A business overview of Ryanair airlines

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Ryanair Holdings plc, incorporated in 1996, is the holding company for Ryanair Limited. As Europe's leading airline, Ryanair offers short haul and point-to-point routes between Ireland, the United Kingdom, Continental Europe and Morocco (Ryanair, 2009).

The European airline market where Ryanair mainly operates is fairly fragmented and competitive (Datamonitor, 2009a). Airline carriers mainly compete in the aspect of "fare levels, frequency and dependability of service, name recognition, passenger amenities and convenience of other passenger services" (Ryanair, 2009:38). Ryanair has to compete rigorously against a few new entrants, traditional airlines and chartered carriers throughout the route network (Ryanair, 2009). Some of its competitors are state-owned or state-controlled flag airlines. In this sense, they may have higher brand recognition, considerable subsidies and other aids from their governments. Moreover, the EU-U.S. Open Skies Agreement, which came into force in March 2008, enables U.S. airlines to operate in the intra-EU market further intensifies the competition (Ryanair, 2009). In addition, the airline industry also faces certain degree of competition from ground transportation and sea transportation service.

The European airline sector had been developing at a healthy rate during 2005-2008, while showed a decline in 2009 (Datamonitor, 2009a). It experienced the worst trading environment it ever had in 2009. Not only did record high oil price severely affect airlines' operating costs and force some operators to cease trading, the global financial crisis also had a serious influence on passenger numbers.

Internal Profile

Ryanair aims to stabilize its position as Europe's leading scheduled passenger airline by continuous progress and expanded low-cost service (Ryanair, 2009). The company seeks to increase its passenger traffic by offering low fares while maintaining constant focus on the efficiency of cost containment and operation (Ryanair, 2009).

The current business strategy of Ryanair (as explained in Appendix 1) can be traced back to the early 1990s, when the new management team restructured its operation into a low-fare carrier with reference to the successful operation model of Southwest Airlines (Ryanair, 2009). During the period of 1992-1996, Ryanair had expanded its routes network and standardized it fleet (Ryanair, 2009). In June 1997, Ryanair Holdings completed its first public offering (Ryanair, 2009). In the period of 1997-2009, Ryanair had launched over 800 routes across Europe and increased the frequency of service on several principal routes (Ryanair, 2009). The number of booked passengers has been increased from 4.9 million in 1999 to about 58.6 million in 2009 (See Table 1).

Table 1 Ryanair's traffic growth profile

Source: Ryanair annual report (2009)


A general summary of Ryanair's financial performance in the recent years is presented as follows (a more detailed version is presented in Appendix 2):

Table 2

Source: Financial Times (2009)

The total operating revenues of the company has achieved over two-fold growth in the last five years, from €1,319 million in 2005 to €2,941 million in 2009. While net income experienced a sharp decline in 2009. Capital expenditure increased significantly in 2006 as a result of purchasing aircrafts. The table above indicates that cash, total assets and total debt of Ryanair has been developed in a healthy rate in recent years.

Close examination of the operating and financial performance in 2008 and 2009 has been presented in Table 3. Certain exceptional items are presented separately in terms of their size and incidence. It is believed that this presentation will provide investors a more accurate picture of company's underlying business (Ryanair, 2009).

Table 3

Source: Ryanair (2009)

Exceptional items increased from € 90.2 million in 2008 to € 274.1 million in the year ended March 31, 2009 as a result of an impairment of the Aer Lingus shareholding and accelerated depreciation charge. Adjusted profit after tax declined significantly from € 480.9 million in 2008 to € 105 million in 2009 because of the fuel price increase.


According to its corporate objective and long-term strategy, the strategic focus of Ryanair has been identified as passenger traffic, fare management, customer service and profitability. The ratios are presented in Table 4. In addition, as the company has currently been through its worst-ever trading environment (increased fuel price and economic recession), liquidity ratios are also presented to better evaluate the company performance (Detailed calculation of profitability, liquidity ratio are presented in Appendix 3).

Table 4

Selected financial ratio for Ryanair






Passenger traffic

Scheduled passengers






Fleet at period end







Short haul Fuel Surcharge






Average Fare






Customer Service

Flights on time






Miss. Bags per 1000 pax













Operating return on equity:












Net profit margin






Asset turnover







Current ratio






Acid-test ratio







Passenger Traffic: Both scheduled passenger and fleet at period end has enjoyed steady growth over the last 3 years.

