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History Of Ryanair
The passengers continued to increase, but the airline generally ran at a loss, and by 1991 was in need of restructuring. Michael O'Leary was given the task of making the airline profitable. He negotiated significant bonuses and profit-sharing deals for himself, conditional upon bringing the airline into profit. Ryan encouraged him to visit the USA to study the 'low fares/no frills' model being used by Southwest Airlines
O'Leary quickly found that the key to low fares was a quick turn-around time, no frills, and no business class, as well as operating only one model of aircraft.
O'Leary convinced that Ryanair could make huge inroads into the European air market, at that time dominated by national carriers which were subsidised to various degrees by their parent countries. He competed with the major airlines by providing a no-frills, low cost, flexible and reliable service. Flights were scheduled into smaller airports, closer and more convenient for customers. He adopted a hands-on style of management, becoming well known for the fact that despite being Chief Executive, he regularly helped out with baggage handling on Ryanair flights at Dublin airport.
He is said to have a pugnacious and aggressive management style, using a flat management hierarchy whose ethos is to provide a low cost, reliable and competitive service. By 1995, thanks to the consistent pursuit of this business model, Ryanair celebrated its 10th birthday by carrying 2.25 million passengers. It had become the largest carrier on all its routes.
During 2004, Michael O'Leary warned of a 'bloodbath' during the winter from which only two or three low-cost airlines would emerge, the expectation being that these would be Ryanair and easyJet. A modest loss of € 3.3 million in the second quarter of 2004 was the airline's first recorded loss for 15 years, indicating turbulent times in the low fares market. However, the enlargement of the European Union in 2004 is expected to lead to more new routes as Ryanair and other budget airlines tap the markets of the EU accession countries. Since the accession countries joined the EU on 1 May 2004, Ryanair has opened new routes to three of the ten new EU member states.
In February 2005 Ryanair announced an order for 70 further Boeing 737-800 aircraft with an option for a further 70. This is expected to allow Ryanair to increase passenger numbers from the 34 million expected in 2005 to 70 million in 2011 and creating 2,500 new jobs. Some of these aircraft would be deployed at Ryanair's 12 European bases, others to 10 new bases they intend to establish over the next seven years. The aircraft will be delivered without window shades, seat back recline and seat back pockets, which result in savings of several hundred thousand dollars per aircraft and give continued savings through reduced cleaning and repair costs.
Ryanair is today Europe's largest low-cost airline (LCA). Operating its low-fare, no-frills formula, its over 1700 employees and growing fleet of around 50 Boeing 737 aircraft provide services between over 70 routes to 13 countries throughout Europe. Operating from its Dublin headquarters, it carries around 12 million passengers every year. But Ryanair was not always so successful. Entering the market in early 1985, its early aim was to provide an alternative low-cost service between Ireland and London to the two market leaders, British Airways and Aer Lingus. Ryanair chose this route because it was expanding in both the business and leisure sectors. However, the airline business is marked by economies of scale and Ryanair, then with a small fleet of old-fashioned aircraft, was no match for its larger competitors. The first six years of Ryanair's operation resulted in a IR£20 million loss. In 1991, Ryanair decided to rework its strategy.
‘We patterned Ryanair after Southwest Airlines, the most consistently profitable airline in the US,' says Michael O'Leary, Ryanair's Chief Executive. ‘Southwest founder Herb Kelleher created a formula for success that works by flying only one type of airplane - the 737, using smaller airports, providing no-frills service onboard, selling tickets directly to customers and offering passengers the lowest fares in the market. We have adapted his model for our marketplace and are now setting the low-fare standard for Europe.'
The efficiency of the airlines' operations supports its low-cost market position. Turnaround time at airports is kept to a minimum. This is achieved partly because there are no meals to be loaded onto the aircraft and partly through improved employee productivity. All the aircraft in the fleet are identical, giving savings through standardisation of parts, maintenance and servicing. It also means large orders to a single aircraft supplier and therefore the opportunity to negotiate priced down. Also, because the company often uses secondary airports, landing and service fees are much lower. Finally, the cost of selling its services is reduced where possible. Ryanair has developed its own low-cost internet booking service.
Ryanair's policy on customer service is also clear. ‘Our customer service,' says Michael O'Leary, ‘is about the most well defined in the world. We guarantee to give you the lowest air fare. You get a safe flight. You get a normally on-time flight. That's the package. We don't, and won't, give you anything more. Are we going to say sorry for our lack of customer service? Absolutely not. If a plane is cancelled, will we put you in a hotel overnight? Absolutely not. If a plane is delayed, will we give you a voucher for a restaurant? Absolutely not.'
