A while back I wrote about Ryanair’s ticket pricing policy. It stemmed from a personal experience where I bought a ticket costing ostensibly (£0) but ended up paying over £100.
To some extent Ryanair’s ticket pricing reflects an attempt to be allocatively efficient – charging consumers a price equal to the marginal cost of extra services.
For example, if you want a meal you have to pay extra. From an economic perspective it is probably more efficient to charge consumers separately for extras. It enables consumers to only pay for a meal if they actually want one. It would be inefficient for consumers to have a meal they didn’t really want and end up paying a higher ticket price for this unnecessary cost.
However, some of the Ryanair extra charges are not so much a reflection of marginal cost, but, a clever pricing strategy to encourage more sales.
For example, it costs Ryanair 30-50p to process a debit card, yet they charge customer £4.50 for the privilege. You can avoid this charge with a prepaid credit card – but very few consumers have one of these.
Customers get drawn in by the prospect of £0.50 fares, when they have chosen the flight, very few will cancel because they find hidden extras like a charge of £4.50 for ‘processing fee’
Recently, the chief executive of the Office of Fair Trading claimed these ticketing practices were ‘puerile’ and whilst they may stick to the spirit of the law they were against the spirit of the law. (link – Independent)
Ryanair can say that they are so popular because they are fundamentally cheap. Ryanair could say the OFT should worry more about serious issues of monopoly pricing in BAA airports.
Nevertheless, Ryanair are pursuing a risky strategy by having ‘irritating’ pricing strategies they could lose the goodwill of consumers. But, I’m sure I will be booking several Ryanair flights this summer….