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RyanAir case study

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Description

A CASE STUDY OF RYANAIR TRAVEL INDUSTRY


A Case Study of Ryanair Singapore

Introduction

Ryan air, which is a leading airline in Europe with branches in other parts of the world was founded in 1985 as a young company with very few resources but developed rapidly over the years to become an elite airline in Europe (Fundinguniverse.com). The strength of Ryan air emerges from their operational strategy of customized services aimed at minimizing traveling expenses and increasing accessibility. In effect, it has appealed to almost everyone who desires to travel by air. It is equally important to note that the airline has been criticized mostly by its competitors and customers on its operations and services. In addition, the company is famed for being very controversial. Interestingly, Ryan air has effectively used its detected weaknesses to build a stronger economy such that despite the wide attention on its subsidiary charges and at times compromised services, it has proliferated well. It is due to this that its services remain highly in demand. Its secret has been speed and cost efficiency hence the ability to remain viable in the market.

Historical Perspective

The history of Ryanair can be traced back to late 20th Century in mid 1980s. Ryanair was established in the year 1985; it has since shown a rapid growth. Its first aircraft was Embraer Bandeirante turboprop. This plane was a 15-seat aircraft and the flight route was from Waterford to London Gatwick. In 1986 a second route of Dublin-London Luton was added. With just two flights and two routes Ryan Air carried a staggering figure of 82,000 passengers in one year. Passenger load increased for the airline but the company was running in loss.  A market study by the Chief Executive O'Leary revealed that flight cost was harming the company and a reduction of travel charges could be beneficial in the long run. The low-cost business methodology was [thus] implemented by the elimination of business class and introduction of single model aircraft. This helped Ryan Air in earning profits and the number of passengers by 1995 increased to 2.25 million.
When the European Union lessened their restrictions on the air industry in 1992, the airline got a breakthrough. The limited policies enabled any carrier from any EU county to operate in other EU countries. The company took advantage of this offer and expanded its links to Paris, Charleroi and Stockholm. Great rewards in terms of profit were gained by the company in 1998. Consequently, it created an enormous order of 45 new Boeing 737-800 series aircrafts at ago. The order was in the tune of $2 million.
A series of interesting events followed one after the other. In the year 2000 Ryan Air launched its website. Online booking resulted in cost cutting by eliminating the travel agents. Today 100% of the Ryan Air booking takes place through the website. In 2001 Ryan Air opened a new hub in Brussels South Charleroi Airport and ordered 155 new Boeing 737-800 series aircrafts (BBC News, 2002). In 2002 the airline inaugurated 26 new routes and opened a new hub in Frankfurt-Hahn Airport. The year 2003 was another eventful year when Ryan Air again ordered for another 100 Boeing 737-800 series aircrafts.  In April 2003 Ryan Air acquired BUZZ from KLM. By the end of the year Ryan Air flew in 127 routes. In 2004 the airline faced a loss of €3.3 million in the second quarter. This was the first-ever considerable loss incurred by Ryan Air (AirGuide online, 2007). However the company bounced back strongly. The year 2006 was a happening year for the airline, Ryan Air declared an increase in profit by 80%, and the passenger numbers hovered up to 10.7 million. The company continues to forge ahead with its business based on strong values and excellent customer service.