The Strategy Of Ryanair
Ryanair's objective has been to establish itself as Europe's leading low-fares scheduled passenger airline through continued improvements and expanding offerings of its low-fares service. Ryanair aims to offer low fares that generate increased passenger traffic. A continuous focus on costcontainment and operating efficiencies is a vital part of the Ryanair way of doing things. Here are the key elements which make up Ryanair's strategy:
• Low fares:
These are used to stimulate demand, they target fare conscious leisure or business travellers who might otherwise not travelled at all or use other methods of transport such as car, coach or trains. Ryanair sells it seats on a one-way basis unlike most traditional carriers this change came into effect in November 2001. Ryanair sets its fares on the basis of the demand for particular flights and by reference to the period remaining to the scheduled date of departure. 70% of seats on a flight are sold at the minimum available fare assigned for the route, once these are filled the price per seat rises6.
Ryanair's Dublin to London (Stansted) is its most popular route in terms of passenger volume; with fares ranging from €19.99 to €169.99 (can be lower during special promotions). In September 2003, Ryanair launched a fare promotion offering a total of two million seats on certain routes for “free” (excluding government taxes and passenger service charges) for travel during the period between September 2003 and December 17, 2003. These campaigns are very useful to bolster Ryanair's low fare image.
• Frequent Point-to-Point Flights on Short-Haul Routes.
Ryanair provides frequent point-to-point service on short-haul routes to secondary and regional airports in and around major population centers and travel destinations. The average flight time has been 1.1 hours with an average route length of 746 kilometres in 2003. Ryanair's flew an average of approximately 1.94 round trips daily per route. The choice of only flying short-haul routes allows Ryanair to offer frequent service, while eliminating the necessity to provide "frill" services otherwise expected by customers on longer flights. Point-to-point flying (as opposed to hub-and-spoke service used by the traditional carriers) allows Ryanair to avoid the costs of providing through service for connecting passengers, including baggage transfer and transit passenger assistance costs. This is one of the key differences between Ryanair and traditional carriers.
• Choice of routes:
Ryanair favours secondary airports with convenient access to major population centers (e.g. London Stansted Airport) and regional airports (e.g. Brussels- South Charleroi airport). Firstly these have more competitive access and handling costs but also provide a higher rate of on-time departures, fewer terminal delays and faster turnaround times (it is much quicker to land, unload and reload passengers and luggage and take off again at smaller less congested airports then at a major airport such as Zaventem or Heathrow which have to accommodate many planes at the same time). The fast turnaround is a key element in Ryanair's efforts to maximize aircraft utilization. Ryanair's average turnaround time for the fiscal year ended March 31, 2003 was approximately 25 minutes. This has allowed the possibility to fit in two extra flights a day 6 Interview with David Gering, Manager of BeNeLux that would not be possible with a 60 minute turnaround time7. This allows Ryanair to not only save on costs but also adds tremendously to revenues. The 25 minute vs. 60 minute turnaround time in effect adds €4.4million in incremental revenue per aircraft per year.
• Low Operating Costs.
Management believes that Ryanair's operating costs are among the lowest of any European scheduled passenger airline. There are four main expenses which Ryanair is able to control and/or reduce and therefore works hard to do so:
(i) aircraft equipment costs;
(ii) personnel expenses;
(iii) customer service costs; and
(iv) airport access and handling costs:
(i) Aircraft Equipment Costs:
Ryanair's initial strategy for controlling aircraft acquisition costs was to purchase used aircraft of a single type, however this no longer became viable. In March 1998, Ryanair announced that it would start purchasing new Boeing 737-800 "next generation" aircraft. The 737-800s represent the latest generation of Boeing's 737 aircraft and share certain basic attributes in common with Ryanair's current fleet. Although Ryanair's acquisition of the 737-800s has already, and will continue to significantly increase the size of its fleet from that in 1998 and thus significantly increase its aircraft equipment and related costs (both on an aggregate and per aircraft basis), management believes that its strategy of limiting its fleet primarily to three variants of a single type of aircraft from a single manufacturer enables it to limit the costs associated with personnel training, maintenance and the purchase and storage of spare parts, as well as affording greater flexibility in the scheduling of crews and equipment. Management also believes that the terms of the Boeing contracts are very favourable to Ryanair.
(ii) Personnel Expenses:
Ryanair endeavours to control its labour costs by continually improving the productivity of its already highly-productive work force. Remuneration for employees emphasizes productivity-based pay incentives, including commissions for onboard sales of products for flight attendants and payments based on the number of hours or sectors flown by pilots and cabin crew personnel within limits set by industry standards or regulations fixing maximum working hours, as well as participation in Ryanair's valuable stock option programs.
(iii) Customer Service Costs:
Ryanair has entered into agreements on competitive terms with third party contractors at certain airports for passenger and aircraft handling, ticketing and other services that management believes can be more cost efficiently provided by third parties. Management attempts to obtain competitive rates for such services by negotiating multi-year contracts at prices that are fixed or subject only to periodic increases linked to inflation. The development of its own reservations centre and internet booking facility has allowed Ryanair to eliminate travel agent commissions. For the fiscal year ended March 31, 2003, Ryanair generated virtually all of its scheduled passenger revenues through direct sales, with direct telephone reservations and sales through Ryanair's website generating approximately 6% and approximately 94% of the total, respectively.
