Cheap Fares Model Of Ryanair Airline Commerce Essay


Ryanair's strategy was to offer cheap fares in order to capitalize on the market, in order to follow its low cost strategy Ryanair offered fares which were almost 20 percent lower than the cheapest fare of its competitors. With this quest its initial fare was set at 99 Pounds for a return ticket. This launch fare of 99 pounds was less than the half the price of the British airways/Aer Lingus lowest return fare of £ 209.

Ryanair also focused on standardization and in order to achieve this Ryanair flew a fleet comprising only of Boeing 737s which simplifies the costs of maintenance of the planes, also the bulk purchases of spares and other aircraft components also meant economies of scale. This effort also saved the cost incurred in training requirements of Pilot and cabin crew as they have to learn to operate a single type of plane. Apart from this Ryanair made a major portion of its profits by flying to secondary airports which were outside the main city rather than the major airports.

Secondary Airport usage:

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The benefits of using the secondary airports which were located outside the cities were major contribution to Ryanair's profit; apart from this the strategy of secondary airport brought the following advantages:

The charges for landing on a secondary airport were relatively lower than landing on any other major airport.

The turnaround time for the planes it's the "time required for the plane after landing, to be ready for its next flight" was very less when compared to the turnaround time for the planes from any major airport. It used to take approximately 25 minutes for the Ryanair's planes for turnaround which helped in an average of 9 trips per day as against the average 6 of larger airlines making its assets more productive and efficient. Ryanair flew its planes for an average of 11 hours per day compared to 7 hours of British Airways and Ryanair's pilots put in 900 hours a year which is 50 percent more than a BA Pilot.

For the airports which normally witnessed very little or no traffic, the Ryanair was able to negotiate favorable 15-20 year deals on landing fees and other agreements in return for bringing in passengers. For an instance Brussels South Charleroi Airport (BSCA) offered Ryanair a good deal of 15 years for operating a certain number of flights because it felt that the presence of Ryanair could substantially grow its non-aeronautical revenues and even attract other airlines to the airport. The airport also cited the case of coach shuttle from airport to Brussels city which turned profitable since the introduction of parking charges. As per the sources it is been found that BSCA's arrangement with Ryanair is for very low handling and landing charges starting at 1 Euro per passenger, which went up to 1.3 in the later years.

The airport fee charged by the Ryanair as negotiated was as little as $ 1.5 per passenger when compared to major hubs which charge up to an average of $15 to $ 22 per passenger.

Cost of Employee's:

The cost incurred by Ryanair for its staff and crew members was very low. Ryanair increased the productivity per employee and hired fewer employees per plane as compared to other airlines. This helped them with their decision to fly short and medium haul point-to-point flights which involves smaller number of personnel than it would have required if it adopted the more complicated hub-and -spoke system. This avoided the need for any kind of transfer of baggage of people from one plane to other plane and thus keeping the operations simple and inexpensive. Ryanair's simple service model required only two flight attendants per flight when compared to five attendants in any other major carrier which make Ryanair's revenue per employee to approximately 40 percent higher than that of other airlines.

Online services for tickets booking:

Majority of tickets for Ryanair is booked online through its website which is tied up with hotel chains, car-rental companies, life insurers, and mobile-phone companies. With the launch of online booking services, almost 95 percent of bookings were done online making the ticket booking process much easier and keeping transaction costs low. These benefits, approximately $ 6 million a year on an average, which was ultimately passed on to the consumer in the form of lower ticket prices. Also, online bookings make fewer bookings over the telephone and through agents and this make Ryanair to cut agent commission from 7.5 percent to 5 percent. Overall the operating costs of Ryanair was very low, the $50 average cost of a Ryanair ticket could be broken down into approximately $35 operating costs and $15 profit.

Extra Sources of Income:

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Additional revenues were made by Ryanair through the sale of food and drinks aboard. Unlike southwest, which served drinks and light snacks, Ryanair even charged for water on the flights and there were no complimentary drinks, catering or in-flight entertainment. Ryanair also partnered and entered into agreement with hotels and car rental companies so that it could earn commissions by selling these products to passengers. Baggage check-in was offered for free. Passengers were charged according to the amount of baggage they carried/needed which was up to three checked bags per person, which makes the total weight not to exceed 33 pounds. Also the passenger can bring food and drinks onboard.

In-Flight mobile phone service:

Ryanair also planned to test its in-flight mobile phone service on 25 planes with a view to charging passengers to make calls and send text messages, with all these add-ons the profit rose 54 percent and accounted for more than 16 percent of total revenues and were targeted to grow to 20 percent.