ESC RENNES SCHOOL OF BUSINESS

SERVICES MARKETING MANAGEMENT

- CASE STUDY -

Anthony NOGUEIRA DIAS - PGE 2

Academic year 2015/2016 – Semester 2
 TABLE OF CONTENTS

I. Learning objectives of the case study ……………………………………… p.2

II. Introduction …………………………………………………………………. p.2

1) Overview of Ryanair
2) Issues and findings of the case study
3) Services marketing theory used in the case study

III. Analysis ………………………………………………………………………. p.3

1) The basis of the Ryanair’s success from the 90s till 2012
2) 2013: The turning point for Ryanair
3) The new era: 2014 – up to now

IV. Conclusion and recommendations …………………………………………. p.9

V. Bibliography ………………………………………………………………… p.10

VI. Appendices …………………………………………………………………... p.11

1) Average fares during the FY2011
2) Ryanair’s financial results & number of passengers
3) Ryanair & EasyJet brand image
4) Evolution of the bookings’ number
5) Airlines’ punctuality
6) Ryanair’s projections
7) Content of the “Always Getting Better” program for the year 2016

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 I. Learning objectives of the case study
The aim of this paper is to analyse the way Ryanair evolved over time to remain successful.
To achieve this objective, three key phases of the recent company’s history will be studied:

 First, the strategy and the action plan developed by Ryanair to penetrate the market.
 Then, the challenges faced by the firm, which weakened its business model and consequently its market
position.
 Finally, the way the company handled those challenges. Therefore, the analysis will focus on the strategic
decisions made by Ryanair to remain competitive on the market.

II. Introduction
1) Overview of Ryanair

Ryanair is an Irish low-cost airline, founded by the Ryan family in 1985, which performs short haul flights and
carries out point-to-point routes throughout Europe and North Africa (the company serves 31 countries in total).
Nowadays, the company is managed by Michael O'Leary and is headquartered in Dublin, Ireland.
The Ryanair’s strategy is based on a strict control of its expenses, with the aim to offer cheap fares to customers.
In 2015, Ryanair employed approximately 10.000 people and its turnover exceeded 5 billion euros. The firm
operates over 1,800 flights per day and handles more than 100 million passengers per year, which demonstrates
its power on the market.
Concerning its environment, Ryanair competes with the low-cost airlines, as well as premiums airlines.
Therefore, its major competitors are British Airways, Air France KLM, EasyJet, Germanwings, Lufthansa, Flybe
and IAG.

2) Issues and findings of this paper

 Main issue of the case study:
 Which strategic decisions Ryanair should make to improve its brand image and stop the departure of
its customers?
 Main finding of the case study:
 Ryanair decided to change its approach, and evolved from a pure “price-focus” strategy to a more
“passenger-friendly” strategy.

3) Services marketing theory used in the case study

To lead this case study, the “Strategic Service Vision” framework has been employed.
Indeed, this marketing concept, which is useful to understand a company’s strategy, has been applied to Ryanair
twice. The objective was to emphasize the evolution of the company over time.

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III. Analysis
1) The basis of the Ryanair’s success from the 90s till 2012

Ryanair became successful by implementing an ultra-low-cost business model.

It means that the company controlled carefully all its expenses to keep its final costs low. Thanks to this strategy,
Ryanair was able to offer the cheapest fares on the market (see appendix 1), while remaining profitable.
From the 90s till 2012 this business model was successful, mainly because at that time the most important
criterion for customers was the price. This well-designed, well-implemented and well-executed strategy provided
to Ryanair a strong and sustainable competitive advantage over its competitors.
During this period, the market segments targeted by the company were the lower and lower-middle class (and a
part of the upper-middle class). Indeed, Ryanair focused mainly on the “price-conscious” customers who were
looking for cheap fares.

But, how did Ryanair do to be able to offer the cheapest fares of the market?

First, the company used the “direct selling” method to keep its expenses as low as possible.
Indeed, Ryanair sold its tickets directly to consumers, either through its website or by telephone. This strategy
enabled the company to avoid extra costs linked to the usage of intermediaries, such as travels agencies.