(iv) Airport Access Fees:
Ryanair attempts to control airport access and service charges by focusing on airports that offer competitive cost terms. Management believes that Ryanair's record of delivering a consistently high volume of passenger traffic growth at many of these airports has allowed it to negotiate favourable contracts with such airports for access to their facilities. Ryanair further endeavours to reduce its airport charges by opting, when practicable, for less expensive gate locations as well as outdoor boarding stairs rather than more expensive jetways.
• Maximizing the use of the Internet.
During January 2000, Ryanair converted its host reservation system from the BABS (British Airways Booking System) to a new system hosted by Accenture. The Skylights system allows internet users to access Ryanair's host reservation system and to make and pay for confirmed reservations in real time through Ryanair's Ryanair.com website. Since the launch of the Skylights system, Ryanair has heavily promoted its website through newspaper, radio and television advertising. As a result, internet bookings have grown rapidly, accounting for in excess of 94% of all reservations on a daily basis as of September 2003. It is also a great asset in terms of producing ancillary revenues .
• Commitment to Safety and Quality Maintenance.
Ryanair's commitment to safety is a primary priority of the Company and its management. This commitment begins with the hiring and training of Ryanair's pilots, cabin crews and maintenance personnel and includes a policy of maintaining its aircraft in accordance with the highest European airline industry standards. Ryanair has not had a single incident involving major injury to passengers or flight crew in its 19-year operating history. Although Ryanair seeks to operate its fleet in a cost-effective manner, management does not seek to extend Ryanair's low cost operating strategy to the areas of safety, maintenance, training or quality assurance. Routine aircraft maintenance and repairs is carried out in house while currently contracting heavy airframe maintenance, engine overhaul services and rotable repairs to contractors, these contracts will be under review.
• Ancillary Services:
Ryanair offers a variety of ancillary, revenue-generating services including on-board merchandise, beverage and food sales, accommodation reservation services, advertising, travel insurance, car rentals and rail and bus tickets. Ryanair distributes car rentals, accommodation services and travel insurance through both its website and its traditional telephone reservation offices. Management believes that providing these services through the internet allows Ryanair to increase sales, while at the same time reducing costs on a per unit basis. Ancillary revenues, excluding charters, increased by 68.1% (2002: 44%) and now accounts for 11.7% of total revenues compared to 9.4% in 2002.
• Focused Criteria for Growth:
Building on its success in the Ireland-U.K. market and its expansion of service to continental Europe, Ryanair intends to follow a manageable growth plan targeting specific markets. Ryanair introduced its first routes to continental Europe in the spring of 1997 and now serves a total of 62 continental destinations (incl. Scandinavia) from Dublin, London (Stansted), Glasgow (Prestwick), Shannon, Brussels (Charleroi), Frankfurt (Hahn), Stockholm (Skavsta), Milan (Bergamo), Rome (Ciampino) and Barcelona (Girona).
Ryanair has the purest form of low cost airline in Europe. Ryanair boasts many No.1's:
• No.1 for passenger traffic- over 23m for 2004 - overtaking Easyjet.
• No.1 for passenger growth- 50% + this year
• No.1 for European routes (149) and bases (11)
• No.1 for customer service delivery- punctuality, flight completion and fewest lost baggage
So as we can see from the above representation Ryanair is the most radical low cost airline, it differs from the closest competitor on the graph (i.e. Easyjet) because it uses secondary airports to lower its cost base whereas Easyjet does not. Virgin Express is nearly stuck in the middle; it still offers seat allocations… Aer Lingus is an interesting case as it has been gradually getting closer to the low cost model on its short haul flights. Ryanair comes out as the purest low cost carrier.
Also in appendix is a comparison of Ryanair against other LCC and traditional carriers based on some key operational measures. (Revenue, employee/passenger, revenue/employee…).
3. Objectives and Long Term Vision
To have the largest amount of routes and the lowest fares of any European Airline without compromising our business model; to outperform every other carrier on all fronts including quality of service. Ryanair also aspires to uphold a high level of growth
We feel that Ryanair's strategy up to date has been the key factor in its huge success. So to that end we would intend to carry on applying all of these strategies for the foreseeable future. As has been seen in the past in the United States there is only room for one or two major players in the low-cost airline industry. Southwest Airlines have approximately 50% of the market share in the states. In Europe 88% of the market is dominated by the two major players; Easyjet and
Ryanair. However, within the European Airline Industry as a whole the low-cost carriers only represent 7% of total market share, far less than the 25% of their American counterparts. Experts predict that the maximum potential market share in Europe is limited to about 14%11 in the next 5-10 years but that is only if Ryanair continue to limit service to Western Europe. Ryanair's success to date has been partly due to the fast pace at which the industry has been developing and since this market will not grow as fast in the future Ryanair must seek other ways to expand in order to sustain their top performance. In order to do this several options must be taken into account. The options Ryanair have are as follows:
1. Increase the Frequency of Existing Routes
The European low cost carrier (LCC) market is by no means exhausted. At the moment Ryanair have an average of 3.88 flights per day per route. This figure, compared to Easyjet and traditional carriers, is very low. This means that Ryanair are loosing out on business passengers who need more flexible timetables. If Ryanair were to increase the frequency on some of their routes they could effectively steal some of the passengers from the traditional carrier's thus increasing market share.