Strategic Management

Ryan Air strengths in competitive advantage

Cost Effectiveness

Ryan air realizes that travellers desire transportation that is fast and less costly. In order to provide such a cheap method of transportation however, low operational costs and efficiency are essential. Ryan air has changed the industry culture of doing business by transforming itself to become a low cost carrier and still maintain profits despite operating its activities on reduced costs. Based on the Southwest low cost-low frills model, Ryanair created a strategy that drastically differed from the likes of British Airways, Lufthansa and Air France. For example, Ryanair used a single fleet of aircraft which allows for economies of scale in scheduling and training crews, maintenance, and stocking of spare parts (Ryanair.com, 2006). The company is currently transitioning from the B737-200s and B737-300s that Ryanair bought second hand, to new B737-800s. The B737-200s have been under much scrutiny due to their age, so the transition to a newer aircraft should serve Ryanair well. The introduction of new aircraft should reduce maintenance costs (Ryanair.com, 2006).
Ryan air’s use of point to point secondary airports has helped it maintain low costs as well. Secondary airports offer lower landing and gate fees than larger traditional airports. Also, these airports are less congested and thereby provide for a greater turnaround and aircraft utilization time. The use of secondary airports has a disadvantage of placing consumers outside the cities of their destination. However, passengers enjoy on-time flights; 93% of Ryan air’s 180,000 flights were on-time in 2004. Competitors like EasyJet and British Airways stood at 88% and 82.6%, respectively. Ryan air’s no-frills methodology has also improved efficiency and productivity. Traditional in-flight services such as seat allocation, complimentary meals and drinks, and newspapers have been eliminated. Instead, Ryanair reaps the profits from such secondary services by charging customers for in-flight services and other travel expenses such as travel insurance. Employees are compensated for sales and thus Ryanair benefits through higher profits and efficiency (Ryanair.com, 2006).
Overall, Ryan air’s cost advantages are very significant. In 2001, the costs per available seat mile (ASK) were only 4.5 with the next lowest value for European carriers being 7.1(easyJet) (Airlineprofiler.eu, 2010). By maintaining low costs through various means, Ryanair can focus on high volumes (quantity of passengers) rather than large margins (per passenger) like other major airlines. By having low fares, individuals who would otherwise have chosen an alternative method of transportation (i.e. driving or trains) now choose to fly. According to Ryanair.com (2006), “Ryan air’s passenger base has grown from 6.1 million in 2000 to 23.1 million in 2004. Over the same time, profits have increased from €72.5 million to €226.5 million, despite a loss from 2003 to 2004. As a result, Ryan air’s low-cost-low frills strategy changed the competitive landscape of the European airline industry. Other low-cost operators began to emerge and along the years these companies have pushed both traditional operators and charter airlines to adopt the idea of short-haul routes.

Improvement of Strengths While Eliminating Dissatisfiers

By improving Positives and Eliminating Dissatisfiers, Ryanair enables itself to significantly become unique in an industry which can be commoditized. Ryanair has been able to differentiate itself by satisfying its customers. As mentioned earlier, customers want flights to be cheap and quick. Ryanair has provided and improved upon both these positives.
In 2004, Ryan air was characterized by: Lowest Fares, On-Time Flights, Least Cancellations, and Fewest Lost Bags (Ryanair, 2005). Customers were in effect not only paying less but also receiving better service than Ryan air’s competitors. Thus, Ryanair has improved both the positives that customers want when flying and also reduced many of its weak areas and Dissatisfiers.

Establishment of Global Links through Digitalization

Ryanair is able to reach its customers at a low expense because of its successful website. 96% of the company’s ticket distribution is through the web, which compares to 2% each for its telephone sales and counter sales. It is estimated that Ryan air’s low marketing and distribution costs account for roughly 10-15% of its cost advantage over other airlines. On a per passenger basis, costs are only €.70 per passenger. According to Ryan air’s Commercial Director and Chief Financial Officer, Michael Cawley, the company saves over €40 million annually due to its e-business.

Limitation of strategic management of Ryanair in competitive advantage

Employment relations

According to Airguide online (2007), Ryan air previously had in total 450 employees all who had shares in the company. These employees made an agreement that members would not affiliate to a union since they would have influence on how the company was run. However, with years, the treatment of employees has changed considerably and newly employed workers no longer get shares in the company (Airguide online, 2007). In addition, Ryanair still refuses to recognize or negotiate with any union, be it for pilots or for cabin crew. In 2011, a former Ryanair captain was compensated by an employment tribunal in London after having been fired for handing out a union form while on duty to a cabin crew member (Mirror.co.uk, 2012). Moreover, contracts offered to Ryanair staff are at times unusual and made complicated when compared to other airlines, for example by forcing pilots to establish limited companies in Ireland and working for Ryanair through an agency, or by forcing ground staff in Spain to open bank accounts in Gibraltar for them to collect their wages on.