Then, the company decided to operate only through regional airports. Two reasons justify the Ryanair’s
decision:
The first one, saving money. The costs linked to the aircraft’s take-off and landing were much higher in
international airports than in regional airports.
The second one, improving punctuality. Because the regional airports are most of the time less busy than the
larger ones, Ryanair was able to respect scrupulously its timetable, which is considered as a valuable strength in
the airline market.

Ryanair chose also to position itself as a point-to-point carrier.

Indeed, the company carried its customers directly to their final destination and avoided the hub-and-spoke
system, which requires extra costs (e.g. baggage transfer).

Finally, Ryanair implemented a “no-frills” strategy. This means that all the possible frills linked to an aircraft
journey were either optional and charged, or simply not provided by the company.
For example, the company didn’t provide any free food, drink or literature during the flight, there was no in-flight
entertainment for passengers, and customers couldn’t book specifics seats on the plane (this enabled the company
to use a simple and cheap reservation system).
But Ryanair pushed this method even further: the sick bags were distributed only upon request, the aircrafts’ seats
had no pockets, and the company didn’t use “air bridges” to connect the airport structure to the plane (passengers
had either to walk until the plane, or they were transported by bus there).

All those methods enabled the firm to reduce its costs and therefore to offer low prices to customers.
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To be more concrete, let’s have a look at the Ryanair’s “Strategic Service Vison”, which is based on the
information developed above.

Target market Value proposition Operating strategy

 Price conscious 1. Cheapest fares on the market  No free meal, drink or literature (1.)
 No entertainment (1.)
 Lower & lower- 2. On time departure and arrival  No seat allocation (1.)
middle class  Direct selling (1.)
3. No bags lost  Regional airports (1. & 2.)
 A part of the upper-  Point-to-point carrier (1. & 3.)
middle class 4. Broad destination content  Operates in many countries (4.)

As you can see, the value proposition is mainly based on the low fares, since the company didn’t provide any
extra services.

During more than 20 years (from the 90s till 2012) the Ryanair’s strategy, providing cheap flights with zero frills
to a huge range of short-haul destinations, has been successful and enabled the firm to grow rapidly. Its number
of customers increased every year, just like its financial results (see appendix 2).
But the year 2013, marked by the emergence of new challenges, was more difficult for the company.

What type of challenges did the company face? And which strategy did the company apply to handle them?
The part 2. deals with these questions.

2) 2013: The turning point for Ryanair

It was the first time in nearly 10 years that Ryanair faced several “profit warning”. It means that some of the
company’s indicators, which measure its current and future performance, were below the expectations.
Several reasons were the cause of this situation, but the main one was the fact that the Ryanair’s direct competitors
(especially EasyJet) had started to improve the quality of their services, which pushed some of the current
customers of the Irish company to switch to rivals (the fall of the passengers number confirmed it). This situation
increased the competition on the airline market, and forced Ryanair to lower even more its prices, which impacted
its margins.
Consequently, Ryanair cut its profit forecast for the year 2013, from €570m to €510m (it was the second time in
two months that Ryanair reconsidered its profit forecast). And the final result confirmed the Ryanair’s doubts,
since its profit decreased by 8% between 2012 and 2013 (see appendix 2).
Concerning its number of customers for the year 2013, the figure was also worrying. Indeed, even if this number
increased by 3% compared to the figure of 2012, the growth was less important than the previous years.

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And fortunately, Ryanair had limited the damages by reacting very quickly (directly from the end of 2013) and
implementing some measures to improve its customer service quality. This enabled the company to improve
slightly its brand image and reduce the number of customers from leaving (see appendices 3 & 4).

Therefore, the Ryanair’s strategy, providing the cheapest fares of the market by cutting all the possible frills,
started to show its limits. Indeed, Ryanair had become, over time, infamous for its poor customer service, and
started to face criticism from both customers and shareholders. A customer service survey had even revealed that
Ryanair was considered, at that time, as the worst of the UK's 100 biggest brand.
Consequently, it would seem that the needs and requirements of the Ryanair’s customers had changed. While
formerly they only considered the price when traveling by airplane, from now on customers value also the quality
of the service provided by the airline.