2. Open New Routes in Europe
There are many viable routes still un-served by low-cost carriers. In order for a route to be viable there must be at least 32,000 passengers per year. Research must be carried out to find viable routes before the competition. As well as opening routes to un-served destinations, Ryanair can also open routes where the competition is a more expensive traditional carrier thus attracting customers with the cheaper, no-frills option. In 2002, 33% of routes were served by only one low-cost carrier, an increase of 33% on the previous year's figures.
3. Develop Its Smaller Continental Operating Bases
With the low-cost market from London saturated, Ryanair must look to their other operating bases to expand their network. Dublin, Brussels, Hahn, etc… can all be developed. Although there is not the same demand outside of London there is still sufficient demand to make a sizable profit
4. Expand into Central/Eastern Europe
Eastern Europe is fast becoming a hotspot for tourists and business travellers alike due to the continuing expansion of the E.U. Ryanair however doesn't serve any of these popular destinations. Other low-cost airlines have set up there already, such as Sky Europe, but not all routes have been exhausted. There is still plenty of opportunity in this area.
5. Expand into North Africa
Routes to North Africa are also very popular for both tourists and North Africans who have immigrated to Europe. SN Airlines currently dominates the traffic from Brussels to North Africa but they are neither a low-cost airline nor a traditional carrier. By offering truly lowcost flights to these destinations Ryanair could easily capture this market share. Our aim is to seek out and start negotiations with potential airports in these countries.
6. Aggressively seek to take market share from Charter Market
The Charter market represents a huge 25% of overall European traffic. Ryanair must aggressively attack this market by heavily promoting D.I.Y. holidays instead of package tours. With the increasing popularity of the Internet and the decreasing popularity of Travel Agents, this is a market that must not be overlooked. Ryanair has already begun to provide small packages for its destinations and we aim to bolster this side of the business.
7. Customer Service Overhaul
Ryanair has had a remarkable track record for its ‘tangible' customer service (punctuality, flight completion etc) however the perception of the ‘softer' side of its customer service has not always been good with much bad press. With this in mind Ryanair, while maintaining its strict rules and regulations, must make an adjustment in this area.
8. Continue to find ways of reducing costs
Although Ryanair has the lowest cost base of any of its competitors, we believe that the Company can continue to lower its cost base as it grows albeit at a lower pace.
9. Ryanair 100% online
Ryanair will continue to use the internet as its primary point of sale. Over the next 5 years the aim is to have 100% of bookings via the internet so as to eliminate the costly call centres.
SWOT ANALYSIS OF RYANAIR
Low fares super brand
1. Stack 'em high, sell 'em cheap.
Ryanair has enhanced its position as the leading brand for low fares in Europe during the current downturn. The carrier now likens itself to budget-conscious consumer brands like Ikea, Aldi and McDonald's - rather than airlines. These brands do well in bad economic times.
Mr O'Leary's enduring conclusion is, "low cost always wins". The numbers from the latest financial year (ended 31-Mar-2009) speak for themselves:
* Operating revenue from continuing operations rose 8.5% to EUR2.94 billion;
* Passenger numbers rose 15% to 58.5 million;
* 18 net new aircraft (year-end fleet of 181 B737-800 aircraft);
* Six new bases at Alghero, Birmingham, Bologna, Bournemouth, Cagliari, and Edinburgh;
* 223 new routes, for a total of "800+" routes with "1,200+ daily departures" (the airline has apparently lost count).
Ryanair passenger number growth and load factor growth: FY06 to FY09
Source: Centre for Asia Pacific Aviation & Ryanair
But Mr O'Leary's challenge is to ensure Ryanair can continue to succeed like Ikea, Aldi and McDonald's when the economy does turn up .
2. Ultra low costs, high ancillaries.
The carrier's non-fuel expenses fell 3% last financial year, reflecting its unswerving focus on cost control. Another 5% reduction in non-fuel unit costs is targeted in FY2009/2010. Ancillary revenues grew by 23% to EUR598 million, helping Ryanair achieve its target of 20% of revenues (18% last year) one year ahead of schedule. There is still considerable scope for growth in ancillary items and the carrier will do well to continue its focus in this area as underlying fares plummet in the months ahead.
