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Europe has a wide variety of fast growing low budget airlines as a result of the liberation of the airline industry by the Deregulation Act of 1978  in the US. This gave rise to the introduction of these airlines to Europe. One of such airlines that pioneered this industry is Ryanair. It operates a short-haul, low-fares passenger airline through Ireland and the UK. This industry has become highly competitive, hence airlines had to redesign and come up with creative strategies to maintain competitive advantage. Ryanair has adopted one of Porter's strategies , cost leadership strategy, which it has effectively implemented to become successful.
Ryanair is a renowned Irish airline set up by the Ryan family  that has distinguished itself as the world's largest low-cost carrier (LCC). It has grown to become one of the largest and profitable airline in the European 'Low-Cost' or 'No-frills' airline industry. This report seeks to analyse and critically evaluate Ryanair's strategy in response to the changes in the environment in which it exists since 2006 till date. To get an insight on its strategy, a brief background of the airline is given, strategies they adopted to remain profitable and how effective they were in helping the company in maintaining its position in the European airline industry as the largest Low- cost airline .
It began operation in 1985  with a 15-seat Embraer BandeiranteÂ turbopropÂ aircraft (2)6 operating daily flights from Waterford to London Gatwick. Ryanair existed as a full- service airline raising a price war amongst other carriers on its route, AerLingus and British Airways. Though Ryanair had increased their passenger base over the years, they still recorded losses that led to restructuring of the company in 1991 . This task was taken up by the present Chief Executive of the company, Michael O'Leary who adopted the Southwest Airlines in US, the world's first LCC strategy of 'no-frills', single class, and a low-cost service airline . This new business methodology was implemented by eliminating business class and the use of single model aircraft (Boeing 737-800). They provide low-cost scheduled flights across Europe in the form of point-to-point short haul service.
Ryanair experienced a boom in revenue after these restructuring carrying about 2.3million passengers in 1995  (Appendix 1) to become the largest passenger airline on the Dublin-London route. Since then, they have grown rapidly as a result of its cost-oriented strategy and now ply over 716 routes carrying about 14m  passengers across Europe and North Africa since its inception . To increase its routes and increase passenger base, they acquired BUZZ in 1993 and have tried to no avail to also acquire AerLingus.
As a result of the changing markets and needs of consumers, organisations have had to find means to keep revenues high and still have a competitive edge over their counterparts in the industry. According to Johnson and Scholes (1998), they defined strategy as the long term direction an organisation takes to gain an advantage over a competitive environment in which it exist in, hence, meeting customer needs and shareholder's expectations . This entails developing policies and plans and allocating resources to implement the set down objectives which are in line with the firm's vision and mission.
Ryanair adopted the low-cost based strategy since its restructuring in 1991, to increase its passenger base steadily to 22.1million in 2006  and revenue growth to about â‚¬1.7m (Appendix 2). Though Ryanair experienced an incremental rise in revenue yearly, they had to maintain their long-term leadership as the largest low-cost European airline and also meet shareholder's expectations. Some of the cost focus strategy they adopted include:
Over the years, Ryanair has served a segment of the market, low budget, leisure fliers rather than luxury with its single class aircraft. Ryanair has provided passengers with the opportunity of a one-way fare at discount prices to eliminate minimum amount of time passengers can spend on their journey . Though it is claimed that most advertised fares are not inclusive of other charges such as service charge, taxes etc, but Ryanair takes advantage of this and make fares look fascinating to its customer .
Low operating cost
Ryanair has maintained low budget by flying to secondary airports or airports outside the city like from Luton or Stansted rather than Heathrow or Gatwick airports . This helps in increasing turnaround times as a result of the large traffic at major airports. Secondary airports are also advantageous to Ryanair as they offer lower landing fees compared to large airports. Ryanair has also employed the use of a single fleet of aircrafts (Boeing 737-800) to achieve economies of scale, reduce maintenance and training cost for its staff . All ticket sales are sold directly by the airline via the internet, hence eliminating agency cost and an overall providing cheap ticket for passengers .
Like they are so called "no-frills airlines", they do not provide passengers with the extra luxury of travelling. They have eliminated the allocation of pre-booked seats, meals and drinks and newspapers on board. Instead, they make profit by charging passengers for these extra services and other expenses like travel insurance.