Considering that Ryanair was starting to suffer from this situation, managers began to look for a solution in order
to solve, as fast as possible, the problem. And they decided to do a “U-turn” by changing completely their business
model. Indeed, the firm evolved from a pure “price-focus” strategy, with zero frills, to a more “passenger-
friendly” strategy, with a more attractive offering in terms of customer experience. The aim of this change was
to improve the company’s brand image and therefore to win back customers who had switched to rivals. Indeed,
Michael O'Leary (CEO) realized that: “Customers are worth keeping and that it is far more effective to invest in
CRM than to go find new customers”.

But even if Ryanair decided to listen to its customers and gave priority to the improvement of the customer
experience, the company wouldn’t deviate from its low fares strategy. This point has been confirmed by the
Michael O’Leary’s remark: “The focus is about keeping the costs down and the fares low. We are not deviating
from that and we will not risk diluting the low-cost, low-fare approach that made us so successful.”

Therefore, Ryanair had to solve a difficult equation, which was the following: keeping the costs low, while
upgrading the customer service quality.

Did the company succeed? The part 3. addresses this question.

3) The new era: 2014 – up to now

Since the 2013 warning Ryanair had only one objective, improving its customer service as fast as possible and
becoming the best value-for-money airline on the market. Therefore, a new challenge started for the company.

To achieve such objective, the firm decided to launch, at the end of 2013, a new program called “Always Getting
Better”. The aim of this program was to symbolize the company’s evolution in terms of customer service quality.

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All the improvements made by Ryanair in terms of customer experience (from the end of 2013 up to now) can
be split into the following categories:

 Related to the airplane:

 Improvement of the inflight menu with the introduction of healthy meals
 From now on, customers can reserve the seat they want (this option costs €5)
 Passengers are allowed to bring a second bag on board (for free)
 A new and more appealing design for the aircrafts interior
 Introduction of new "slimline" seats, which give passengers more leg-room
 Related to the website & mobile app:
 A redesigned website/mobile app aimed at making it easier to book tickets
 Introduction of a price comparison tool to compare Ryanair’s prices with competitors’ prices
 Introduction of a “customer-feedback” option, which enables passengers to rate their experience with
the airline (anybody can consult those comments)
 Related to the “families”:
Creation of the “Family Extra” product, which includes (among others):
 Discounts on allocated seats and bags for children (when travelling with their family)
 Discounts on future flights for families who travel frequently with Ryanair
 Related to the “business travelers”:
Creation of the “Business Plus” product, which includes (among others):
 Free changes on the day of travel
 Access to the “fast-track security” service (at some airports) and priority boarding
 Bigger bag allowance
 Premium seat allocation
 Others:
 Introduction of "Quiet flights" which operate before 8am and after 9pm, where Ryanair makes only
security announcements
 Creation of a team dedicated to the customers’ e-mails handling
 Creation of a Twitter account to keep customers up to date with news on price promotions, routes and
fares
 Reduction of the baggage fees and decrease of the costs linked to the boarding card reissue
 Customers have a 24-hour “grace” period after booking to correct minor errors

In addition to those improvements, the firm decided to change its airport strategy. Indeed, Ryanair started to use
more and more often primary airports, instead of the regional airports, in order to reinforce even more the quality
of its service. And simultaneously, the Irish-airline expanded its destination content, so as to develop its business
and satisfy the greatest number of customers.
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Based on the new strategy implemented by Ryanair, let’s analyse its new “Strategic Service Vision”.

Target market Value proposition Operating strategy

 Price 1. Cheapest fares on the market  No free meal, drink or literature (1.)
conscious  Direct selling (1.)
2. On time departure and arrival  Point-to-point carrier (1. & 5.)
 Lower class  No entertainment (1.)
3. Broad destination content  Many regional airports (1. & 2.)
 Lower-  Operates in 31 countries  regional &
middle class 4. Pleasant flights international airports (3.)
 Seat allocation (4.)
 Upper- 5. No bags lost  Large leg-room (4.)
middle class  Appealing aircraft interior (4.)
6. Less constraints  Broad meal choice (4.)
 Families  “Quiet flights” (4.)
7. Simple booking process  Two bags allowed on the plane (6.)
 Business  Well-designed website/mobile app (7.)
travelers 8. Special offer for families  “Family extra” product (8.)
 “Business plus” product (9.)
9. Special offer for business travelers  Social media presence (10.)
 Team dedicated to customers’ emails (10.)
10. Close and attentive to customers

As you can see, all the changes enabled the firm to broaden its value proposition and therefore to improve
drastically the customer experience. As Michael O'Leary said: “We are very excited at these significant
improvement. We are actively listening and responding to our customers so that they can continue to expect low
fares and on-time flights on Ryanair (see appendix 5), but will now enjoy service improvements”.