WEAKNESSES: Addicted to...Growth
1. Growth at all costs.
The main reason Ryanair can post reductions in unit costs is flying more and more sectors. All cost lines are increasing, but as long as Ryanair continues to add more routes, it doesn't matter.
Again, the recession is helping. Ryanair notes, "significant reductions in capacity across Europe has led to Ryanair being besieged by many large and small airports who are aggressively competing with lower costs and more efficient facilities to attract Ryanair to grow in their markets. This recession is delivering real cost benefits for Ryanair through the combination of a weaker dollar, lower interest rates, lower airport costs, and lower unit costs".
Here is a summary of Ryanair's cost lines (remembering scheduled passenger revenues rose 5% and passenger numbers grew 15%):
* Staff costs: Excluding one off charges, staff costs increased by 11%, reflecting a 21% increase in average employee headcount to 6,369;
* Depreciation and amortisation: +24% to EUR204.5 million. This reflects, net of disposals, an additional ten aircraft added to the fleet, or a 16% increase in the weighted average number of lower cost "owned" aircraft in the fleet;
* Fuel costs: +59% to EUR1,257.1 million, due to the higher cost of fuel in the period and a 13% increase in the number of hours flown;
* Maintenance costs: +18% to EUR66.8 million, due to a 23% increase in the number of leased aircraft from 35 to 43 and increased costs arising from increased line maintenance activity at new bases;
* Marketing and distribution: -26% to EUR12.8 million, due to tight control on expenditure and the increased focus on internet based promotions;
* Aircraft rentals: +8% to EUR78.2 million, which is lower than the 23% increase in the number of leased aircraft from 35 to 43 compared to the year ended March 31, 2008, reflecting the positive impact of lower lease rentals obtained and a stronger euro versus US dollar exchange rate;
* Route charges: +11% to EUR286.6 million, due to an increase in the number of sectors flown, offset by the positive impact of a stronger euro versus sterling. Airport and handling charges: +12% to EUR443.4 million, due to rising passenger volumes, offset by lower costs at new airports and bases launched and savings achieved on handling costs;
* Other expenses: +14% to EUR139.1 million, which is lower than the growth in ancillary revenues, due to improved margins on some existing products and cost reductions on some indirect costs.
Keeping a lid on cost growth will become more challenging as economic recovery takes hold.
2. Rising costs? Transfer them to your passengers.
Ryanair has been very effective at turning weaknesses in its business model into strengths. Many of its adaptations (eg high costs of airport check-in evolved into online check-in and a programme to eliminate airport desks) are being adopted by rival carriers. The carrier will need to continue to innovate in this area, but there is a limit. The core costs such as fuel, staff and fleet will need to be very carefully managed, particularly in the economic recovery.
OPPORTUNITIES: Europe's bloodbath (again)
1. Recessionary conditions suit true LCCs best.
The synchronised global economic recession has handed Ryanair and similar carriers near-perfect operating conditions. As Ryanair explains, "this recession has encouraged passengers to become much more price sensitive which is why they are switching to Ryanair's low fares and unbeatable customer service over all other competitors".
The carrier's near term outlook is "bloody brilliant", according to Mr O'Leary, who has warned, "we're determined there will be no green shoots of recovery for any of our competitors. In the coming Winter, there will be a bloodbath and we will be causing that bloodbath".
The carrier expects a 15-20% reduction in average fares this year to around EUR32 per passenger. Ryanair is banking on several of its smaller rivals being unable to withstand falls of this magnitude over a sustained period. The resulting rationalisation of capacity would lead to a stabilisation of yields after the "bloodbath" - or so the theory goes. Regardless, Ryanair is in a position to profit handsomely over the next 12 months.
Ryanair's CFO, Howard Millar, summed it up; "we're the only airline in Europe predicting a profit for next year at this point in time". The airline forecasts a profit after tax of between EUR200 million to EUR300 million for the year ending 31-Mar-2010.
2. "Collapsing" aircraft order books:
Ryanair is also on the offensive for a cheap aircraft deal to cover its requirement for 200-300 aircraft between 2013 and 2016. Talks with Boeing have reportedly been scheduled for late Summer. With its negative net order book this year and a customer that is arguably too big to lose, Boeing may be more willing to deal than Airbus. The US dollar is certainly heading in the right direction for Ryanair at present, with a substantial delivery log.
But both manufacturers know Ryanair needs more aircraft to keep its model working next decade and will not be too eager to discount. Contrary to O'Leary's charge that the aircraft order backlogs of Airbus and Boeing are "collapsing", although there has been some churn in orders, the manufacturers still hold the upper hand. 12-18 months from now, it might be a different story.