Ryanair adopted the strategy of incorporating other services to its core air passenger service. They provide car rentals, in flight services and hotel reservation for passengers through their online booking and telephone reservations. This has been an incremental source of revenue for Ryanair every year (Appendix 3) even when the company announced losses in 2009, ancillary service revenue grew by 23% to â‚¬598milloion  and â‚¬664million in 2010 .
Since they exist in a very dynamic environment where customer needs, demographics and government policies are changing in the industry, Ryanair has not failed to adjust its strategy to cope with these changes. To analyse Ryanair's strategic position from 2006 till date, this report will use the SWOT tool to analyse its capabilities and the PESTEL tool to describe its macro-environment.
This can simply be defined as a set of competences, capability, resources and skills that gives an organisation a long-term competitive advantage . Hence, for any business to survive and succeed in a competitive environment, it must possess a certain level of strategic capability. To manage these resources strategically, an organisation must be able harness its financial, human and social resources to create an advantage and add value for customers and its owners . A SWOT analysis examines an organisation's strengths and weaknesses in relation to its external threats and opportunities . This analysis evaluates its capabilities within the environment it exists in. This report will use the airlines strategic capabilities to describe its strengths and further use the PESTEL tool to analyse these capabilities in relation to its environment.
Ryanair has been in existence as a low fares carrier since 1991 and has built a brand name that is second-to-none in the industry. Market share has increased every year and in the face of crises in the economy, they have grown passenger traffic by 13% . Ryanair flies to regional airports with lower charges, one model of aircraft which helps it to achieve its low-cost base. It reduces operational cost and making them more profitable than its counterparts.
Asides the general capabilities of airlines in this industry which are low fares and no frills strategy, Ryanair still manages to maintain cost leadership and competitive advantage by doing the following:
The airline's initial strategy was to purchase used aircrafts of a single model. Now, have they built a good relationship with American Aircraft manufacturer, Boeing for the delivery of its own aircrafts to gain an advantage on cost reduction and also encourage a green environment. The airline is able to cut cost in maintenance and obtaining spare parts. In 2006, they took delivery of their 100th Boeing 737-800 aircraft making them the airline with the youngest fleet. Their alliance with Boeing has given them an advantage over their competitors as the aircrafts are built to specifications and advantageous to the airline. Also, in 2006, they were the first to announce plans of on-board mobile phone use within its aircraft . In 2009, they threatened to withdraw their plan on expanding their fleets and returning the money back to shareholders as dividends if Boeing refuses to leave the pricing and terms and conditions Ryanair currently enjoys .
Route Policy strategy
Ryanair chooses to fly to secondary and regional airports with lower landing fees, passenger loading fees and noise surcharges to reduce these fees. Since Ryanair has been able to increase passenger traffic growth at these airports, they are able to negotiate agreements to reduce charges. They also put into consideration airports that are within reach of its passengers and major population centres. These airports are less congested, check-in and security check queues are relatively low, and as a result of this, Ryanair can achieve faster turn-around times and less terminal delays.
Staff and marketing cost management
Ryanair is a competitive environment for its staff as the airline runs a performance-related-pay scheme. They seek to deliver low fares and efficient service in a cost management technique. They offer highly competitive salaries and reward for fruitful efforts  in the bid to reduce operating cost, labour and increase profitability. To build a successful brand, marketing and advertising cost are usually the highest of overhead costs. Ryanair employs the direct marketing technique for ticket sales, offering 70% of its seats at the lowest fares and 30% at a higher price depending on when they are booked. Fares are booked online which saves them 15% on agency fees, no advertising agency; instead they employ in-house advertisement telling the public that they offer the lowest fares. Ryanair's marketing mix is simply low cost oriented.
Outsourcing of services
This is usually seen as a cost cutting technique and strategic scheme in this present recession period. Ryanair involves in ancillary activities which it outsources most of them. For instance, its car-rental service for passengers is solely provided by Hertz Corporation and receives a share per passenger it carries. By outsourcing these activities, they avoid the responsibility of having to maintain and oversee them, and face the exposure of unforeseen changes in fluctuations of cost. Ryanair outsources to third party who suit its strategic plans, at the lowest price and best of quality.
