A tasty Morsel: Why it makes sense of Ryanair to buy On the Beach.

A quick analysis of publicly available accounts shows how profitable Easyjet’s “Holiday” division is compared to its closest rivals.?

As previously highlighted in my blogs, EasyJet Holidays benefits significantly from the substantial volume of free cross-referral traffic generated by customers visiting the airline’s booking site and upgrading from a flight to a full holiday package.

?With holidays accounting for only 5.8% of its 89.6 million flight seats sold, there is no currently need to reallocate costs. Even if such costs were reallocated, they would remain minimal due to EasyJet’s strong brand presence, which operates independently of reliance on Google advertising."

Jet2 “Holiday” division is less profitable as a percentage of turnover largely because it sells 68.3% of Jet2’s flight seats, thereby bearing a proportionate share of the airlines above-the-line brand advertising costs.

The most compelling comparison is with On the Beach, which relies on costly Google traffic for significant customer acquisition, resulting in a mere 0.9% net profit as a percentage of total turnover.?

Imagine if Ryanair acquired them and provided the same level of “Free” cross-referral traffic.?

Considering their comparable Total Transaction Value (TTV), this strategy could enhance profits by ￡180 million, offering a quick 2.5-year payback based on the current ￡390 million market capitalisation. This potential synergy makes On the Beach a delicious morsel to be gobbled up.

On the Beach is also attractive because it is a very asset-light OTA with good customer satisfaction levels, as reflected in its 4.2 out of 5 Trust Pilot score.

Ryanair's fundamental issue is that the harsh customer service policies suitable for its low-cost flight services would not be acceptable in the holiday sector. Customers have higher expectations and are less likely to book with a tour operator with a Trustpilot rating as low as 3. So, hiding behind a more customer-friendly holiday brand like On the Beach makes sense.

On the Beach would undoubtedly seek to maintain its autonomy, continuing to offer the lowest prices across all airlines and mixing flights from different carriers for round trips. Despite this, it is believed that Ryanair, following its strategic agreement with On the Beach, already accounts for over 50% of the flight sales as Ryanair often offers the lowest prices on many routes it operates. It’s hard to imagine that a Ryanair-owned OTB would not double in size within a couple of years, delivering the above payback.

On the Beach’s pricing model of showing flight and hotel prices separately may initially make it harder for Ryanair than its competitors to discreetly dump discounted seats into packages. However, if a targeted Ryanair flight is chosen, OTB’s sophisticated yield tools could quickly be adapted to discount hotels by an equivalent amount to a flight discount.

According to a senior industry figure I chatted to this week, such a deal is not in Ryanair’s DNA and will never happen as they are not interested in the holiday sector.?

However, being the friend of OTAs and travel agents was not in their DNA until 9 months ago, and I would look at the seismic shift here. Cutting off the B2B travel trade last year opened Ryanair’s eyes to just how many of its seats are sold by the channel.

As a publicly listed company, On the Beach can be acquired at any time. Given that its market share in the holiday sector would remain significantly lower than that of Jet2 Holidays even after a Ryanair acquisition, it is difficult to foresee any objections from competition authorities.

I may be way off track here, but the smart money is on market consolidation, and why wouldn’t Ryanair, who has zero package sales, lead by gobbling up the very tasty morsel that On the Beach represent