THREATS: "Distract and conquer"
1. Aer Lingus hobbled, Lufthansa next?
Many analysts view Ryanair's pursuit of Aer Lingus as misguided by delusions of grandeur. It has certainly cost Ryanair dear, with another EUR222.5 million writedown of its investment booked in 2008/09. But Ryanair's total outlay for Aer Lingus shares will be a small price to pay for neutralising what was a well-oiled machine just a few years ago. Thanks to Ryanair's effective interference, Aer Lingus is now leaderless and adrift, discounting aggressively to raise cash to stay in the game. It may not survive the Winter independently. Some sort of rescue - possibly involving Ryanair - would result in a rationalisation of capacity and a restoration of yields in the LCC's core UK-Ireland markets. That too would help Ryanair, although the carrier would benefit more from simply growing its market even further.
The airline posted a net loss of EUR169.2 million for the 12 months ended 31-Mar-2009, compared with a EUR390.7 million net profit a year earlier. Ryanair said it fell into the red chiefly because of a EUR222.5 million accounting write-down on the value of its 29.8% stake in Aer Lingus and higher jet fuel costs. Its pre-exceptionals operating profit was down 74% to EUR144.2 million, producing an operating margin of just under 5% - well down on previous form.
The Master of Distraction, O'Leary, has now turned his attention to Lufthansa. The German carrier is unlikely to be flattered that Ryanair has identified it as its next biggest threat, but would do well to maintain focused on the delicate task of empire building. If Lufthansa can effectively integrate Austrian Airlines, Brussels Airlines and bmi (plus one or two others), the group will pose a major threat to Ryanair's dominance, particularly as European economic conditions improve. But Ryanair's organic growth is arguably a better bet.
2. Fuel threat neutralised
Surging world oil prices could hamper efforts by many airlines to stem losses this year. After a hedging misstep last year (which contributed to a 59% surge in fuel costs to EUR1.3 billion), Ryanair looks to have got it right, hedging 90% of its fuel requirements for the first three quarters of the current financial year (to 31-Dec-2009) at USD62 per barrel (although there was no word about currency hedging in the report). If oil prices remain at current levels, Ryanair expects its full-year fuel bill will be EUR450 million lower than last year. This factor alone makes its current earnings guidance appear conservative.
Over the longer term, Ryanair faces a massive conundrum regarding fuel costs. Unlike McDonald's, Aldi and Ikea, Ryanair is unable to control its fundamental cost line. It may have missed the chance to lock-in fuel prices at low levels (like Southwest did at the start of this decade) for the next few years. The airline faces a medium to long-term margin squeeze as fuel costs rise on a scale it cannot cover with ancillary revenues.
PEST stands for Political, Economical, Sociological and Technological factors present in the environment and plays important role in success of any business. The overview of Woolworths PEST analysis is as follows;
• Increased Trade-union Pressure
• Pilot Trade Union
• EU Expansion
• EU Abolishment of Duty-free Sales
• Allegations of Misleading
• “Climate Protection Charge”
• Fuel Price Increases
• Depreciation of US dollars
• EU Commission Rulings:
• Illegal Subsidies from Airports
• Overbooked Passenger Compensation
• Cancelled Flight Compensation
• Reimbursement of Delayed Passengers
• Grey Market Increase
• Europe: Cars & High-speed Trains
• Increasing travelling lifestyles
• Increasing business travelling
• Wireless Technology Expansion
• Internet sales/gambling
• Satellite television
• Increased internet competition
Introduction of skybus airline
Skybus Airlines is a private airline based in Columbus, Ohio, USA. It is an low-cost airline modeled after the European airline Ryanair. Skybus plans to be the cheapest airline in the United States, with fares up to 25% cheaper than Southwest. Its business model includes advertising on the interior and exterior of its aircraft as well as selling merchandise onboard to increase revenue.
In January 2005, Skybus filed a proposal to the United States Department of Transportation to start operations from Port Columbus International Airportand received approval on March 15, 2006. Airline certification is still pending from the Federal Aviation Administration, which is required before any aircraft can carry passengers. In an attempt to get a head start on marketing flights, however, Skybus has been granted a waiver from the DOT to begin ticket sales before the application is approved.[The first flights out of Columbus begin on May 22, 2007.
Sky bus business model & its objectices
The following model explains the business strategies and objectives of Skybus airline.
Advertised fares to all of the former target cities began at US$10 one-way; the price increased as more tickets were sold for that flight. It was advertised that there were ten seats for $10. With some of Skybus's less popular routes, they had featured tickets for $20.08 (plus taxes and fees) to bring in the new year. Ticket prices for the remaining fares were expected to be around half the price of other airlines. These fares did not include taxes and other airport fees, however, which add about $10 to a one-way ticket. All fees included, the cheapest round-trip ticket for one adult would have cost approximately $4
Skybus charged extra fees for almost everything other than the ticket itself. This is common among European low-cost carriers, but was almost unheard of until recently among major US carriers. Carry-on baggage (one bag plus one personal item) was free, but checked bags incurred an additional charge. The first two bags under fifty pounds were $10 each online or $12 each at the counter, with each additional bag after two incurring a charge of $50 per bag. Overweight baggage, those weighing over fifty but under seventy-five pounds, was charged an extra $25, and all bags over seventy-five pounds were not accepted Skybus did not through-check luggage. If a customer flew through the Skybus hub in Columbus, he or she had to collect any luggage he or she checked in, and then re-check it in Columbus for the second flight. Even though Skybus did not through-check luggage, delayed luggage was a continuing problem for its outsourced ground crews.
