Ryanair

28 02 2009

ryanairRyanair, it seems, is very good at attracting negative publicity every time it comes up with a cost-cutting measure to “decrease the air fare for all its customers”. Its latest one is a plan to charge its passengers £1 for each time they want to use the in-flight toilet.

It doesn’t look as if it really makes commercial sense for Ryanair though. After all, it doesn’t give free drinks on board its flights, passengers are expected to pay for them. That means that consumption of liquids is decreased in the first place, which means less number of people would be using the toilets anyways. Or as Rochelle Turner from Which?Holiday pointed out, passengers may end up buying less over-priced drinks on board because they will then be charged to relieve themselves of it. This would make the move counter-productive.

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I am sure it would cost a considerable sum of money to install a coin slot machine in each of its toilets on each of its flights. How many £1 paying people would it take for them to cover that cost? And if the whole idea is to lower the air fare, how much would it lower it? Its not as if the maintenance cost of the toilets depends on the number of times it is used. The toilets would cost the same if they were used ten times or just twice. The only variable cost, if Ryanair is really counting its pennies, would be stuff like the toilet paper and soap. So why not just save their passengers the hassle and the negative publicity and offer them for free, like what all airlines do currently?

Ryanair’s spokesman was quick to reassure that they had no immediate plan to implement this, but felt that their move was justified since passengers were already used to paying for toilets at bus and train stations. Well, toilets at bus and train stations are used by more people than a toilet on a plane. And in addition to generating enough revenue for maintenance, another reason why passengers are charged at stations is to discourage misuse of the facilities.

Last week Ryanair announced that by the end of this year, it would be replacing the check-in counters at the airports with manned baggage drop-in area. All customers instead would be expected to check-in online. According to Ryanair, about 75% of its customers are checking-in online currently. In that case, it does make commercial sense to get rid of check-in counters since only 25% of the passengers are using it. The cost saved on staff could genuinely help reduce the fares.

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Ryanair is by now used to being in the news for all the wrong reasons. The most recent one being its staff engaging in an unpleasant exchange with a blogger who thought he had found a bug on Ryanair’s website. Rather than apologize to the blogger, Ryanair instead said that they had no time for “idiot bloggers”. Idiot or not, that is not the best way for an organisation to talk to its stakeholders. Of course, this all wont result in passengers suddenly switching Ryanair for another airline. Far from it. In these though times, more people would be attracted to the cheap price and not the customer service. Still, those within Ryanair that come up with the cost cutting measures should spend some time now pondering over their public relations.

“Spend a pound to spend a penny” said Michael O’Leary yesterday. If they don’t learn where to draw the line for the cost cutting, it may end up being “Penny wise and Pound fool” for Ryanair.

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Deposits Fall by £2.3 billion

25 02 2009

northern-rock-queue1According to the figures released by the BBA (British Bankers Association), deposits in the high street banks fell by £2.3 billion in January alone.

One of the reasons for this is that people who have lost their jobs are having to use their savings to supplement the loss of their income. Even those who are still employed, but have been forced to reduce their working hours or accept a pay cut, have to withdraw from their savings to meet the shortfall. Those who bought houses when the prices were at their peak are having to use their savings to bridge the gap when their mortgage nears renewal. Many are also dipping into their savings to pay off their credit card bills from Christmas and other unsecured loans.

Also, with the base rate at 1% most high street banks are offering almost no significant rewards to savers for their money. There is almost no incentive for people to save. So, those with savings are looking for alternative forms of investment, something that will at least give them a rate of return above or at least matching the inflation rate.

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A typical banking model is banks borrowing money from savers in the form of deposits and lending that money out to borrowers in the form of mortgages, loans, credit cards, overdraft, etc. The bank charges the borrower a fee, in the form of interest, for the sum of money that is lent out. The bank gives the depositor a reward, in the form of interest, for allowing it to use its money. The fee that the bank charges the borrower is slightly higher than the rate which it pays out to its depositor, and the difference is pocketed by the bank.

Banks are still finding it difficult to borrow from the money markets. And even if they can, its going to be really expensive, which means that the extra cost would have to be passed on to the borrower. So, if deposits are decreasing and savers are withdrawing more money, banks have very little to fall back on. Also, savers have, to a great extent, lost faith with the banks. They will no doubt feel that their hard earned cash is being used to pay bonuses and reward failure.

