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RYANAIR- The Irish low cost airline was founded in 1985 by the Ryan family as a small competitor to Irish national airline Aer Lingus. As Ryanair walked on the same business model as that of its competitors. But this strategy adopted by Ryanair never turned out as a profitable one and took it nowhere. In 1990s, Ryanair transformed its strategy and under the leadership of Michael O’Leary it decided to restructure and model itself after Southwest Airlines, the successful US Carrier and then enter into British Isles, and then in to whole of Europe. (Johnson, et al, 2008).
The move of effective resource planning and redesigning Ryanair under the leadership of Michael O’Leary was the turning point for the airlines. The Mantra of maintaining Low costs and No Frills worked wonders for Ryanair. Its effective resource planning and core competency helped Ryanair to develop and grow throughout years. Using regional and secondary airports, not to charge customers for fuel surcharge, reducing operational and handling charges were on the main agenda on Ryanair. Due to combination of all these activities Ryanair was able to maintain low costs and thus earn profits out of it.
Ryanair faced many hurdles to reach where it is today .Sudden rise in fuel cost, compensations to passengers, aftermaths terrorist attacks, environmental taxation schemes, fraught relationship with pilots and staff, sundry legal action and many more acted as potholes to Ryanair’s smooth ride. But “Michael O’Leary who was called everything from ‘arrogant pig’ to ‘messiah’ ” (Johnson, et al, 2008), balanced every sector of the organisation and scripted the success diary of Ryanair’s.
As per ELFAA (European Low Fares Airline Association)2010 statistics, in the year 2009, Ryanair topped the list with maximum number of passengers among its European low cost competitors. It covered 28.67% (i.e. 65.3m) passengers share among its ELFAA counterparts and travels over 150 destinations throughout Europe, and operates 1070 daily flights over 1000 routes(Anon, 2010)
KEY CRITICAL SUCCESS FACTORS
As Ryanair operated in short-haul trips, it helped Ryanair to maintain low fares. Low fares helped to motivate demand, particularly from fare conscious travellers who would have rather opted for either means of transportation.
The European Low Fares Airline Association (ELFAA) announced that last year its members carried 162.5 million passengers, representing an 8.7% increase on the previous year(Anon, 2010).This showed that, let it be for leisure or business, European consumers are chosing low fare airlines as it provides them Best Value for Money air services.
Point to Point Model
Figure 1: point to point model
(Source: http://ostpxweb.dot.gov/aviation/airlinebusinessmodel.htm )
Ryanair operates in short-haul routes, which connects secondary and regional airports of the travelling destination. Ryanair carries out its point-to-point operations on a regular and frequent basis which has helped airlines to eliminate the necessity of ‘frills’ services to its customers, which becomes quite necessary in long-haul routes. This point-to-point service helped Ryanair to serve non-stop and direct routes to its customers, and thus eliminate extra costs which are involved in long-haul routes. It also helped airlines to thus reduce its unit costs as aircrafts are utilised more. It helps in reducing operating costs, as flights are direct and does not involve any connecting flights and further expenses involved in it.
“Ancillary revenues are regarded by analysts as a lucrative source of revenue growth for Ryanair at high margins”(Milmo and Griffiths, 2006)
Ryanair believed in No Frills policy .There is also no complimentary food and drink;instead this is sold on board(Anon, 2004).It earned revenue by imposing charges on hotels, travel, excess baggage,flight change fees, in flight retail and other such facilities. This helped Ryanair to maximise its Ancillary revenue.
Keeping focus on this No Frills policy, Airline chief Michael O’Leary suggested that “installing pay toilets would lower ticket costs and make flying, somehow, easier for all” (POGATCHNIK, 2009). He believed this will further help in generating ancillary revenue and thus will further support in reduction on fares.
CHOICES OF ROUTES
According to Pitt and Brown(2001) at present, there is a clear gain in terms of the time in which the air carriers can physically move customers from one point to the other, basically speaking there is very little disparity in terms of the total journey duration when we allow for airport processes and procedures and thus comparing it with the time taken to reach to the departure airport and to transfer from the arrival airport to the final destination. It was for the same motive that regional and secondary airports were majoritily connected by Ryanair as this helped in keeping the airport and handling cost low as compared to the main congested airports. Thus choices of routes was made by keeping Ryanairs Budget airline model in mind as it strengthens the competitiveness of the airline.It also enabled to make quicker departures, and quicker flight turnovers.