In an effort to keep maintenance and operating costs to a minimum, most equipment purchased was uniform. This covered the full range of equipment, from engines, to electrical components, to personnel gear. Because of this, Skybus planned on paying significantly less on employee training and for equipment service.
Another major method of cost reduction was to utilize secondary airports, which are generally less congested and charge less to lease space though they may be farther from the advertised destination. To save even more money at the airport, passengers boarded directly from the apron instead of using the jetway, saving both loading/unloading time as well as operating costs. Finally, ticket sales were entirely online. This not only saved on employee costs, but completely eliminated the need for a reservations call center.
Flight attendants were paid $9 per flight hour, and were not paid a per diem. While this was considerably lower than competing airlines' wages, flight attendants also received 10% of all sales made during the flight, splitting all commissions evenly among all flight attendants on-board.
Starting pilot wages were also well below average in terms of hourly rate, starting at $65,000 annually for Captains, and $30,000 for First Officers as a minimum guarantee. The average captain's earnings were about $90,000 vs $120,000 per year for a theoretical first year Captain at airlines like United Airlines (there is no first year pay at United) but in the case of Skybus this included a significant stock options and profit share package unique in the airline industry. Additionally unusual for Skybus flight crew was that there were very few if any overnight trips thus giving the crew far fewer hours away from home (known as TAFB or time away from base) and higher crew utilization rates for more efficient work schedules. Typical Skybus pilot work days were 8-10 hours long (FAA maximum is 16 hours), which was lower than the industry average of 12-14 hours. Typical pilot work months were 14-15 days with no overnights.  The average pilot in the US has a work month of 16-17 days, and the average airline pilot wage is approximately $135,000 averaged between first officer and captain pay.
Skybus was one of the few 100% non-union airlines in the United States at the time of its shutdown. However. it was facing a union organizing campaign from its pilots, who had collected enough signatures to hold a union referendum. The pilots were seeking to join Local 747 of the International Brotherhood of Teamsters, based in Houston, Texas. Because of the number of signatures collected, it was presumed that the campaign would be successful. The election would have most likely occurred sometime in April 2008. Successful unionization could have severely undermined Skybus's below-market compensation philosophy and laid the framework for union activity among other Skybus employee groups.
While cutting costs was a high priority for Skybus, revenue was their primary focus. Skybus aircraft were outfitted as flying gift shops, selling everything from soda and food to perfumes, watches, clothing, and toiletries.
Advertisements could also be seen throughout the cabin and exterior. This could include overhead bins, carpet, tray tables, and full-body exterior advertisements (see below). The price for interior advertisements was not released, though a company who purchased a full-body advertisement could also buy all interior advertisements for a small increase in price. A complete list of where advertisements were to be placed was not released.
Compare and contrast of outcomes of both companies
Ø RyanAir's objective is to firmly establish itself as Europe's leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. The key elements of RyanAir's strategy are:
Ø Cheap Fares. Ryanair offers low fares that generate more passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.
Ø Customer Service RyanAir's policy is to give the best customer service performance in its peer group. According to reports by the Association of European Airlines and the airlines' own published statistics, RyanAir has achieved better punctuality, fewer lost bags and fewer cancellations than all of the rest of its peer grouping in Europe.
Ø Low Operating Costs RyanAir's has the lowest operatind rates to any European scheduled passenger airline. RyanAir strives to reduce or control four of the primary expenses involved in running a big scheduled airline:
o aircraft equipment costs;
o personnel productivity;
o customer service costs;
o airport access and handling costs.
Ø Internet reservation
In jan 2000, RyanAir changed its host reservation system from the British Airways Booking System to a new system called Flightspeed, which it operates under a 10 year hosting agreement with Accenture Open Skies , As part of the implementation of the new reservation system, Open Skies developed an internet booking facility called Skylights. The Skylights system allows internet users to access RyanAir's host reservation system and to make and pay for confirmed reservations in real time through RyanAir's website after launch of the Skylights system, RyanAir has heavily promoted its website through newspaper, radio and television advertising. As a result, booking on internet have grown rapidly, accounting for in excess of 96% of all reservations on a daily basis as of September 2004.
Qms is primary priority of the Company and its management. This commitment starts with the hiring and training of pilots, cabin crews and maintenance personnel and includes a policy of maintaining its aircraft in accordance with the highest European airline industry standards. Airline has never had a single incident involving serious injury to passengers or flight staff in its history.
