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Case Study: Ryanair Business Strategy Analysis

Ryanair is an Irish low cost airline headquartered in Dublin founded in 1985. It operates 181 aircrafts over 729 routes across Europe and North Africa from 31 bases. Ryanair has seen large success over the recent years due to its low-cost business model and has become the world’s largest airline in terms of international passenger numbers. Taking Porter’s generic business strategies into consideration, Ryanair operates a cost-leadership strategy to drive itself into achieving its mission of being the leading European low-cost carrier (LCC). Throughout this essay the business strategy of Ryanair will be analysed and the sustainability of their model evaluated.

A major influence was the deregulation of the airline industry in 1978 which removed government intervention within the European continent. Under the new rules, routes and fare decisions were made by individual airlines which meant that they could compete on other factors besides food, cabin crew and frequency. As a result of deregulation, a large number of new airline start-ups emerged within the EU and competition among airlines increased dramatically resulting in downward price pressures. Ryanair was established to take full advantage of these market conditions. By offering low prices, Ryanair entered a huge and virtually unlimited market.

Having seen the major success of the low cost carrier Southwest in the United States, Ryanair decided to follow in their footsteps by establishing a LCC for the European continent that targeted fare conscious leisure travelers and regular low cost business travelers. By doing this Ryanair became the first low-fare airline in Europe. However, they took the Southwest model further by offering no drinks and snacks at all and abolishing the frequent flyer program which Southwest up to this day offers its customers.

As Europe’s largest low fare airline, Ryanair’s competitive advantage remains in their ability to continue as cost leaders; providing the cheapest fares to its customers. This dictates that the company must minimize its own costs to ensure that they are able to offer customers the service at a price below their direct competitors. This leads us to consider some key functional strategies which directly help Ryanair towards their ultimate goal to be Europe’s leading low fares airline.

The marketing strategy is perhaps the most obvious and significant functional strategy of Ryanair. Low fares are designed to stimulate demand, attracting fare-conscious travelers, those who may have used alternative forms of transportation or even those who may have not traveled at all. Penetration pricing as it is called helps gain market share and simply, more customers equals more revenue. Tickets are almost solely sold on their website ‘www.ryanair.com’ which very importantly keeps sales costs to a minimum since very few phone operators are employed and computers are able to cheaply handle all functions of sales. With ever increasing accessibility of the internet globally anybody with internet access can buy airline tickets from Ryanair, so distribution practically takes care of itself through this medium. Ryan Air relies on low cost promotions and in recent times has concentrated on their ‘One million seats at one pound’ which is usually advertised through their internet site, national press and bulletin boards. It is the simplicity of this promotion which helps keep costs low since expensive advertising agencies can be entirely avoided and advertising can be dealt with in house.

Logistics strategy deals with the flow of products into and out of Ryanair. Again there is heavy emphasis on cost saving and reducing measures. Ryanair fly to secondary airports which are potentially much further from the City centre but accessible enough by other forms of ground transportation. At these airports Ryanair are able to negotiate extremely aggressively and demand the lowest landing and handling fees. Additionally Ryanair is usually able to gain financial assistance with marketing and promotional campaigns at these airports.

As cost leader Ryanair strives to undercut all its rivals but this means very low income per fare and requires maximum utilization of its resources. Fortunately their financial policy ensures they are able to still profit handsomely from rock bottom fares. The aim is to break-even on fares but to make their profits out of ancillary charges and commissions from their partners. Ryanair has a number of affiliates such as Hertz car rental, Acumus insurance and booking.com all of whom are advertised readily on the Ryanair website. Since the website has high website traffic its partners are able to reach out to Ryanair’s huge client base and are prepared to pay good commissions to the firm for this privilege. Ryanair also generate income from advertising on board the aircraft. Ancillary revenue is generated from many of the services that traditional airlines wouldn’t charge for, such as large baggage into the cargo hold, allocated seating, snacks and drinks.

Furthermore Ryanair aggressively hedge and fix as many of their costs as possible, such as oil and aircraft prices so they are not subject to future price fluctuations which could adversely affect profitability.

The human resource policy is again directly related to reducing costs. Employees are expected to pay for their own uniform and equipment. Training given is the required minimum and staff utilization is among the highest in the airline industry. Many staff are employed on performance contracts and those who do not meet their expectations are readily replaced. Staff are also expected to take on a number of roles, cabin staff will also clean the aircraft prior to the next service, check in staff assist in boarding the aircraft etc.