Fare: Ryanair has continued to pursue its low-fare strategy with no short haul fuel surcharge. During the economic down, Ryanair still managed to lower its average fare by 8% to € 40.

Customer Service: Ryanair has improved its customer service by better punctuality and reduced cancellations over the last three years.

Profitability: Operating return on equity, ROCE, net profit margin in 2009 all experienced significant decrease comparing that of previous fiscal year as a result of the absence of Easter in the year, weaker Euro/sterling exchange rates and aggressive fare promotions (Ryanair, 2009). In addition, decline in net profit margin in 2009 indicates decrease in sales revenue and corresponding increase in operating expenses due to the economic recession and record high fuel price.

Liquidity: The current ratio, in conjunction with acid-test ratio indicated that Ryanair always has the capability to repay its immediate commitment using its current assets.

In general, Ryanair has done a good job in pursuing its low-cost strategy and increasing passenger traffic while fighting against the economic downturn and increasing fuel prices. In 2009, Ryanair overtook Lufthansa, Air France and British Airways and became the largest European airline in IATA traffic rankings (Ryanair, 2009), which moves a huge step forward in pursuing its objectives as Europe's leading scheduled passenger airline. It is believed that the company would perform even better with forthcoming economic recovery.

Public sector: BBC

Context: External Profile

The British Broadcasting Corporation (BBC) is the world's largest broadcasting organisation (BBC website, a), which runs "several TV channels, a 24-hour cable news channel, digital channels, national and digital radio networks and an online news service" (Datamonitor, 2009b:4). Established under a Royal Charter, BBC operates as a public service broadcaster, seeking to enrich people's lives with informed, educated and entertaining programmes (BBC website, a).

The company's main source of funding is through the license fee, which is paid by UK households (BBC, 2008/2009 Part Two). The commercial operations of the company, including BBC Worldwide also contribute to its funding. In addition, the company receives government grant to support the World Service (BBC, 2008/2009 Part Two).

The UK communications sector where BBC operates is highly competitive and ever-changing (Datamonitor, 2009b). The company faces fierce competition from other broadcasting, production and media organisations that offer similar services, such as BSkyB, Channel 4, Classic FM, ITV, etc (Datamonitor, 2009b).

The economic recession in 2008 affects a wide range of UK communications industry operators (See Table 5), especially for those operates within the free-to-view broadcasting sector since advertisers have cut their advertising expenditure or moved its resources to the internet (Ofcom, 2009).

Table 5 Proportional changes in sector revenue, 2007-2008

Internal Profile

According to the Royal Charter (2006: 9-10), the main objective of BBC is to promote its Public Purposes, namely, "sustaining citizenship and civil society; promoting education and learning; stimulating creativity and cultural excellence; representing the UK, its nations, regions and communities; bringing the UK to the world and the world to the UK; in promoting its other purposes, helping to deliver to the public the benefit of emerging communications technologies and services and, in addition, taking a leading role in the switchover to digital television".

To further develop its public purposes, the BBC Trust set out six strategic objectives for the year 2008/2009 (BBC, 2008/2009 Part One: 6-7):

Maintain the maximum reach consistent with its purposes and values

Increase the distinctiveness and quality of its output

Maintain perceived value among high approvers and increase perceived value among middle and low approvers

Restore Trust in its output

Increase the delivery of its public purposes

Delivery an improvement of 3% each year against its efficiency target


Consolidated financial statement of BBC in the year 2009 is attached in Appendix 4. Because of the certainty of its license fee income, the recent economic recession cause less damage to BBC than to its competitors (BBC, 2008/2009 Part Two). As can be seen from Appendix 4, BBC achieved a surplus before interest and tax of £178.1million in 2009 comparing to a deficit of £4.7million in 2008. Its higher settlements in the early years help BBC to fund its Charter commitments through, which include "the digital build and Help Scheme", "the move to Salford" and its network supply strategy (BBC, 2008/2009 Part Two: F02). It is noted that the net assets of BBC in 2009 declined £529.1million comparing to that of 2008 as a result of the accounting valuation of the BBC Pension Schemes. Otherwise the underlying net assets of BBC groups remain constantly during the last year.