Ryanair has also utilised the use of modern technology for its operation, the internet to increase sales. It upgraded its system in 2008 to accommodate more reservations and other facilities for passengers such as internet check-in and priority boarding service . It has employed the use of its system-provider, Navitaire for back-up service in the event of system crash. Their hedging scheme against increase in fuel prices is an added advantage for the airline.
Ryanair has the task of continually becoming innovative in its reduction of fares and still sticking to the regulations binding it. Ryanair's utilization of aircraft to increase turnaround times of aircrafts, increases amount of CO2 into the environment, though they have tried to reduce this emission per passenger by 50% . They are also known for misleading advertisement. The fares advertised are not actually the amount they are been purchased for. They are prone to bad press and are perceived to be arrogant.
Like any other low-cost carrier, they are affected by any changes or downturn of the economy. Ryanair constantly has to find ways to reduce fare for its price-sensitive passengers.
The expansion of EU will see that Ryanair would be able to fly to more European countries to increase revenue, though will still be bound by the laws of the country. The economic recession that took its toll on the UK economy in 2008 can make low-cost carriers survive it and not become insolvent. Ryanair can exploit the changing situation of its passengers knowing that they are now conscious of their spending by providing lower fares and wider range of destinations, thereby encouraging them to still fly. They should also look into flying to non-European countries to stimulate demand for this type of carriers. If they are not able to achieve this alone and would need help from others who dominate the areas, they can consider mergers or alliances.
Ryanair faces direct competition from other existing LCC and high-flier carriers. They are also cutting fares to meet up with them and this will lead to a reduction in the amount of market share they possess. Apart from aircraft that is a major resource for Ryanair, the aviation fuel is another. The rise and fall of oil prices is a vital concern for them. They are also affected by any changes in government policies and regulations within the countries they fly.
Ryanair has tried its best possible to keep its commitment to its passengers to reduce fares to its lowest possible . They have also proved to provide competitive prices among its competitors. They developed strategies to keep their operational cost low and remain profitable by penetrating to markets where their rivals tread. Ryanair is quick to capitalize and recognise opportunities which have made them the fourth largest carrier in the UK.
This is a vital tool most organizations use continuously to analyse their macro-environment which may lead to a change in strategy. This model consists of Political, Economic, Social, Technological, Environmental and Legal factors. These factors influence the management decision in strategy formation. CIPD (2008) explains that if organisations are aware of their current changes in the environment, it has a competitive advantage over its competitors in responding to changes .
The European government and trade union policies are of great importance to Ryanair as they fly not only within the UK, but to other European countries and are subject to their laws also. The deregulation of this industry in 1986 , a major government decision that introduced Ryanair to the UK, has helped this industry in its growth and formation of basic strategies. The Air Passenger Duty (APD) imposed on airlines by the government is said to increase from £10 to £11 by November 2010 and later to £12 in 2011 . The APD which was in effect since 1994 , is payable even when flights are cancelled. This cost is bore by the airlines especially short-haul carriers, which somehow is bore by customers. Ryanair's chief executive has warned that this will have an adverse effect on tourism, willingness to travel by air, UK's economy and increase fares of low cost carriers in the UK. Ryanair has also considered the effect of this rise on the amount of passengers as this will definitely lead to an increase in fares; they decided to reduce the amount of weekly flights from some British base except Edinburgh and Leeds Bradford. To also survive this increase, Ryanair intends to move some of their aircrafts to their other European bases where lower or zero tax is imposed . This strategy they have decided to adopt and revenue from ancillary services should still be able to keep the airline profitable. Ryanair claims that it will reduce taxes by £8m a year if this strategy is followed .
Ryanair is also subject to the ruling and decisions taken by the Civil Aviation Authority . They have been silent about the excesses being imposed by the British Airport Authority at the airports . Ryanair amongst other airlines, want cheaper landing fees so they don't increase fares for passengers to bear. A major airport where BAA has increased charges is at Stansted airport, a major airport most LCCs use. Airlines have complained of the delays of passengers going through security and overcharging . The Office of Fair Trade and Competition Commissions have decided to look into it though Ryanair has threatened to reduce its capacity by 17% from November in the airport .
