators. Next they'll have to install a change machine. They'll also have to pay somebody to collect the money. Absurd!
    9 Apr 2010, 12:11 PM Reply Like
  • Tack
    , contributor
    Comments (12763) | Send Message
     
    The compounding idiocy of many airlines makes it rather obvious why they perpetually lose money. Southwest "gets it;" almost nobody else does.

     

    I learned early-on in running a high-fixed-cost business that volume is critical and that adding revenues, even at declining gross margins, was far better than trying to improve margins by raising prices and shrinking asset bases. The airlines keep adding disincentives to fly, which impair industry volumes, which results in collapsing overall profits, but they think --just like many tax-happy local and state governments, I might add-- that if you just raise the cost (taxes), you'll do better. (No, people just leave.)

     

    Instead, what happens, even if not instantly, is that while the incremental gross margin appears to expand, the overall revenue growth will be adversely impacted. That results in pressure to reduce overhead (services and equipment), while trying to increase "load factors," rather than overall volume. This is an exercise in self destruction because you might achieve higher load factors, but on a shrinking asset base, the multiple of the two results in lower overall revenues. And, most critically, in a high-fixed-cost business, like airlines, it's impossible to cut costs at anything close to the rate at which revenues decline.

     

    The winning formula, which Southwest obviously understands (they probably wonder why nobody else does, but welcome the ignorance) is to constantly expand volume because this makes marginal pricing cheaper and cheaper, as the fixed-cost portion of the overall operations declines, as a percentage of each ticket sold. This makes it possible to expand profits, while keeping ticket costs under control, or even reducing them. And, every passenger won away from the not-too-clever, price-gimmicking "nickle-and-dimers" is that much less revenue the competitors have to cover their own fixed costs, placing even more pressure on them to shrink and raise ticket prices even further.
    9 Apr 2010, 12:24 PM Reply Like
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