Ryanair share price turnaround proves customer service does pay

In the space of 12 months, Ryanair has gone from demon to darling, in the eyes of the UK press.

This time last year, the Dublin-based low-cost airline was being panned for its poor financial performance and many experts were predicting the company’s demise, having been voted as one of the three worst big brands in the UK, by Which? magazine.  

At that point, Michael O’Leary, Ryanair’s divisive CEO, announced that there would be an upheaval in the company’s approach to customer service, and 12 months later profits are reportedly soaring again.

According to City A.M., the airline has experienced a 66% increase in net profit for the last year, beating many experts’ expectations.

It reported net profit of €867m (£614m) in the 12 months ended March 31, up from €523m at the same period last year. Revenue rose more steadily to €5.7bn - a 12% jump to €5bn.

Web traffic also jumped 11% to 90.6m in the year as the Irish firm rolled out a new customer experience programme with the moniker “Always Getting Better” (AGB), specifically to tackle its poor service reputation across all channels.  

The project has been reported as so successful that even back in November, O’Leary was quoted as saying, "If I'd have known being nice to customers would work so well I would have started many years ago". The question is, what has Ryanair done that’s been so successful?

Big turnaround?  

The first masterstroke appeared to be hiring Kenny Jacobs as CMO at the start of 2014 from Moneysupermarket.com, with Jacobs taking an altogether more active approach to making Ryanair’s brand image appear more personable.  

The second was eradicating Michael O’Leary’s "own personal character deformities" from the press, which were often part-and-parcel of Ryanair’s old brand image and something that O’Leary himself conceded was affecting the company’s performance, having been quoted as saying he "should eliminate things that unnecessarily piss people off".

The final point of note is the change in approach towards customer service, which has seen a fairly straightforward shift in mindset in the airline’s call centre, from being one of a bullish and uncompromising nature to something eminently more understanding.

However, is such a severe U-turn really able to be so successful? Loizos Heracleous, professor of strategy at Warwick Business School believes there are a number of other forces at play helping Ryanair’s return to profit growth, and that customer service is just a minute factor.

“Ryanair’s strategy is one of classic cost leadership; having the highest efficiency in the industry, together with an acceptable level of service.

"This is combined with aggressive growth, in terms of opening up new routes, getting a bigger share of established routes, and in providing ancillary services. This is all supported by substantial expansion in infrastructure.

"The improvement in service levels, which has historically been a sore point for the company, can provide a sustained net benefit in Ryanair’s financial performance, provided that service improvement does not compromise operational efficiency.

"At the moment it is tricky to say how much of the increase in profit comes from lower fuel cost and how much from the impact of service quality. Ryanair’s quality rating on Skytrax remains at two stars (out of a maximum of five stars), and time will show if it will show real improvement.”

Indeed, even some members of the national press are happy to concede that "The in-flight experience was the same and the inflight food is still a rip off", however, crucially, as the Telegraph reported earlier in the week, one key component above all is that Ryanair is no longer an “intrusive” airline.

“You’re not bothered consistently by people trying to sell you scratchcards,” one report stated. “There has been a slight easing of the incessant announcements,” said another. “Allocated seating is an improvement and well-priced."