Ryanair is not only faced with government policies but also by economic factors in its existing environment. They are affected by inflation and interest rates changes. The most obvious economic factor is the present economic recession which the UK economy has entered into since late 2007. This has increased customer uncertainty in the economy and has a massive effect on consumer markets. Passengers have become extremely prudent in their expenses. Ryanair has acknowledged this situation and have reduced their fares to still make a profit of 42% growth over the previous year . The rise in fuel influences airlines causing an increase in airline tickets. When prices dropped in 2010 from $104 to $62pl, Ryanair extended their hedging program to accept delivery of fuel at this price sometime in the future .
Social changes are major drivers for the growth of this industry as customers constitute its existence. As a result of increased international trade, passengers may need to travel to destinations high -flier carriers do not reach, even if they do they do so at an exuberant price. This industry has been able to effectively attend to this need in the society. An adjustment to EU workers on the maximum hours to work leaves them with spare time to have 'get-away' trips at affordable prices owing to the fact that they are still prudent in spending . The ageing population of the UK economy indicates a low level of travel. Also the 9/11 terrorist attack in the US have made customers conscious about travelling as they are unsure of the next target for the attack.
The advent of the internet in the 1950s has been of tremendous advantage to the growth of this industry. They are able to reduce cost for the passengers increasing willingness to book online, hence increasing ticket sales. Also, with the growing telecommunication systems in the world today, physical contact has been reduced. The use of video conferencing, instant messaging, e-commerce trade etc, will mean less travel especially for business-oriented passengers. Ryanair will have to focus more on targeting leisure travellers and make fares attractive for them to buy. The aircraft have been built to be eco-friendly and fuel efficient, to reduce carbon emission to the environment and reduce operational costs.
As more people are aware of global warming, the government perceives the growth of this industry a threat to plans to reduce emissions in 2050 by 60%. . Ryanair claims to be the greenest airline having spent $10b on aircrafts that have reduced CO2 emissions by 50% . The Emissions Trading Scheme has also devised a means which will commence in 2011 to issue pollution permits and penalise airlines for going past their given levels . While other airlines have decided to cut routes, reduce capacity, Ryanair has invested in the youngest aircrafts to reduce emissions.
Legal rules are vital as they keep in check airlines and make sure they adhere to set down rules such as keep competition law, environmental rules and others amongst airlines. Ryanair is usually charged for misleading information such as comparism with competitors, advertisements and claimed amount of CO2 emission on their website. The Advertising Services Authority has reprimanded them this year for misleading its customers on a £10 fare saying that the advertisement did not state relevant information. This bad reputation will gradually rub Ryanair passengers of their trust in the airline.
These capabilities of Ryanair have been able to provide them with a competitive edge and remain the largest European low-cost carrier and still increase shareholders wealth (Appendix 4).
This is a significant part for achieving a desired strategy as it shows how profitable and effective the strategies adopted can create competitive advantage. It is important to access current strategy to know whether it is in line with the desired or set down strategic position of the organisation. This report will refer to the Ryanair's Corporate and Business level strategy.
Corporate Level Strategy
Corporate level strategy identifies what business to engage in that will give competitive advantage and result in profitability for an organisation .This involves accessing the organisation's activities and strengths in relation to its environment it operates in, its position and the competition it faces within the environment. The Bowman's strategic clock and Porter's generic strategies would be used to analyse Ryanair's corporate level strategy.
This tool developed by Cliff Bowman is used to describe an organisation competitive position in comparison to their rival's competitive positioning . This can be determined by using the following options low added value, low price, hybrid, differentiation, focused differentiation, increased price/standard, increased price/low value and low value/standard price.
Ryanair has adopted a few of these options to gain advantage over their counterparts and stay profitable. The first five options of this strategy clock is what Rynaiar has effectively used, but recently now that they aware of changing consumer needs and preference, they focus on low added value and low pricing to penetrate the industry forcing other competitors to offer competitive prices also. They offer their passengers with the best value offering them value for their money without "frills". They do not particularly offer the best services but have promised to deliver the lowest fares which is the enter notion for travel . This is the reason why they have attained cost leadership in their industry.
