History of the success started in such a small airport in Ireland in 1985 now as a leader of Low Cost Airlines , Ryan Air currently supplies hundreds of affordable flights to many countries in Europe. Currently the company has 39 base and almost a thousand of routes in 26 countries in Europe. Ryan Air owns more than 218 Boeing aircrafts with the inclusion of new aircrafts, which will be delivered in next three years. Moreover, Ryan Air employs around 7000 people to serve their 66 million customers every year.
1.2 Ryan Air: As a Europe Low-Cost Leader in 2009
Ryan Air's objective is to maintain its position as a low-cost airline leader in Europe. Despite that there is no mission statement of the company we can clearly understand the company's mission from its strategy that it uses, flying frequently point-to-point on short haul and especially using small size of airports enables to Ryan Air reaches its goal. The actual strategy is based on no frills service to create a demand with low fares.
2 Analyzing Ryanair's Low Cost Business Strategy
This is a crucial part of a strategic analysis because organisations do not exist in a vacuum, they are part of a complex world and many factors can influence operations, beneficially and unfavourably. However, these can be difficult to comprehend due to their complexity, diversity and fast changing nature. Necessarily a number of techniques have been developed to facilitate the process and to '...contribute to answering the key managerial question...'of what '...opportunities and threats might arise in the future.'
Therefore we now are going to analyse external factors which affect Ryanairs environment in the competitive industry.
2.1 The Macro Environment Factors
To analyse macro environment we will use PESTEL investigates the present situation of the company about political, economical, social, technological, environmental and legal ways which influence the company's strategically success or failure.
• Political Aspect
In political factors our focus in mainly on the taxation rules ,route changes, security and union policy as announced by the government.
There have been political and legal issues concerning Ryanair such as, a new European Union (EU) regulation came into effect, various legal actions, terrorism, and security. The new EU regulation was to compensate passengers that were inconvenienced by delays, cancellations and denied boarding.
Terrorism and Security increase had an impact on costs and risks in the airline industry worldwide. Ryanair suffered a loss of about €1.9 million in just a few days following an incident in the United Kingdom. In addition Ryanair has been in dispute with several airports over landing charges. A recent dispute is with a rival Air France over Marseille airport, which Ryanair air planned on basing two aircrafts serving 13 routes. The dispute was mainly about unfair discounted landing and passenger charges on flights within France.
* Economical Aspect
Ryan Air, the biggest low cost airline in the UK and Europe (LFA)* reported its results with a 46% increase in profit(£257m) compare to a net profit of £176m a year earlier in the second-quarter for 2009 . Ryan Air experienced weak market conditions, high fuel costs (oil prices around $71.03 a barrel, ATA*) 1 Addition to this affects of recession in Europe and UK economy from the previous years result in not so strong future profit expectations. However, the budget carrier took an advantage from 37% fall in fuel prices and passenger number increased 18% by the end of last year. Ryan Air achieved the 2008 pre-tax profit target by the lower end of €200m to €300m range, while British Airways was refusing to release profit forecast last year.
• Social Aspects
Considering the European countries population growth rate,it is lower than USA and Asian countries. However, life style and cultural changes impacts travelling frequency and this affects to Ryanair short haul and low cost strategy positive. Another important change is, as the economy is increasing people are more interested to fly for vacation that helps low cost airline industry. Moreover, low-cost strategy has an important influence on the travelling demand with providing affordable tickets.
* Technological Aspect
Nowadays people are more integrated to technology with internet and Ryanair optimize its system with online booking. With using internet services for booking and customer services Ryanair saves from time and lessen its expenses. Internet booking enables Ryanair to give efficient service to their customers.
