Assessing The Low Cost Carrier Business Model Commerce Essay

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The Low cost airline concept first was used in America by Pacific Southwest Airline in 1949. Southwest is now grown to become one of the largest profitable airlines in the United States. European history low cost airline model started in late 1990"s. Low cost airline business model could be defined by the following three key elements. (Appendix 1)

Simple product: No in-flight catering and catering on request with extra payment. Plane with beiger capacity with narrow seat. Only single class without any seat allocation.

Positioning: Price-conscious business passengers. High frequency point-to-point traffic using secondary airport. Aggressive marketing and competition with all transport carriers.

Low operating cost: Uniform fleet low maintenance cost, reduced crews training cost, low airport fees. Low wages, high usage of recourses and productivity, simple boarding process reduces ground waiting, high percentage of internet advance reservation, reduced clearing time and no hub service.

Ryanair's present strategy

Ryanair's main objective to establish leading low-fare schedule passenger airline in the European market through continued improvements and expanded efficient low cost service.

Low fare: Ryanair's low price policy increases price-conscious leisure and business travelers otherwise they would have used other mode of transport such as train, couch and cars. Ryanair sell one way air ticket for the schedule service by eliminating minimum stay requirement.

Customer satisfaction: Ryanair achieved grater customer satisfaction by reduced cancellation and few lost baggage compare to other airlines. Achieve better punctuality by using less congested secondary airport.

Regular point-to-point flights on short-haul routs: Ryanair provides regular point-to-point flights on short-haul routes around major populated centers by connecting secondary airport. This benefited higher rate of on time departure and faster turn around tine. Point-to-point non stop flying benefited Ryanair by way of cost of providing service for connecting passengers, baggage transfer and cost associated with transit passenger.

Less operating costs: Ryanair's operating cost is the lowest compare to other European airlines. It control major schedule airline operating cost such as aircraft equipment cost, personal productivity cost, customer service cost and airport handling and access cost

Aircraft equipment cost

Ryanair's aircraft acquisition strategy is to purchase single type aircraft. In 1998 Ryanair has taken a decision to purchase Boeing's latest generation aircraft Boeing 737-800 replacing Boeing 737-200A and starts to use from 2005 onwards. Purchase of aircraft from single manufacture benefited Ryanair's barraging power for the new aircraft and cost advantages from personal training, maintenance and purchase and storage of spare parts. Also it has greater flexibility in terms of scheduling crews and equipment.

Personal productivity

Ryanair control their labour cost by continuously increasing its productivity with highly competitive work force. Ryanair pay productive-based incentives for employees including flight attendants for in-flight product sales and payments based on number of sectors and ours flown by pilots and cabin crews with limit of industry standard of maximum number of hours. Ryanair average salary per employee is high compare to its competitor easyjet, Lufthansa, British airways, Lberia and Acer Lingus.

Customer service cost

Ryanair has entered into competitive log term third party agreement for certain airport passenger, aircraft handling and ticketing and other services. Approximately 96% of the ticket sales through Ryanair's website and telephone and by this eliminating travel agent commission cost.

Airport access charges

Ryanair's constantly high volume of passenger traffic many of the airports benefit them to favorable contracts with those airport for access their facilities.

Booking Advantage on internet

The Ryanair's internet booking system Skylight reservation system allows internet users to access Ryainair host reservation system to make a reservation and to pay the confirmed reservation in real time. The company advertises heavily about reservation system though newspaper, radio and television As a result 94% of the reservation comes through the company's reservation system.

Safety and quality maintenance

Ryanair's management fully committed for the safety and quality maintenance to the aircrafts. The company operates latest Boeing 737-800 with additional safety features inbuilt in it. Also the company committed to hire and training pilots, cabin crews and maintenance staffs in accordance with highest European airline industry standards. In past 24 years Ryanair's operating history, it does not had any major incident injuring pilots or cabin crews or passengers. Although Ryanair aggressively practice low cost model, it gives high importance for the aircraft safety, maintenance, training and quality assurance.

Increasing operating results through ancillary services

Ryanair provides various ancillary passenger services connected to its main air passenger service such as in-flight sale of food, beverage and merchandise and also it provides through telephone reservation officers and Ryanair's internet system accommodation service, travel insurance and car rentals

Ryanair's corporate strategy

Ryanair's business visor, mission, main objective please refer Assignment 1, Appendix 1 and page numbers 16-17.