Michael Porter identifies three strategic options for an organisation to achieve competitive advantage and an above-average profit: Cost Leadership, Differentiation and focus (Appendix 5). This determines an organisation's position within an industry. Cost leadership strategy is used when a firm is a low cost producer in their industry . Differentiation is used by organisations that wish to distinguish themselves in their product or service ranges that are more attractive than their competitors . Focused organisations select a niche market to serve, tailoring strategies and production to meet their needs .
Ryanair has utilized two of these different strategies. They use the focus strategy providing low fares to a group of travellers who could not afford flying with major airlines. As competition begun to emerge in the industry, Ryanair had to distinguish itself in the market and become sought to do this by adopting the Low-cost leadership strategy that has allowed it become listed in the Stock Exchange and NASDAQ in 1997. It chose this strategy under the management of Michael O'Leary after recording £20m loss in the 1990s. It has achieved this lowered cost and increased productivity by negotiating suitable rates and delivery plans for airports and aircraft manufacturers, by-passing the use of agency for ticket sales. In operating low-cost strategy, high productivity and effective utilization of resources are been used by the airlines. They encourage their staff to be more productive by rewarding them based on their efforts.
They integrated the use of the internet in 2006 to their strategy by introducing the Web check-in service to reduce delays at the airport to increase turn-around time. This may be seen as a strategy to reduce the amount of people losing their flights even if they get to the airports late and still make some money out of passengers who do not check-in online. Ryanair continually expands its services and service range to satisfy its passengers though most of these services are at a fee. New routes are opened often to increase passenger base of the airline and be successful in a competitive market. Ryanair experienced an 8% traffic growth in its first quarter of 2011 fiscal year .
As the competition becomes fierce within the industry, Ryanair continues to use this strategy, forming more alliances with its suppliers for in-flight entertainment and increasing revenues.
This comprise of actions taken to satisfy customer needs and achieve above-average returns with existing products or within a given geographic location. It also concerns decisions on which products or market to develop or penetrate to gain advantage over competitors and eventually lead to the achievement of goals in-line with an organization's. This level of strategy will be analysed using the Ansoff Matrix and growth strategies.
This is used to examine options available to an organisation for growth. It describes the growth of an organisation is dependent on either new or existing products and in new or existing markets (Appendix 6)
This entails using existing products in new geographical areas or market to attract new customers. Ryanair has been known to always open up and launch into new routes. It acquired Buzz in 2003 was able to gain routes in 11 French airports . In 2007, they took delivery of new aircrafts to operate in other European countries and increase passenger traffic by 50million. Ryanair has also been able to identify 'untapped' routes that other low-fare carriers have not, the Greek market and have decided to explore it to reduce fares and operate fast turnaround times for maximum utilization of aircrafts . Its expansion is not only advantages to them, but to the airport and the economy as a whole, i.e. tourism encouraged.
This involves using existing services in existing markets to increase sales. Ryanair uses its affordable and reasonable prices to penetrate into the market to serve their price conscious passengers. With this low price, they offer fares that are competitive for as low as 1p exclusive of taxes. This strategy revived them from an accumulated loss of £20million to a profit of £29300 in 1991 .
This occurs when an organisation provides different services to its exiting market. Ryanair simply adds services apart from its ticket sales on its website. They incorporated hotel reservations, car rentals, travel insurance and a wide range of tourist areas in certain destinations. They still improve on these services to serve the present needs of their passengers and increase revenue at the same time.
Apart from its basic sales of cheap airline tickets, they provide the ancillary services to passengers. These services are available to those who do not intend to book tickets with Ryanair. From their website, they provide suggestions to destinations of interests.
Organisations need to attain a certain level of growth to be able to withstand the competition in the environment. To attain these, they adopt different strategies to attain this level to remain profitable and increase market share. These strategies are broadly classified into: Vertical and Horizontal Integration, Concentration, Diversification and International strategies .
Ryanair has made tremendous efforts to expand its airline. They have done this by expanding to some routes high-fliers tread, improving on current routes within Europe and acquisitions that would have increased revenue and formed one of Europe's largest airline. Its failed bid for acquisition for AerLingus in 2006 was a move to growth. They entered into a contract with Boeing to get delivery of aircraft for its expansion in Europe and Continental Europe.