LOW OPERATING COSTS
Ryanair strategies and action plans had made it Europe’s biggest low fare carrier. As Ryanair operates in short-haul routes; it aims at reducing ;
aircraft equipment costs by using single type of aircrafts which later on upgraded to new generation aircrafts due to stiff competiton and environmental needs and regulations;
personnel expenses by improving productivity of its present staff by providing productivity-
based incentives, on-board sales incentives for flight attendants, number of hours flown by pilot and the cabin crew within the set time limits, this motivated the staff to work for more hours.
customer service costs by attaining competitive rates by signing multi-year contracts with third party contractors for aircraft and passenger handling, ticketing and other services:.As Ryanair was the largest travel website in Europe and fifth most recognised website in Europe,thus internet booking has immensely helped to reduce the customer service cost and also remove commission charges of the agents; and
airport access and handling costs which is the also the key competency of Ryanair.Intorduction of web-based check-in and priority boarding helped Ryanair to enhance cost cutting in airport access charges. Also introduction of charges on check-in bags helped in reduction of baggages and saved costs and enhanced the performance and the speed of the aircraft.
Ryanair kept its fleets cost under control by solely operating Boeings-737 jets and thus kept training, maintenance and operating costs under check(Anon, 2004).
“Ryanair is a very well-positioned brand, You know exactly what it stands for not something you can say too often in the travel business”( McGuinness, 2010). Imposing toilet fee, excess baggage restriction, charges on credit cards, allegations of overstressing of staffs,environmental issues, sundry legal actions and many other such issues provided Brand Ryanair free of cost publicity and thus promoted itself as lowest fare airlines in Europe.Ryanair fifth most searched website worldwide, this show the potency of the its low cost carrier brand. (O’Connell and Williams, 2005).
Web based check-in helped in reduction of airport costs for the Ryanair. Officials at the no-frills Irish airline said by lowering its airport costs they can pass th savings to passengers by lowering the fares further(Pugh, 2009). It saved check-in time and also reduce check-in staff costs and thus helps in maximising profits.
Ryanair fleet of 130 Boeing 737-800s, is the youngest fleet and emits fewer gases than its older aircrafts( Chesshyre, 2007).This made Ryanair environment friendly and thus follow all environmental norms.
Ryanair is a non-union operation having its headquarter in Dublin, Ireland(Box, 2007). Ryanair mainly carries out its operations from secondary and regional airports.
In the year 2006 Ryanair’s saw growth in its traffic by 26% to 34.8 million passengers and even ancillary revenues grew by 36%, which was higher than passengers revenues.
Ryanair had a fleet of around 100 new Boeing 737-800 aircraft, which was the youngest fleet having an average age of 2.4 years. These new aircrafts were environmental friendly and also consumed lesser fuel. Ryanair’s stock was up by 12% in a year to 9.28euros per share.Ryanair manpower grew to 3500 employees.
Ryanair being a brand in airline sector, made profits due to its adequate fund and resources.
A core competence is a set of skills and technologies, which enables a company to achieve a particular benefit to customers(Hamel and Prahalad,1994). It would not compulsorily be product-specific,but represent a very unique and difficult-to -imitate practices, which certainly stands as a pillar for the firms competitiveness. It would not be generally an asset or a value that can be seen in a firms balance sheet, it is a skill for doing things.
Initially Ryanair focused on customer service and also wanted to provide lower fares than its fellow airlines-British Airways and Aer Lingus(Gillen and Lall, 2004). In the 1990’s Ryanair copied Southwest Ailrlines,US business model and chose a new way to establish itself as Low Fare Carrier Airline in Europe. Ryanair took the Southwest operational efficiency to the next step “by providing no service-no food; no jet ways; no frequent flyer programme; no refunds; no travel agents; no tickets; no connects “(Gillen and Lall, 2004). Ryanair mainly focussed on providing low cost, competent, regular connections and subsequently offering no other frills or supporting services(Kangis and O’Reilly, 2003). This policy helped Ryanair to generate revenue.
“Numerous possibilities for non-price differentiation exist focusing on features such as punctuality, high frequencies and timing of flights” (Klophaus, 2005). Ryanair adopted point-to-point routes as the it is not delayed by interlining passengers. Check-in is more faster because the point-to-point journey is simple than an interline one as choice is of regional and secondary airports. Boarding is rapid as seat choice is better for passengers who arrive early at the departure gate( Barrett, 2004). This also helped in maintaining high punctuality for Ryanair.