Ancillary revenue and in-flight service

It is important to note that twenty percent of Ryan air’s revenue is generated from ancillary revenue that is income from sources other than ticket fares. In 2009 ancillary revenue was at €598 million, compared to total revenue of €2,942 million (m-travel, 2009). Though this was viewed as a weakness and at one point.
Ryanair was described by the consumer magazine Holiday Which? as the worst offender for charging for optional extras. As part of the low-cost business model the airline charges fees, these can be related to alternative services like using airport check-in facilities instead of the online service fee and using non-preferred methods of payment. It also charges for extra services like checked in luggage and it offers food and drinks for purchase as part of a “buy on board” program. Ryanair argues that it charges for a large number of optional extras in order to allow those passengers who do not require baggage, priority boarding or other premium services to travel for the lowest possible price by giving customers the flexibility to choose what they pay for.
Consequently, Ryanair abolished airport check-in in year 2009 and replaced it with a fast bag drop for those passengers checking in bags. The option of checking in at the airport for €10 has been discontinued and all passengers are now required to check-in online and print their own boarding pass. Passengers arriving at the airport without a pre-printed online check-in will have to pay €40 (now €60/£60 May 2012) for their boarding pass to be re-issued, whilst customers unable to check-in luggage online are asked to pay a €100 fee to do so at the airport (as of June 2012). Ryanair has also replaced the free online check-in with a €6 online check-in fee which is charged per person, per flight (Ryanair.com, 2006). Although this fee is waived on "Free", "€1" and "€5" promotional fares, it has been criticized as being a non-optional extra charge which should be included in the headline fare.

No-frills

The new Ryanair aircraft have been delivered with non-reclining seats, no seat-back pockets, safety cards stuck on the back of the seats, and life jackets stowed overhead rather than under the seat. This allows the airline to save on aircraft costs and enables faster cleaning and safety checks during the short turnaround times. According to Airguide online (2008), Ryanair wanted to order their aircraft without window shades; however, the new aircraft did have them as it is required by the regulations of the Irish Aviation Authority. Other proposed measures by the management board to reduce frills further have included eliminating two toilets to add six more seats, redesigning the aircraft to allow standing passengers, suggestions that passengers should pay to use the toilets, charging extra for overweight passengers, and asking passengers to carry their checked-in luggage to the plane.
Similar to other no-frills airlines such as JetBlue, Ryanair is a strictly point-to-point carrier and does not offer connecting flights. Passengers, who purchase an onward flight from their destination, intending to make a connection, are held responsible for making it to the airport on time for each flight. Ryanair does not compensate passengers who miss their flights because they did not arrive on time at the airport, nor does it provide replacement tickets free of charge. If a passenger misses his or her flight, then it is the passenger's responsibility to buy a new ticket at his or her own expense. This rule applies regardless of the passenger's chosen method of transport to the airport including another Ryanair flight (Ryanair.com, 2006).

Customer Relation

Ryan air has been criticized severally of poor customer treatment. In 2002, Jane O’Keefe was rewarded €67,500 of damages by the High Court in Dublin after Ryanair reneged on a free travel prize she was awarded for being the airline's 1 millionth passenger (Independent.co.uk, 2002). In 2002, the airline refused to provide wheelchairs for disabled passengers at London Stansted Airport, greatly angering disabled rights groups. It argued that this provision was the responsibility of the airport authority, stating that wheelchairs were provided by 80 of the 84 Ryanair destination airports, at that time. A court ruling in 2004, however, judged that the responsibility should be shared by the airline and the airport owners (Archive.org, 2004). In response, Ryanair imposed a surcharge of £0.50 to all its flight prices. On 30 March 2011, it announced that from 4 April it would add a surcharge of €2 to its flights to cover the costs arising from compliance with EC Regulation 261/2004, which requires it to pay for meals and accommodation for passengers on delayed and cancelled flights (Rte.ie, 2011).

Controversial Public Advertisements

The airline has been accused of making deliberate court controversy in order to attract media or public attention. A case of this was documented in a live BBC News (2008) interview. On 27 February 2009 when Michael O'Leary, observing that it was "a quiet news day", commented that Ryanair was considering charging passengers £1 to use the toilet on their flights. The story subsequently made headlines in the media for several days and drew attention to Ryan air’s announcement that it was removing check-in desks from airports and replacing them with online check-in. Eight days later O'Leary eventually admitted that it was a publicity stunt saying "It is not likely to happen, but it makes for interesting and very cheap PR". The concept of Ryanair charging for even this most essential of customer services was foreseen by the spoof news website "The Mardale Times" some five months previously, in their article "Ryanair announce new 'Pay-Per-Poo' service" later dismissed as a PR stunt (The Irish Times, 2009).