Ryanair's business strategy

Ryanair's business strategy is to offer very competitive affordable fare for the airline users to reach their destination in the European market.

Ryanair's long term marketing plane and its position

Ryanair's long term marketing plans please refer Assignment 1, Appendix 1, and page number 17 and its position please refer Assignment 1 and page number 8 also Appendix 6, and page number 25.

Porter's competitive strategy model for low cost carrier

Porter's (1980) competitive strategy model (Appendix 2) describes that there are three types of strategies are used by business for their long term survival. They are cost leadership, differentiation strategy, and market share and market segmentation strategy. These strategies are measured along with business strategic scope and strategic strength.

Ryanair's business strategic scope

Ryanair's business strategic scope is to become number one low cost airline in the European market for cost conscious business and leisure travelers.

Ryanair's business strategic strength.

Ryanair was first Europe discount airline capitalized by the EU decision to deregulate the airline industry stating that any European airline can operate anywhere in the Europe Its aggressive pricing and grater customer satisfaction for the punctuality, reduced cancellation and few lost baggage compare to other airline. In 2005 it became market leader in the low cost airline market.

Cost leadership

Use of secondary airport: Ryanair did not fly to the major hub airport bur instead it uses secondary airport some distance away from the main airport for low airport access charges.

Rapid turnaround: Ryanair maximize use of aircraft by turning around the aircraft within 25 minutes

Point-to-point routing: Ryanair fly point-to-point and it avoid cost conected with passenger and baggage transfer

Boeing aircraft: Single aircraft family the being 737. It palace big being aircraft order just after September 11 2001 benefiting purchases price advantage.

Aviation fuel: Major portion of fuel porches hedged hence increase in fuel price not affected to the company.

In-flight service: No free in-flight service such as free drink or snacks. No refund for no-shows.

Staffs and overhead: Ryanair staffs are non-union and pilots and cabin cres get low salary but compensated with other benefits.

Differentiation strategy:

Ryanair's operation provided several positive features for the passengers towards its punctuality, reduced cancellation, few lost baggage compare with other carriers. Passengers always were assured to reach their designation on time with their baggage. Many other revenue generating service such as travel insurance, car hire, couch and train ticket

Market share and market segmentation strategy:

Ryanair has taken grater market share in the low cost airline business in the European continent and it became market leader in that sector. (Refer appendix 6 for Ryabair's rout map in Europe) .

Ryanair's pricing strategy

Ryanair's cost leadership is the backbone for its lower piecing strategy. Ryanair is the lowest cost in Europe and its 40% low compare to closet competitor in Europe.

Ryanair's current strategy

Ryanair is an Irish airline competing in the low cost European airline industry. They are the most profitable and key players in the market.

Market segment:

Early entrance in France, Italy, Scandinavian low cost airline market creates more profit brand recognition in the Europe budgeted airline industry. The success of the company is being able to attract more passengers at the both ends of their routes. This create a name for Ryanair stating that Europe first number one no frills airline.

Emerge of Ryanair's corporate strategy:

The Ryanair's corporate strategy has been defined much advance and its main objective developed before it commence. Emerge of Ryanair's corporate strategy is the final objective is developed during the course its life.

Competitive advantage:

The main competitors for Ryanair in the low cost market are carriers including easyJet, FlyBe and ThomsonFly. All they try to attract potential customers by lowering the ticket price. In early stage favorable relationship with airport operators helped Ryanair's aggressive pricing until EU commission ruling in 2004 (Refer. Assignment 1, Appendix 11, and page number 30). Dispute with EU commission gives free publicity across the Europe continent.

Business functioning:

Internal resources of the business and its functioning are extremely important for the business to prosper. Ryanair's important function and how this will affect business decision explained in SWOT analysis (Refer. Assignment 1, Appendix 9, and page number 20)

Employees and Technical operations.

Human resources is one of the most important function in an organization. Ryanair keep their staff more happy and motivated. This they do by introducing incentive scheme for all operational employees and share option scheme which allow employees to participate for the success of overall company.

Customer relation.

Ryanair continues to offer no frills low fare service to keep the ticket rate at minimum level. Also Ryanair uses regional airports instead of national airport in order to keep the ticket price at lowest level and helped them for their punctuality due to less congested in the airport. Customers are looking for cheapest way of travelling, hence any bad publicity does not affect sales figures.

Appendix 1

Low cost carrier business model (Source MERCER management consulting 2002)

Appendix 2

Appendix 3

Appendix 4

Appendix 5