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It seems like banks will have to go a long way in winning the trust of the consumer and offer more than the paltry rewards to attract their savings. Without the deposits, they’ll find it really hard to fund the lending. Unless, of course, the name of the bank is Northern Rock which has access to the pockets of the taxpayers. Northern Rock was nationalised and was lent some £28bn by the Government last year. It payed back most of it, around £18bn, by forcing its existing customers to move to other providers. This week it pledged that it would offer new mortgages which will be worth around £14bn over the next two years. It most certainly wont be anywhere near the 100% it used to offer.

The overall sentiment seems to be that if bankers want their customers’ money, they will have to work really hard to get it, because the customers would rather spend it on themselves than paying the bankers to spend it for them.

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Throwaway Fashion

21 02 2009

primarkThe Department for the Environment, Food and Rural Affairs (Defra) has launched a “Sustainable Clothing Action Plan” co-inciding with the London Fashion Week to highlight the increasing problem of “fast fashion”. Apparently, UK consumers buy around two tonnes of clothes every year, and throw away a massive 1.2 million tonnes of them every year.

Rapidly changing fashion trends means that many consumers have to keep on buying new clothes to keep their wardrobe up-to-date and to compete with their friends and peers. This means that new clothes are worn only a few times and as trends change, are then consigned to the bin.

Of the two million tonnes of clothing bought every year, only 300,000 are recycled. If the majority of the clothes are worn only a couple of times, surely more of them can be recycled. Due to the current economic crisis, donations to charities has dropped. Consumers are cutting back on their spending. If more clothes that are in a good condition are donated to the charity shops, they can then sell them on to consumers looking for a bargain which results in a win-win situation. The charity shops get their revenue, consumers can bag a bargain and there are less clothes ending up in the landfill site.

One of the reasons why consumers can afford to keep on buying new clothes and then throw them away is partly due to ready availability of cheap fashionable clothes on the high street. However, many fail to see the real story behind the cheap price tag. An investigation by BBC’s Panorama last year revealed how Primark’s suppliers used factories with unfair standards and also child labour to provide the consumers on the high street with cheap fashionable clothing.

Jane Milne, who is the business environment director of the British Retail Consortium, said that retailers should be “applauded, not criticised, for providing customers with affordable clothing, particularly during these tough economic times”. Sure, if the low prices are due to a better, more efficient production technique. But not if someone less unfortunate than us halfway across the world is subsidising the cost for us by being exploited and made to work in unfair conditions.

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Unemployment nears 2 million

13 02 2009

natwest-moneysense

According to the figures released by the BBA (British Bankers Association), deposits in the high street banks fell by £2.3 billion in January alone.

One of the reasons for this is that people who have lost their jobs are having to use their savings to supplement the loss of their income. Even those who are still employed, but have been forced to reduce their working hours or accept a pay cut, have to withdraw from their savings to meet the shortfall. Those who bought houses when the prices were at their peak are having to use their savings to bridge the gap when their mortgage nears renewal. Many are also dipping into their savings to pay off their credit card bills from Christmas and other unsecured loans.

Also, with the base rate at 1% most high street banks are offering almost no significant rewards to savers for their money. There is almost no incentive for people to save. So, those with savings are looking for alternative forms of investment, something that will at least give them a rate of return above or at least matching the inflation rate. 

A typical banking model is banks borrowing money from savers in the form of deposits and lending that money out to borrowers in the form of mortgages, loans, credit cards, overdraft, etc. The bank charges the borrower a fee, in the form of interest, for the sum of money that is lent out. The bank gives the depositor a reward, in the form of interest, for allowing it to use its money. The fee that the bank charges the borrower is slightly higher than the rate which it pays out to its depositor, and the difference is pocketed by the bank.

Banks are still finding it difficult to borrow from the money markets. And even if they can, its going to be really expensive, which means that the extra cost would have to be passed on to the borrower. So, if deposits are decreasing and savers are withdrawing more money, banks have very little to fall back on. Also, savers have, to a great extent, lost faith with the banks. They will no doubt feel that their hard earned cash is being used to pay bonuses and reward failure.

It seems like banks will have to go a long way in winning the trust of the consumer and offer more than the paltry rewards to attract their savings. Without the deposits, they’ll find it really hard to fund the lending. Unless, of course, the name of the bank is Northern Rock which has access to the pockets of the taxpayers. Northern Rock was nationalised and was lent some £28bn by the Government last year. It payed back most of it, around £18bn, by forcing its existing customers to move to other providers. This week it pledged that it would offer new mortgages which will be worth around £14bn over the next two years. It most certainly wont be anywhere near the 100% it used to offer.     

The overall sentiment seems to be that if bankers want their customers’ money, they will have to work really hard to get it, because the customers would rather spend it on themselves than paying the bankers to spend it for them.
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