Part 2

"The accounting profit figure is the only simple and comparable measurement of the performance of an organisation". Discuss.

Scholars indicate that the accounting profit figure, although useful, should be understood within its context (Elliott and Elliott, 2009; McKenzie, 2010). Elliott and Elliott (2009) propose that external factors like the political environment where the organisation has been operated and economic changes occurred within the accounting period should all be taken into consideration when evaluating organisational performance within a particular period.

The accounting period of the two organisations analysed above is during the global economic downturn. Protected from the certainty of licence fee and government grant, BBC suffered a relatively small portion of decline in its commercial advertising and licence fee. Ryanair, on the contrary, faces its worst trading environment ever in 2009. Not only did the global financial crisis seriously affect its passenger numbers, the record high fuel price also severely influenced its operating costs. In addition, the enforcement of the EU-U.S. Open Skies Agreement in March 2008 made the trading condition even worse for Ryanair. In this sense, the adjusted net profit after tax of € 105 million Ryanair delivered in 2009, despite of a decline of € 376 million comparing to last year, is a huge achievement of itself.

From the internal perspective, the validity of the accounting information itself is questionable. Several attempts have been made to compare accounting's projected neutral image with its actual practice. Robert and Scapens (1985) locate accounting within its organizational context and contend that accounting acts not as a mirror but a set of practices that helps to create and shape the reality of an organisation. It has been argued that accounting today no longer provide realistic valuations concerning the financial performance of the organisation (Macintosh, 2002). In a similar vein, several researches on management accounting and organization behaviour note that accounting practices not only reflect or communicate reality, but also "construct" reality (Hines, 1988). Neal (1996:127) also argues that "accounting is 'naturally' creative and innovation should and will be a constant feature of the financial reporting environment".

In addition to traditional financial statistics, it is suggested that each industry has its own operational indicators which provide some information about the direction where a company is going and its performance comparing to its peer groups (Elliott and Elliott, 2009). It can be seen from the case of Ryanair, where the market position of airline industry is measured by number of passenger carried and the customer satisfaction is measured by the rate of flights on time, missed bags and completions of the trip.

Many argue that improvements in areas such as quality, customer or employee satisfaction, and innovation represent investments in firm-specific assets that are not fully captured in current accounting measures.

Social impacts and constituent's benefits, namely, are much more difficult to measure than purely financial, because they are often intangible, hard to quantify, difficult to attribute to a specific organization, and best evaluated in the future.

When it comes to not-for-profit organisation,

The performance for organisations within public sector are not measured in pure financial terms.

its performance is even hard to measure purely in financial terms

than purely financially since it usually involves social impacts

social impacts

Appendix 1 Key points of company's long-term strategies

Low fares

Ryanair seeks to promote demand by low fares, especially for fare-conscious customer.

Customer service

The company intends to deliver the best customer service comparing to its peer group.

Frequent Point-to-Point Flights on Short-Haul Routes

Low Operating Costs

Ryanair endeavors to reduce or control its operating expenses through aircraft equipment costs, personnel costs, customer service costs and airport access and handling costs.

Taking Advantage of the Internet

Commitment to Safety and Quality Maintenance

Enhancement of Operating Results through Ancillary Services

Focused Criteria for Growth

Responding to Current Challenges

(Ryanair, 2009:49-52)

Appendix 2

Appendix 3 Detailed calculations of specific financial ratios





Operating return on equity:

Net profit before interest and tax (PBIT)/equity

€-180,487,000/€2,425,061,000= -7.44%

€428,927,000/€2,502,194,000= 17.54%


Return on capital employed:

PBIT/Capital employed

€-180,487,000/€6,387,862,000= -2.83%


€451,037,000/€5,763,687,000= 7.83%

Net profit margin:

PBIT/Operating revenue

€-180,487,000/€2,941,965,000= -6.13%

€428,927,000/€2,713,822,000= 16.17%

€451,037,000/€2,236,985,000= 20.16%

Asset turnover:

Operating revenue/Capital employed

€2,941,965,000/€6,387,862,000= 0.46

€2,713,822,000/€6,327,551,000= 0.43






Current ratio: Current assets/ Current liabilities




Acid-test ratio: (Current assets-inventories)/Current liabilities




Appendix 4 Consolidated Financial Statement of Ryanair