Ø Operating Results through Ancillary Services
Airline gives different ancillary services and engages in other activities connected with its core air passenger service, including non-flight scheduled services, the in-flight sale of beverages, food and merchandise and internet-related services. As part of its non-flight scheduled and internet related services, RyanAir provides accommodation services and travel insurance as well as car rentals through both its website aand telephone reservation offices. Management believes that providing these services through the internet allows RyanAir to increase sales, while at the same time reducing costs on a per unit basis.
Ø Growth criteria
Building on its success in the Ireland-U.K. market and its expansion of service to continental Europe, airline intends to follow a manageable growth plan targeting specific markets. RyanAir believes it will have opportunities for continued growth by:
Starting more destinations from the U.K. and Ireland to other places in Europe that are currently served by higher-cost, higher-fare carriers.
Increasing the frequency of service on its current destinations.
Starting new domestic routes within EU.
Considering possible acquisitions that may become available in the future.
Connecting airports within its existing route network .
Establishing more new bases in continental Europe.
Ø SkyBus's no-frills business model was almost same to that of RyanAir. Although tickets were sold for as little as $10 each way, passengers had to pay for any extra amenities priority seating, food or drink, checked baggage, etc. SkyBus markets their no-frills policy as a customization opportunity; customers can “control exactly what they pay for. You can customize your experience and fly the way you like.
Ø By charging the extras, SkyBus was able to offer fares 65% lower than the average airline, and still 25% lower than Southwest one of the close competitor of SkyBus
Ø Eliminating extras is not the only way to decrease prices however. SkyBus employs a number of other strategies to make costs and prices low SkyBus automates everything including ticketing and check-in at the airport to cut costs on employees, travel agents, and other operational expenses. They do not even have a phone number for customer service - everything is online.
Ø SkyBus, like RyanAir, uses secondary airports to keep planes running on time for much less. Even though the New Orleans destination airport is actually 74 miles from New Orleans, customers have responded well due to such enormous savings. Although cutting costs on-board and at the airport are beneficial, the biggest expense for any airline is its fleet. SkyBus's fleet was made up of 7 Airbus A319s, with the rest of its 65-aircraft order (total retail price of $3.7 billion). To maintain their fleet, SkyBus bought a Total Support Package from Airbus, which fixed all costs associated with technical operations.
Ø Other low-cost carriers such as Southwest have opted for Boeing in the past, mostly using 737-700s priced between $57-67.5 million, whereas SkyBus was able to purchase each Airbus A319 for just under $57 million. A319s also offers 335 more nautical miles of range, directly supporting SkyBus's efforts to provide non-stop flights across the country. The A319 Aircraft, however, has a maximum fuel capacity of 575 fewer gallons than the 737-700's 6,875. All other specifications including seat capacity and engine thrust range are relatively similar. By purchasing a standardized fleet, SkyBus reduced employee-training costs and increases operational efficiency and turnaround time. In order to increase profitability, SkyBus had not only focused on the cost side of the equation. The airline also generates revenue from on-flight sales of food, drinks, clothing, electronics, model planes, SkyBus gear, and many other products. SkyBus's corporate strategy involves alliances with specific companies who supply the products for sale on flights or place advertisements in and on the plane itself.
By adopting all these good techniques of low frill airline, still SkyBus bankrupt with the increase in fuel prices and slump in the economy.
After my deep search on both the airlines I found similarities between SkyBus and RyanAir, but from the above discussion, it seems that they are actually different models. And this difference is why one makes money and the other become bankrupt.
RyanAir's model has succeeded because they have cheap prices of course, but also because they have built a network that of holiday and business destinations served by large cities across Europe.
As compared with RyanAir, SkyBus had one base in a mid-sized city trying to give an assortment of primarily tertiary airports in business and holiday places. Most of these cities have neither the bus nor train network to bring passengers to the city centre. Then once in the city, passengers need a car to get around unlike in Europe, where many cities are well served by public transport.
SkyBus had not been able to get costs anywhere near as low as RyanAir, meaning that they are unable to turn a profit when their revenues are also not where they need to be. Certainly, they are getting hurt by high fuel costs; but so is RyanAir. It is the fundamental business the single base in a mid-sized city, serving under-desired destinations. Imagine RyanAir with one base in Bologna, Italy. That's the difference.
But still its not the end of world. SkyBus was not a bad idea; comparing it to RyanAir is a terrible idea. There are plenty of places in Florida that are underserved, and an airline like SkyBus is badly in need. Taking the RyanAir strategy of flying to every little town in France that has a former Air Force base near it, an airline service like SkyBus can fly from unserved destinations in the northeast and midwest to unserved parts of Florida. The world does not need more flights from the northeast to Fort Lauderdale. But it could use four-times a week service from Portsmouth to Punta Gorda.
Ryanair is doing its best providind really good service,its also very helpful and obviously cheap.i like it very much and I hope this service will grow.i personally recommend it and can say any service can run an airline by following there model.
Ø Clark, Andrew (2004), No How low can they go? The Guardian, June 5, 2004.