Furthermore, Ryanair takes advantages from having one type fleet of airplanes such as there is no extra maintenance cost for Ryanair and they just need to deal with one supplier. Ryanair's current fleet of 166 Boeing737-800 Next Generation aircraft have an average age of just over 2.5 years (against the average world fleet age of around 11 years2) and future growth plans provide for the acquisition of a further 140 brand new aircraft of this type.The Boeing 737-800 Next Generation aircraft has a vastly superior fuel burn to passenger kilometre ratio than that of the 737-200 aircraft. The move from these older aircraft to new 737-800 Next Generation aircraft alone has reduced Ryanair's fuel consumption and CO2 emissions per passenger kilometre by 45%.(ryanair.com)
• Environmental issues
Ryanair currently operates the youngest and most fuel efficient aircraft fleet in Europe. Ryanair has minimised and continues to reduce fuel burn and CO2 emissions per passenger kilometre. Ryanair's fuel burn per 100 revenue passenger kilometres (RPKs) is currently less than 3.5 litres and is expected to decrease further due to fuel saving measures currently being implemented. For example, the fleet-wide installation of winglets on all Ryanair's aircraft reduced fuel burn and CO2 emissions by up to 4%.
• Legal Aspects
Ryanair have been ordered to repay several million euros is subsides to the southern Belgian Walloon region. Having not obeyed the rules like every other airline they have to repay some subsidies received for using Charleroi as a destination. The local community feel it has a negative impact to the economy due to huge amount of pollution build up from the engines. This is a huge setback as major debt builds for the business. This will cause an economic problem has Ryanair will have to cut back on there services and limit their customer's the best deal (s) or service.
2.2 The Industry Environments
• Threats of New Entrants
First thing to look at is the threat of entry to the low cost airline market. The treat is relatively high in airline industry but it depends on the performance that the airline have at the end. There have been factors that have influenced the threat of entry, over the past a few years, are follow:
- High customer demand and the expanding market make which pulls in new entrants and reduces the effect of entry barriers
- Deregulation system lowers the barriers to entry for new airlines in Europe. Addition to this existing airlines take advantage from the new system too. For example, Go Fly entered the market in 1998 ,which was owned by British Airway to compete the other budget airlines like Ryanair and Easy Jet. It is taken over by Easyjet in 2002 and this was the end for the airline.
- High budget needed for such investment and this is an important barrier to some extent.
- Lots of strong competitors, lack of landing and take off slots make the conditions difficult for the entry.
Therefore,new entry level for the market is low to medium and this affects Ryanair's strategy position in the market positively.
* Threat of Substitutes
The threat of substitutes significantly important for the airline industry market which has been increasing within the last few years for Ryanair and the other low cost airlines.It is result of lack of confidence in airlines related to airplane crashes and terrorist attacks happened within last couple of years.
- The other mode of transports such as train, coaches are in the transport industry and they increase the bargaining competition.
- Especially fast trains like Eurostar compete with budget airline companies within short haul destinations.
Although,low-cost airlines have taken over some of the high speed trains and ferries in Europe.
• Bargaining Power of Suppliers
Companies rely on their suppliers to ensure that their services and goods are available on time in this aspect suppliers have an impact on the company's efficiency. Ryainair's suppliers,
- Boeing is the most important supplier for Ryanair ,which currently supplies aeroplanes to many budget airlines. Hence, Ryanair's owns one type of fleet and these are all from Boeing.
- An other supplier is oil companies but Ryanair cant alters this supplier.
- Airports and airport services suppliers have critical effect on the company's strategy as well. Ryanair cooperates with other service companies for maintaining their services such as luggage handling and passenger loading at airports, in other words the company outsources this services.
Recently, Ryanair announced that it was confirm that the company is planning to close all check-in desks in the beginning of 2010.Michael O'Leary said that passengers will be able to leave their luggage at a bag drop but otherwise everything will be done online.
* Bargaining Power of Buyers
Price dominated short-haul market with little or no product differentiation. Buyers power is influenced by other substitutes and competitors.Thus, buyers face low switching costs and the effect of buyers power is low for Ryanair.
1-The first priority is value of the money for the low cost airlines' customers.