They have formed partnerships on some of their ancillary services such as hotel reservations. Expedia Private Label and Hertz car rental have become partners to Ryanair to provide hotel accommodations and car rental for its passengers . This allows Ryanair have a competitive edge over its rivals by providing passengers with the option of booking from a range of varieties of hotels and the convenience of a rented car at airports alongside their tickets without hassles. From this, Ryanair has been able to increase its revenue from these services to â‚¬485.7m in 2010 .
Ryanair has been able to attain this of growth as a result of the strategies it adopted for growth. Ryanair keeps onto its promise to keep fares as low as possible to beat prices of its competitors by improving on their routes and penetrating into other operators' route with lower fares hence, encouraging passengers to travel with the airline.
This is an important part that must be carried out after identifying strategies to be adopted. It describes the validity and potential of it being able to sustain an organisation. Different criteria can be used to access these strategic options but this report will use three of these criteria.
This assessment method is concerned with assessing whether an option is suitable based on the rationale on which it was been formed and creates competitive advantage to the organisation. In other words, it assesses how the option addresses the challenges of the environment based on its strengths and available resources that are in-line with the corporate culture and creating synergy to the organisation.
From the SWOT analysis of Ryanair carried out above, the major strength of this airline is them being the cost-leader in this industry. This strategic option seemed to have worked well for them as they continually reduce their fares in competition to their rivals. Caution should be taken so as not to reduce fares to much in the bid of being the cost-leader airline. With the emergence of new technology that replaces face-to-face communication of individuals continuous changes in consumer need and the UK's population that comprises of the aged, Ryanair may not be able to grow at this rapid rate anymore with this strategy in the following years. Hence, Ryanair needs to expand to other routes instead of basing in Europe to create synergy for the airline.
This criterion assesses whether an organisation has the resources and capabilities to implement its strategic options. This analyzes its finances, availability of resources and capabilities to deliver this set options.
With Ryanair, this criteria is satisfied as they are capable of implementing the options they intend to use to gain advantage and a successful airline They record a huge amount of more than average profits and are able to dictate to some of their suppliers i.e. Boeing. To implement their low cost strategy, they have entered into contracts to accept delivery of oil at a given price. At least this will keep fares as low as possible if their delivery price is lower than the present price. They also outsource some services that fetch them revenue. This helps them focus on their core services and still provide them gains from other areas.
This criterion assesses an organisation's options in relation to its policies and objectives. It checks if the strategy direction adopted is in-line with its values. Ryanair's goal is to always provide the best and cheapest fares to its passengers which go in accordance to its bid of sustaining its position as Europe's largest LCC. They have used their cost focus strategy to penetrate the industry causing competition amongst its rivals and have not wobbled around different strategies. For any organisation to reach total alignment with its corporate strategy, it has to be consistent and have a clear competitive advantage within its industry.
There continuous zeal to open up new routes within Europe to provide low fares to customers in that region and find other ways to increase revenue by outsourcing some of its ancillary services shows that they are being consistent in maintaining their low-cost strategy.
From the analysis of the evaluation of Ryanair's options, it is obvious they are capable of handling competition from their counterparts if they strategically utilize the options. Knowing exactly when to penetrate the market and areas to develop are one Ryanair's major strengths that it uses to effectively implement its strategies.
It is obvious Ryanair has been able to device means to withstand the competition in the industry and maintain its long-term view of becoming Europe's largest low fares airline by implementing the following strategies. Its cost management scheme and zeal to increase passenger base and routes will keep it profitable in the industry for a long time. Now that they have attained some level of growth in Europe, they should seek to move to other areas where there is a high demand for this kind of budget airline.
The limitations to this report include:
Lack of access to authentic information.
Limited word-count to effectively evaluate the strategies and proffer recommendations to the airline.
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Access to Secondary or Regional Airports
Internet used for sales and marketing
Ability to hedge against exchange rate risk to guard against sudden oil prise rise
Ability to provide the lowest fares in comparison to its competitors to passengers
Ability to generate income through ancillary services
Capabilities for competitive Advantage
Variety of destinations and routes to gain high market share
Commitment to low fares
Good leadership style
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