I’ve always thought that the social expectations associated with Ryanair flights are a microcosm for a certain kind of gung-ho libertarian ideal of market society, in which every possible social interaction is conducted through the cash nexus (if Michael O’Leary thought he could get away with charging you for the attendants’ smiles, he would). There are some quite clear efficiency benefits to this – externalities are internalized, and if you are determined just to travel (and to carefully work around their ways of squeezing you for extra cash) their flights are very cheap indeed. But you can also expect that they will charge you for everything that they possibly can, and take full advantage of every bargaining asymmetry going.
I agree that this sort of thing is unattractive, which is why I wouldn't expect that many airlines would get away with it for very long (though in the mean time it would be a source of irritation, and I would think it reasonable if they were required to disclose their policy very explicitly to potential customers in order to avoid legal ambiguity). Charge toilets might be a more efficient policy if allocating toilet use were at issue, but when your business depends on customer satisfaction, it seems dubious to me that the few dollars you would make per flight by charging for bathroom access would justify alienating and frustrating an enormous majority of your customers.
In any case, though, what we gung ho libertarians favor is letting people have the choice to try new things. As Farrell rightly points out, maybe there are some people out there who want to travel at the lowest possible expense, and are willing to put themselves in situations where they may be forced to pay out the nose for any amenities they wish to consume. We certainly wouldn't want to ban anyone from serving these odd folks. The issue gets complicated when access to the airline industry and to flight routes are restricted by another set of government policies, thereby reducing the opportunity for competition and making it so airlines have a privileged position in negotiating with their customers. But it still seems like no one is forcing you to fly with Ryanair, and what people should do is to choose the airline with policies they support (or are willing to accommodate for some other convenience or benefit).
The upshot of organizing society that way is that you never know what may come from toll toilets. Maybe people learn to accept paying for toilets, and that makes it possible for some entrepreneurial airlines to offer separate premium bathroom services (much like how when airlines started charging extra for food, the food got way better). The current incentive structure encourages airlines to go for the bare minimum. Maybe the best policy would be to charge for the nice bathrooms and have free ones that are poorly maintained. Maybe the best policy would be to only have nice bathrooms, charge for them, and brag about how your charge toilets are better than the other guy's charge toilets. I don't know.
And obviously, this isn't just about airplane toilets. The (good) libertarian argument was never that whatever happens in the market is desirable, or that we should never lament the elimination of services that we all enjoy. I would personally rather have free airline toilets, and I would gravitate flying on an airline that didn't fleece me at every available opportunity (perhaps even if I ended up paying more in the end!). But by legally prohibiting people from trying alternative policies, we entrench current tastes and prejudices and prohibit people from trying new things which may open up possibilities we haven't thought of before.
So while I join Farrell in finding the Ryanair suggestion to be unattractive and ridiculous, I don't think I would support the prohibition of such a policy which he seems to favor. If anything, that's because I would want to see competitors advertising with "Fly British Air. We don't make you pay to use the bathroom like those tits at Ryanair. Seriously, who makes their customers pay to use the bathroom on the airplane? What is this, France?"