Steve Endacott evaluates the airline’s ‘groundbreaking’ agreement with On The Beach
On the Beach’s (OTB) share price immediately rose 12% today following the announcement it had abandoned its legal dispute with Ryanair and had reached a “groundbreaking” agreement, meaning it is no longer a “pirate” but instead an officially sanctioned partner. So, it would seem the City’s view of the deal is positive, and it should be.
The lifeblood of any OTA is access to flight seats from the UK’s leading low-cost airlines. Ryanair has been waging a brutal war against OTB’s screen-scrapping access to its seats, which was adversely impacting OTB’s customer experience, with extra facial recognition steps being required before customers could check in for their “illegally” sourced flights.
The key disadvantage of selling officially using Ryanair’s newly available API connection is the level of extra charge Ryanair is adding to the prices of flights available to OTAs compared with those available for the same customers to book directly on the Ryanair site. The new arrangement has not yet gone live on the OTB site, so currently we are blind to what this cost is, but assuming Ryanair will supply the same prices as it has made available to Love Holidays, it will be in the range of £25-50 per couple.
From a Ryanair point of view, this extra fee more than compensates for the opportunity loss of not being able to sell ancillaries such as hotels, insurance, and car hire to these customers. In fact, it will make these seats the most profitable they sell, making new OTA partners an attractive new route to market to be expanded rather than restricted.
This increase in cost is not good news to OTB customers, who will now be paying more for their holidays. However, with Love Holidays, its biggest competitor, already paying these higher prices, the competitive landscape will not be an issue.
There is a risk that it will encourage more customers to “dynamically package” their own holidays by combining Ryanair flights with hotels from Booking.com etc, but most OTB customers book with them because of the financial protection and customer service ethos offered by them as an Atol-bonded tour operator, so the impact in the short-term should be minimal.
In a way, Ryanair has created a “back door” tour operation by teaming up with Love Holidays and On the Beach, which can offer Ryanair access to 4.6m Atol-bonded holidaymakers between them. What volume Ryanair takes will depend on how competitive its API-supplied seat prices are against those offered by easyJet and Jet2. However, even a cautious 50% assumption will deliver 2.3m seats to Ryanair.
Ironically, this volume may be lower than the “unofficial” passengers previously booked, but at least Ryanair will have full visibility over what is being booked now.
As a publicly-quoted business, the continued dispute with Ryanair – which up until last week released press release after press release labelling On the Beach “pirates” – is never a good look.
The deal strategically is a good one for OTB but, as usual when Ryanair is involved, the end customer will be the loser, being forced to pay higher prices to feed the Ryanair beast.
Love them or hate them, you can’t help but admire how Ryanair plays the game.