SWOT Analysis

Strength

  • First airline to launch establish low cost price flights and maintains a ‘low price’ policy.
  • Its point-to-point flights eliminate costs in travel service.
  • Simple organization and flat-structure enhances low overheads.
  • Non-unionization of labor force resulting to low labor cost.
  • Single mode aircraft minimizes maintenance, supervisory, and training costs.

Weakness

  • Negative media reporting affects the public image of the airline and its brand.
  • Flying to less popular destinations provides a disadvantage with regards to its seat capacity.
  • Challenges from less airports or landing slots in the profitable destinations.
  • Low employee morale highly affects its activities.
  • It’s misleading information in Ryanair advertisement like prices and travel destination. This has resulted in much criticism.
  • Turnarounds increases consumption of fuel and emission of carbon dioxide.

Opportunities

  • Acquisition or merger with competitor airline companies like BMIBaby, easyjet, Basic Air, and Air Berlin.
  • Aviation industry deregulation in all European Union market.
  • Addition to the EU provides Ryanair an opportunity because its low cost policy will enable movement of employment seekers; promote both the tourism industry and growth of economy.
  • Expansion of operation activities to other non-European markets.
  • Ryanair can lease out its new fleet without the possibility of undercutting its sources during economic downturns.

Threats

  • High level competition from other airlines in Europe like BMIBaby, easyjet, Basic Air, and Air Berlin.
  • Other airlines including direct competitors of Ryanair are developing a low cost policy.
  • Expansion plans of Ryanair faces threats from the limited or unavailable slots at various airports in profitable destinations.
  • Acquisition or merger with Ryanair competitors comes with a risk of affecting the low cost structure of Ryanair and complicating the decision making process.
  • Middle-East wars affect the prices of oil, which impacts on its low cost structure.
  • New fleets need additional terminals or secondary airports. This requires Ryanair to bear other additional higher costs.
  • Costs in secondary terminals affect the operating margins.

Strategic Management Organization

Ryanair is a complete corporate in terms of its management. The various positions held by different people help in the division of work and proper monitoring in the airline. The flow chart below is a representation of the structure as found in Ryanair:

PILOT

DEPUTY CEO & CFO

DEPUTY CEO & COO

Flight and ground operations

HR & in-flight

Legal & secretary

Customer service

Engineering

 

BOARD CHAIRMAN

8 DIRECTORS

The CEO oversees the whole running of Ryan-air. However, they have junior colleagues who assist in various tasks in the company. The pilot manages all the flight and ground operations for the airline. In addition, they take care of human resource and in-flight operations. Ryan-air has two deputy CEOs. One oversees the legal matters of the company and is also the secretary. In addition, they oversee the customer care department to ensure quality service. The second deputy CEO is the chief engineer and manages the technicalities of Ryan-air. The board chairman chairs the board meetings concerning the airline. The eight directors manage various departments in the airline and serve as board members.

Ryanair Tools for Strategic Analysis

Competition

Ryanair boasts of a cluster of low cost competitors in the airline industry. Some of these include EasyJet, Go and Wizz air. These airlines provide competition to Ryanair on all fronts. Over the years, Ryanair has developed a hands-on approach to deal with its competitors. It responds to competition from these airlines by reducing its costs, setting up complete flights where rivals try to offer similar services as well as engage in legal battles if its rights are infringed.

Objectives

Ryanair’s main objective is to establish itself firmly as the leading low cost airline operator in Europe. Its main strategy of organization is to provide programmed passenger airline through stretched offerings on its low-fares provision and continued improvements in other sectors of the airline.

Implementation

Ryanair seeks to provide quality and affordable services so as to appeal to more travellers. The continued offering of low fares stimulates demand for its services. Travellers who are fare-conscious prefer Ryanair because of its low fares. Ryanair also seeks to improve its customer care services to surpass that of its competitors. This will improve the quality of its services hence attract more customers. The provision of regular point-to-point flights is also another strategy used by Ryanair. This increases flexibility of the airline hence appealing more to the customers. The close monitoring of the productivity of the workers and the movement from manual to online booking is set to increase the accessibility of airline information flow hence providing more knowledge of its services to more would-be customers.
All these strategies aim to improve the services of Ryanair and grow its customer base. They are therefore in line with the objectives of the airline.