3.1 Ryanair Low Fares Startegy and Standardized Operational Model
Ryanair believed its cost focus strategy would help it to capitalized on the market by offering cheap fares.It offered fares that were almost 20% lower than the cheapest fare of its competitors.For instance ,its initial fare was set at 99 pounds for a return ticket.The launch fare of £99 return was less than half price of the British Airways/Air Lingus lowest return fare of 209 pound.Both British Airways and Air Lingus had to slash their high prices in response to Ryanair's , thus starting the trend of low-cost fares.Ryanair focused on standardization and flew comprising entirely of Boeing 737s to simplify and lower maintenance costs of the planes. Bulk purchases of spares(in addition there is no need to stock spares for different type of planes)and other aircraft component also meant economies of scale. Ryanair could also save on training requirements as the pilots and cabin crew had to learn to operate a singe type of plane. Moreover, Ryanair made a major portion of its profits by flying to secondary airports rather than main city airports.
3.2 Advantages of using secondary or airports outside of city
Firstly, secondary airports have relatively lower landing charges and there is considerable less delays than big city airports due to lower traffic. Lower traffic also allow the planes turnaround quickly, while major carriers take an hour to turnaround each plane.The turnaround time for Ryanair planes is approximately 25 minutes. Ryanair's aircrafts make an average of nine trips per day as against the average six of larger airlines making its assets more productive and efficient. Ryanair flys its planes for almost 11 hours each day compare to 7 hours of British Airways(BA).Ryanair's pilots put in 900 hours a year,50 percent more than BA and the other airways pilots.
Secondly, Ryanair is able to negotiate favourable 15-20 year deals on landing fees and other agreements in return for bringing in passangers to airports which normally witness little or no traffic. For instance, Brussels South Charleroi Airport (BSCA) offered to Ryanair a perfect deal which is for operating a certain number of flights for 15 years in 1997. In addition to this Irish low cost airline,which opened it first continental base at Charleroi in Europe in the same year.Seeing that the presence of Ryanair could substantially grow its non-aeronautical revenues and even attract other airlines to the airport.As it is expected other low-cost carriers later joined Ryanair in Charleroi, such as Wizz Air and On Air. Later on the airport also cited the case of the coaches and shuttles from the airport to Brussels city. That turned profitable since the introduction of parking charges in 1999.While Europe's popular city airports charge the average rate of $15 to $22 per passenger,Ryanair negotiated with the airport fees of as little as $1,5 per passenger. BSCA's arrangement with the low-cost leader is for very low handling and landing charges starting at 1 euro per passenger, which goes up to 1.13 Euros in 2009 and 1.3 Euros in 2010.BSCA also covers Ryanair's incurred expenses such as marketing support, incentive payments for each route started, and the costs associated with hiring, training local crew, even office and hangar places provided at a minimum cost to Ryanair by the airport.
3.3 Lower Wage Bills
Ryanair is able to keep its wage billow by increasenig the productivitiy per employee and hirin fewer employees per plane than other airlines.The decision to fly short and medium haul, point to point flights also enable to airline to work with a smaller number of personnel than ot would have required if it adopted the more complicated hud-and -spoke system.Flying point to point avoided the need for any kind for transfer,thus keeping operations simple and inexpensive.
Moreover, major carriers had five attandence per flight,Ryanair simple service model required only two flight attendants per flight. As a result, Ryanair's revenue per employee was approximately 40 percent higher than of the other airway companies.
3.4 Ryanair.com and online booking strategy
After launching their online ticket system in 2000, Ryanair's booked tickets a majority of tickets online. Within tree years almost 95 percent of the bookings made online. Thus it is keeping transactions costs low and online booking process much easier than the other ways. These benefits ,approximately $6 million a year on an average ,ultimately were passed on the consumer in the form of lower ticket prices. Moreover, online bookings meant fewer bookings over the phone and through agents.Ryanair was able to cut agent commissions from