Ryanair is sticking to its mantra, when the going gets tough, sell more seats for almost nothing. By offering low fares, Ryanair expects passengers to trade down to the low cost airlines rather than stop flying completely. This trend appears accurate so far based on passenger numbers as recession forces millions of passengers to focus on price. Additionally, the latest statistics from The European Low Fares Airline Association members show a 15.7% year-on-year growth in the number of passengers for 2008, indicating that the LCC model is robust, even in times of crisis. Consequently, there is no doubt that Ryanair looks poised for substantial profits and passenger growth in the coming years. However, in order to compete with other LCCs and maintain its continued market share growth in the future, Ryanair needs to improve its poor customer relations.

The sustainability of Ryanair’s cost leadership strategy also depends largely on the price of oil and how effective the firm is in cutting costs in order to continue offering low fares. According to the firm’s latest financial report, Ryanair will enjoy significantly lower oil costs thanks to their recent hedging programme, when most of their competitors are already hedged at much higher prices. These lower prices will drive Ryanair’s traffic growth, maintain high load factors and capture market share from higher cost fuel surcharging competitors. In order to cut costs, Ryanair close all its airport check-in desks and have passengers check-in online instead. Other cost saving methods not yet implemented include charging customers for using toilets on airplanes. These cost cutting ideas are not very popular among consumers and it means that Ryanair needs to improve its already tarnished brand image in the future which it had attained through negative press reporting and misleading advertisements .

Even though Ryanair’s cost leadership strategy is robust and it looks set to serve them well in the future, there are some key areas within the business that can be improved on to enhance the firm’s profitability and brand image.

Ryanair has always been criticized for many aspects of its poor customer relations. According to The Economist, Ryanair’s “cavalier treatment of passengers” had given Ryanair “a deserved reputation for nastiness” and that the airline “has become a byword for appalling customer service … and jeering rudeness towards anyone or anything that gets in its way”. If Ryanair is to maintain its large customer base, it needs to ensure that it acknowledges its customers’ concerns and maintains a service focused attitude at all costs. Ryanair needs to invest in servicing customers better by providing a non-premium contact number, improving its non user friendly website, and simplifying the terms and conditions of the flight service. Ryanair should also create a frequent flyer program to establish a fixed customer base and encourage customer loyalty.

Following huge success in Europe, Ryanair should consider introducing low cost transatlantic flights to support its expansion plans and attain a larger customer base. With a high demand for certain routes like London-New York and room for negotiation in airplane prices and airport slots mainly due to the current financial climate, it is an ideal time to further reap the rewards of the cost leadership strategy that has served Ryanair so well over the years.

Ryanair’s model looks set to survive the current industrial downturn through its lower costs and substantial cash balances. No airline is better placed in Europe than Ryanair to trade through this downturn. It will therefore continue to grow, by lowering fares, taking market share from competitors, and expanding in markets where competitors either withdraw capacity or go bust. By taking the recommended improvements into consideration, it looks like Ryanair’s cost leadership strategy seems ideal for the future.

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Case study: Ryanair’s business strategy

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Marketing in the Age of Technology: Ryanair Mike Ward Salford Business School University of Salford, Greater Manchester United Kingdom.

Unit 5 The External Environment: Competition

2 External Analysis: The Identification of Industry Opportunities and Threats.

Industry Analysis - Porter's Five Forces

Why Do a Situation Analysis

What Tools Are Useful in Identifying Opportunities and Threats?

Presented By:- Dharm Jeeta Singh

Chapter 3 Strategic Planning Process:

Chapter 2 The External Environment:

Nelson Phillips Professor of Strategy and Organizational Behaviour

Portor’s Five-Forces Analysis

Planning, Strategy and Competitive Advantage

from Competitive Advantage: Creating and Sustaining

Competition. Direct Competitors - Firms likely to gain or lose a substantial share of customers from each other over time because they serve the same.

2 Chapter 2: External Analysis: The Identification of Industry Opportunities and Threats BA 469 Spring Term, 2005 Professor Dowling.

Conducting an Industry Analysis. Seven Questions for Industry Analysis 1. What are the industry dominant economic traits? 2. What competitive forces are.

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -1 External Strategic Management Audit – Environmental Scanning – Industry Analysis.

The Marketing Environment and Competitor Analysis

Strategic Management Process

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• Ryanair strategic positioning (B): Always getting better

By 2013, after over near 30 years, Ryanair has become the largest airline in Europe in terms of passengers flown internationally. It outperformed its low cost rivals on most operational dimensions. It was unambiguously positioned as the lowest cost of the low cost airlines. Its success, however, came at a price. Ryanair was far from loved. Its operational model, which enabled such low cost flying, had as a side effect service that was seen as far below industry norms. In 2013 its outspoken CEO, Michael O’Leary, came under increasing pressure to tone down the macho image he had cultivated and enhance service levels. To do this he would need to adapt the successful operational model. The A case asks whether such an adaptation make sense. The B case documents the evolution and implementation of Ryanair’s response, a change program called “ALWAYS GETTING BETTER” (AGB). AGB encompasses a digitalization program that chief marketing officer Kenny Jacobs believes can enable Ryanair to become the “Amazon of Travel in Europe.” The B case asks whether this is a realistic ambition.