But in order to fully benefit from its efforts, Ryanair had to make sure that all the customers (current as well as
potential customers) were aware of its new value proposition. Indeed, it was probable that a majority of people
weren’t informed about the company’s evolution. That’s why, in 2014, the company decided to hire its first
marketing director, Kenny Jacobs, who would be responsible for communicating the new Ryanair’s value
proposition as well as improving the negative associations which were linked to the brand. To achieve such
objective, the company tripled its marketing budget and embarked on a marketing “blitz”, including TV ads.

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Thanks to a radical change in terms of customer service quality and a successful communication strategy, Ryanair
succeeded and achieved its objective, which was to become the best value-for-money airline on the market. As
Kenny Jacobs (CMO) said: “Always Getting Better isn't an empty slogan, it is a mentality we have implemented
across the whole business and customers are enjoying it.” According to him, the firm succeeded by attracting
customers not only from direct rivals, such as EasyJet, but also from premium airlines.

Let’s have a look at some data, which confirm the success of the Ryanair’s strategy (see appendix 2).
Since the launch of the “Always Getting Better” program at the end of 2013, the number of people who chose
Ryanair to travel hasn’t ceased to grow. Indeed, the number of passengers increased by 11% between 2013 and
2014, and this double-digit growth rate continued in 2015, given that Ryanair carried more than 100 million
people.
About the future, the Ryanair’s managers are also very confident, as evidenced by their forecasts in terms of
market share and passengers’ number (see appendix 6).

Therefore, the Ryanair's “Always Getting Better” initiative is paying off, and Michael O’Leary confirmed it with
this remark: “Thanks to being nicer, we have more forward bookings, traffic is rising, seat-load factors are rising
and profitability is rising.”
But the company doesn’t intend to “rest on its laurels”, and has just unveiled (April 12, 2016) the content of the
“Always Getting Better” program for the year 2016, which contains numerous new improvements in terms of
customer experience (see appendix 7).

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IV. Conclusion and recommendations

This case study shows the Ryanair’s evolution over time, and the fact that the company had to change radically
its strategy to remain competitive on the market. Indeed, the customers’ needs and requirements don’t remain the
same forever and evolve in the course of time, and that’s exactly the problem that Ryanair faced.
Therefore, Ryanair evolved from a pure “price-focus” strategy, with a poor customer experience, to a more
“passenger-friendly” strategy, with an improvement of its customer service quality. As a result, the company
upgraded drastically the service provided to its passengers and simultaneously communicated its new value
proposition to customers.
Thanks to the right “reactive” (or “emergent”) strategy, Ryanair has been able to keep its leading position on the
airline market.

When implementing such strategy, the role of employees is decisive. Indeed, as the company decided to improve
the customer experience, managers have to make sure that all the employees have well understood and act in
accordance with the organization’s new value promise. Therefore, even if the employees’ role hasn’t been
broached in the case, it would be very interesting to study if Ryanair adapted the training of its employees
according to its new offer, and if so how.
Obviously, employees are not the only point that deserves attention when implementing such strategy, all the
touchpoints in general have to be taken into consideration by the firm. This is the condition to deliver a consistent
experience to customers.

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V. Bibliography

1) Article: “Ryanair: The world's leading low-cost airline”

Source: MarketLine - Reference Code: ML00001-086 - March 2012, p1-21.

2) Article: “Ryanair details customer service changes as part of charm offensive”

Author: Vizard Sarah
Source: Marketing Week - 10/25/2013, p7-7.

3) Article: “Brand Audit: Ryanair”

Author: Vizard Sarah
Source: Marketing Week - 11/1/2013, p2-2.

4) Article: “Ryanair issues second profit warning as it continues customer service overhaul”
Author: Vizard Sarah
Source: Marketing Week - 11/4/2013, p9-9.

5) Article: “Ryanair credits customer service changes after passenger bump”

Author: Parsons, Russell
Source: Marketing Week - 1/2/2014, p1-1.

