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Making Money By Offering Free Airfare

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Originally posted by Paul from NoodleFood,

The controversial Irish airline Ryanair is moving towards a fascinating business model in which the airfare is free. They make money by charging for ancillary services, including baggage check-in and food, having advertisements on seat-backs, affiliate programs with hotels and rental car agencies, etc.

Already a quarter of their passengers pay zero for airfare (those fares can be found on their reservation website), and they expect that by 2010 over half of their customers will fly for free. Plus they're making a ton of money with this approach:

Even more impressive, Ryanair's $368 million in net earnings gave the airline an industry-leading 22 percent net profit margin. (By comparison, Southwest Airlines's net margin was 7.2 percent.) "Ryanair has the strongest financials in the European airline industry," says James Parker, an equity analyst with Raymond James.

...For passengers seeking distraction, Ryanair intends to offer in-flight gambling in 2007, with the airline earning a tiny cut off of each wager. [CEO Michael]O'Leary thinks gambling could double Ryanair's profits over the next decade, but he's not stopping there.

Capitalism is wonderful.

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Originally posted by Paul from NoodleFood,

The controversial Irish airline Ryanair is moving towards a fascinating business model in which the airfare is free. They make money by charging for ancillary services, including baggage check-in and food, having advertisements on seat-backs, affiliate programs with hotels and rental car agencies, etc.

Already a quarter of their passengers pay zero for airfare (those fares can be found on their reservation website), and they expect that by 2010 over half of their customers will fly for free. Plus they're making a ton of money with this approach:Capitalism is wonderful.

Interesting, this actually is quite old-school to anyone who's familiar with the Vanderbilt ferry service of the 19th century, as described in this excerpt from Andrew Bernstein's The Capitalist Manifesto

Starting his own company, Vanderbilt proceeded to run steamboats at reduced rates all over the Northeast. He lowered the standard three dollar fare on the New York to Philadelphia route to one dollar. He charged six cents a trip and provided free meals on the New Brunswick to New York run and, in competition with the Hudson River Steamboat Association, lowered the standard New York to Albany fare from three dollars to one, then to ten cents, then to nothing, making profit exclusively from the sale of food and drink on board. When he moved his cost and- price-cutting practices to the New England routes, he succeeded in slicing the New York City to Providence fare from eight dollars to four and then to one, prompting the New York Evening Post to bestow on him the title of “the greatest practical anti-monopolist in the country.” Commodore Vanderbilt’s fortune was made in open competition on a free market, without government aid or franchise, to the immense betterment of his customers. [3]

I should have remembered this story when another Oist over at myspace called me basically irrational and immoral for giving away free samples of my music. Um, hello? You can't spell "profit" without PR™ <_<

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