• Understanding customer centricity
• Understanding strategic alignment
• Understanding whether and how successful incumbents can embrace change.
• Understanding how incumbents can best embrace digitalization

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• Ryanair strategic positioning (A): July 2013

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Porter Five Forces Analysis of Ryanair

by adamkasi | Sep 13, 2017 | Companies

Founded in 1984, Ryanair is an airline based in Ireland that operates in the low-fare category. The headquarters are based in Dublin, Ireland. In 2016, with regard to scheduled passengers flown, Ryanair was Europe’s largest airline. Also, it carried more international passengers than any other regional competitor. In 1997, the aviation industry in Europe was deregulated. This led to the sudden expansion of many of the airline operators. Ryanair also expanded and currently operates 403 Boeing 737 aircraft. Ryanair’s low-cost business model is one of the prime reasons for its success. Ryanair flies to 205 destinations in 34 countries across Europe, Africa, and the Middle East. In 2016, Ryanair reported revenue of more than 6 billion Euros. Currently, 11,458 employees work for Ryanair at various locations across the countries it flies to. Following is a detailed Porter Five Forces Model Analysis of Ryanair

Competitive Rivalry – High

There are a number of low-cost airlines operating on the routes similar to Ryanair. These include Easy Jet, Go, Wizz Air, and so on. The competition to cover a maximum number of routes at the least cost is intense. Each player in the industry is striving to minimize their costs by reducing onboard passenger facilities and airport outlay costs. The focus is on short-haul flight routes. On many routes, Ryanair has been able to drive out competition due to its experience and large fleet size. However, on many routes, the competition is still intense. The deregulated airline industry has made the entry of other airlines easier into the European region increasing competition for the local operators such as Ryanair. All of this reflects a high competitive rivalry for Ryanair.

Threat of New Entrants – Low

The aviation industry is an expensive industry to enter for new entrants. The entry barriers are high. Purchasing or even leasing jets is expensive. Then getting slots at desired airports is costly and tough especially for new airlines, inventory of spares is not economical, and so on. In order to generate awareness, huge marketing costs would need to be incurred. The staff required for an airline such as pilots and stewardesses are not cheap nor it is easy to find qualified such staff. Developing the low operational costs that airlines like Ryanair have developed takes experience and economies of scale (Bagdanskas, 2016). Only then can low-fare flights be profitable. Thus, the threat of new entrants is not high for Ryanair.

Bargaining Power of Suppliers – High

There are only two manufacturers of airplanes: Boeing and Airbus. Ryanair purchases its planes from Boeing. This Duopoly has led to these manufacturers charging high prices for the aircraft. However, since Ryanair is the highest purchasing customer of Boeing in Europe, even during the 2005 post 9/11 era, Boeing holds a soft corner for Ryanair and gives it rates less than standard market rates. The other suppliers are of jet fuel. The prices are governed by world trade, therefore Ryanair cannot attempt to bargain the prices of jet fuel from the suppliers (Field, 2017). Therefore, the bargaining power of the suppliers is high against Ryanair.

Bargaining Power of Buyers – High

The low-fare airline industry lacks customer loyalty or brand loyalty. Customers are only loyal to low-fares. Any player that offers the lowest fares wins the greatest number of customers. The switching cost for the buyers is almost zero. If any player attempts to increase fares, buyers will shift to the other airlines causing the airline to lose business. All low-fare airlines are working towards reducing their operating expenses and providing the flyers with greater facilities. All of this further adds to the bargaining power of the buyers. This makes the bargaining power of the customers high.

Threat of Substitutes – Low

Within the European land, there are a number of other systems such as train, buses, and cars that can be used to travel over the short-haul routes. However, the train fares are not cheap. They also take considerably longer time. Ryanair tackles this by providing a comparison of their rates and the train fares over a number of routes on their website, encouraging people to use their services over non-flying means of transport (Dudovskiy, 2012). This reflects a weak threat of substitution for Ryanair.

Bagdanskas, P., 2016. Ryanair industry analysis – A case study report. [Online] Available at: https://www.slideshare.net/PauliusBagdanskas/ryanair-industry-analysis-a-case-study-report [Accessed 02 Sept. 2017]. Dudovskiy, J., 2012. Ryanair Porter’s Five Forces Analysis. [Online] Available at: http://research-methodology.net/ryanair-porters-five-forces-analysis/ [Accessed 01 Sept. 2017]. Field, H., 2017. Porter’s 5 Forces Ryanair. [Online] Available at: http://www.academia.edu/5084225/Porter_s_5_Forces_Ryanair [Accessed 01 Sept. 2017].

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