Feasibility

The objectives of Ryanair are on the basis of simple economics. By offering its quality services at a low price, Ryanair increase the demand for the airlines’ services hence grows its customer base. It is therefore safe to say that the airlines’ objectives are achievable.

Economic sense

Lowering the fare prices for Ryanair Company may not be such a good idea. However, Ryanair negates this by ensuring low costs of operation in the airlines’ service provision. While the customer base grows due to the low fares, the airline ensures its operational costs remains low hence the profits continue to rise. It is therefore safe to say that Ryanair’s objectives do make economic sense.

Recommendation

Ryanair should set a time of implementation of its objectives and rectify its public image as a matter of urgency if it is to retain its status as the premier low cost airliner in Europe and the world. In order to maintain its status as the biggest player in the industry, Ryanair should ensure that it’s expanding its airline routes to other popular destinations. Employee retention is crucial to achieve this objective because it will enhance satisfaction of its customers. Although Ryanair is currently holding the status of being the industry leader at the low price segment, it is necessary that Ryanair develops policies, which will carter for fast growing value segment in order to completely dominate the economy segment. Ryanair rival airline companies like BMIBaby, easyjet, Basic Air, and Air Berlin have all developed slots at different airports where they offer services to their customers, which are cost effective. This caters for the Value market segment. Acquisition or merger with these airlines will enhance Ryanair position in the stock market in addition to promoting value-oriented market segment expansion of Ryanair without the possibility of leading position and status in the low price segment.

Conclusion

            Ryanair is a company moving in the right direction in terms of its strategies and objectives. Its cost effectiveness and aim to improve its services will see its revenues continue to increase as the company grows. Being the leading provider of low cost services in Europe, Ryanair has put itself in a position where most airlines would want to be. It is therefore clear that Ryanair’s plans are working as intended. Being a business though, Ryanair is vulnerable to various challenges and limitations in the industry. Its customer care for instance has been letting the airline down in terms of publicity in addition to its airline advertisements receiving criticism by the media regularly. However, the move by the airline to rectify these faults within its structure has ensured it maintains its competitive status as the leading low cost airliner. It is clear that mistakes or bad ideas such as the ads from Ryanair can affect a business negatively.

 

Reference

BBC News, 24 January 2002.  "Ryanair in Boeing spending spree". Retrieved 29 September 2012
Mirror.co.uk Ryanair pilot sacked for handing out union form wins compensation, article retrieved 29 September, 2012
Independent.co.uk, 20 June 2002, Ryanair ordered to pay damages for reneging on 'free flights' offer to millionth customer, retrieved 29 September, 2012
Archive.org. 24 December 2004, Disability Rights Commission (21 December 2004). "Appeal Court rules airport and airline jointly responsible for disabled passengers", Retrieved 29 September 2012
Rte.ie. 30 March 2011 "Ryanair introducing €2 passenger levy – RTÉ News", Retrieved 29 September 2012
Fundinguniverse.com. "Ryanair Holdings plc – Company History". Retrieved 29 September 2012
Ryanair (2005): Successful Low Cost Leadership: Journal of the International Academy for Case Studies May 1, 2007
The Irish Times (3 March 2009), Sat, 7 March 2009 – Charging for toilets PR stunt, says Ryanair boss, Retrieved on 29 September 2012
BBC News. 30 January 2008.^ "Ryanair schoolgirl ad criticised". Retrieved on 29 September 2012
Airguide Online. Company Watch-Ryanair, August 13, 2007

Ryanair.com (6 November 2006), News: Ryanair Moves to Web Check-In Only. Retrieved on 29 September 2012
BBC News, 15 February 2004, "Ryanair 'to cut frills further'", retrieved 29 September 2012
Airlineprofiler.eu. 13 December 2010."EasyJet vs. Ryanair – continuous competition | AirlineProfiler", Retrieved 29 September 2012
m-travel 3 June 2009, "Ryanair's ancillary revenues grow to €598m", Retrieved 29 September 2012