“Lower costs also stem from reduced complexity in activities” (Gillen and Lall, 2004). Further Ryanair outsourced its activities as “Outsourcing brings a flexibility to an airline in choosing between different suppliers of services such as aircraft maintenance, handling at airports, catering, and inflight magazines. Outsourcing brings flexibility to the company in choosing whether or not to renew contracts as they expire. In inflexible labour markets securing efficiency gains from an inhouse labour force is likely to be more difficult and involve compensation for change”( Barrett, 2004). By adopting outsourcing Ryanair has made its development much easier and has expanded quite uncompromisingly which has given it a initial mover benefit in negotiating with airports and allowed it to sign long-term contracts( Gillen and Lall, 2004)
Boston Matrix diagram
The market share and the growth of market are the two contingent variables which determine the position of the firm. According to Seeger(1984) it is one of the simplest and most vivid concepts which consists of two impotant variables of the market i.e. market growth and market share.
Ryanair falls under Cash Cows as it growing slowly even though its market share is high. It heavily targeted at maximising its market share and cash flow.As ryanair adopted no frills policy and outsourcing, the investments needed by it has to be low.Even though having high revenue Ryanair cannot expand its activities into other product lines, as its competitive advantage of low fare can be disturbed by certain small change in charges or taxes.
“The purpose of the value-chain model is to assist companies to evaluate and select the optimum set of activities and methods of performing them to create the most value for the firm” (McPhee, 2004). It incorporates both traditional business activities that provides continuous value to the organization and wide range of activities from modern strategic theory. Very Impotantly , expanded activites i.e Supply chain management, Product use,End of primary use,External networks, ensures that no potential strategic activity is elapsed and no opportunity for enhancing value is ignored.
INFRASTRUCTURE – Minimum Corporate HQ
Low Cost Training
Discount on aircrafts
Low cost suppliers
Low cost promotions
Free publicity due to controversies
Marketing and sales
RYANAIR – VALU CHAIN
Ryanair has least infrastructure required for corporate HQ. HRM involves Low cost training, limited crew, control of management, in-house and performance contracts that is done by developing technologically such as internet and low tech marketing on internet sales(McPhee, 2004). The procurement of low cost training is done with discount from Boeing, limited crew procurement involved alliances which result in ‘No frills and low cost operations’, management control is outsourced for quicker turnaround and reliable services. Marketing and sales incurs very less expenses as there is more internet sales involvement with little promotion costs, free publicity through controversies and yield management. Performance contracts are low cost productivity based which utilizes the less available productive resources
The Mantra – Ever decreasing costs .Point to point flights, No frill policy ,and innovative ancillary schemes led to growth in revenues and thus made Ryanair financially strong and successful
Ryanair has a very strong Brand and reputation in the European market, which enables them to adopt aggressive pricing stratergy.
“Ryanair can credit much of its success to its wily chief executive, Michael O’Leary, who has used a combination of Irish blarney and sheer bloody-minded effrontery to achieve growth for his airline”(Anon, 2010). He readily faced all the hurdles that came in Ryanairs way and thus with his innovative style converted these controversies it into publicity for Ryanair.
Ryanair has the youngest single aircraft Boeing 737-800 fleet which has high seat density and also helped in reduction of maintanace and training costs
Secondary and regional airport approach helped Ryanair in maintaining operations in busiest aviation traffic areas and thus reduce airport handling and flight turnover times.
Web-based ticketing and check-in have been attracting people as it is time saving and also feasible for them.
Ryanair has a huge future because of the untapped market. Lower fares help Ryanair to attract customers who use non-aircraft modes for travelling longer distances.
Customer relationship is very poor.
Ryanairs operates from secondary and regional airports, which sometimes are very far away from the actual destination.
Ryanair had weak employee relations.
As Ryanair is a low cost fare carrier any new tax or charges effects its profits greatly.
Ryanair is prone to bad controversial issue in the press, which gives a negative picture about the Brand Ryanair
Developing Ryanair from the point of closure to the top profit making low fare airline, handling all controversial issues and media, motivating and energising people, facing legal actions and competitors. “There is little doubt that O’Leary’s confrontational personality has ruffled more than a few feathers amongst his rivals” (Anon, 2004). But for Michael O’Leary, any criticisms of him or his airline were looked up as giddy and completely pointless methods to divert Ryanair from its mission.
All this is enough to prove that Michael was an efficient and innovative leader with every quality which a modern leader must pursue in order to achieve goals.
Ryanair by choosing a Low Cost Carrier Approach, have achieved it through simplicity of product design, simplicity of processes and simplicity of organization (Gillen And Lall, 2004). Thus we can see Ryanair have restructured the European market’s competitive environment and made an impact on the world’s domestic airlines market, which was monoploised by huge airlines(O’Connell and Williams, 2005).
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