6) Article: “Higher profits and bookings 'validate' customer service improvements, says Ryanair”
Author: Vizard Sarah
Source: Marketing Week - 11/3/2014, p1-1.

7) Article: “Ryanair steps up bid to become the 'Aldi of the air' as customer service drive continues”
Author: Hobbs Thomas
Source: Marketing Week - 3/3/2015, p3-3.

8) Article: “Ryanair to "tone down the yellow" with new aircraft interiors”
Author: Montgomery Angus
Source: Design Week - 3/4/2015, p5-5.

9) Article: “Quality now drives our messaging, not price, claims Ryanair's CMO”
Author: Hobbs Thomas
Source: Marketing Week - 5/26/2015, p1-1.

10) Article: “Ryanair's Metamorphosis Is Proving Successful”

Author: Buyck Cathy
Source: Aviation Week & Space Technology - 2/8/2016, p1-1.

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VI. Appendices

1) Average fares during the FY2011

RYANAIR EASYJET * BRITISH

AIRWAYS’
Average fare during FY2011 €39 €71 €248
($54.25) ($98.77) ($345)

* is one of the Ryanair’s direct competitors, since it implemented a low-cost business model as well

As you can see, the EasyJet’s fares were almost two times higher than those of Ryanair.
Concerning British Airways’, its prices were, approximately, six times higher than those of Ryanair.

Therefore, thanks to its strategy (providing no frills to customers in order to keep its expenses as low as possible)
Ryanair was able to offer the cheapest fares on the market, which enabled the firm to own a sustainable
competitive advantage over its competitors.

2) Ryanair’s financial results & number of passengers (in million)

2009 2010 2011 2012 2013 2014 2015

Net income in million € * 319 401 503 569 523 867 No
information
(compared to the previous (+204%) (+26%) (+25%) (+13%) (-8%) (+66%)
year) yet **

Number of passengers
66,5 72,1 75,8 79,3 81,7 90,6 More than
in million *
(+14%) (+8%) (+5%) (+5%) (+3%) (+11%) 100 million
(compared to the previous
year)

* All the data come from the Ryanair’s annual reports

** The Ryanair’s fiscal year ends on March 31, but in order to facilitate the reading and the comprehension of
the case I considered, instead, that the Ryanair’s fiscal year extended from January to December. Therefore,
there is a 3 months interval between those results and the results from the Ryanair’s financial statements.
As a result, the data for the year 2015 will be known on March 31, 2016 (or more accurately at the financial
statements publication).

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 3) Ryanair & EasyJet brand image

Several indicators (gathered by different organizations) show that the Ryanair’s brand image has been improved
when the company announced that it would take, for the first time, some measures to upgrade its customer
service.

RYANAIR
RYANAIR EASYJET
EASYJET

BEFORE AFTER Results gathered

ANNOUNCEMENT ANNOUNCEMENT at the end of 2013
* **
REPUTATION - 53.1 - 52.7 - 17.2

IMPRESSION OF THE - 51.6 - 50.3

BRAND

PERCEIVED QUALITY - 52.9 - 50.3 - 14.7

OVERALL PERCEPTION
-41 -36.9
OF THE BRAND ***

Positive/negative statements
heard by people about -29.8 -23.2
Ryanair

* Results gathered on September 19 2013, the day before the first Ryanair’s announcement about the measures it would
take to improve its customer service
** Results gathered on December 31 2013
*** Includes: impression, quality, value, reputation, satisfaction and recommendation

As you can see, as soon as Ryanair announced that it would upgrade its customer service, its indicators improved.
It means that the customers appreciated the Ryanair’s effort and were expecting such change.
Thanks to its decision, Ryanair improved its brand image and braked the customers’ departures.

But even with this announcement, Ryanair remains far behind its direct competitor, EasyJet, in terms of brand
image. It means that the company still has a lot of work to do, in order to improve the negative associations which
are linked to its brand and especially to the experience offered to customers.

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 4) Evolution of the bookings’ number

Period 1 Period 2

DECEMBER 2012 till MARCH 2013 DECEMBER 2013 till MARCH 2014

+ 5%

As you can see with this diagram, the Ryanair’s initiative (implementing some measures, directly from the end
of 2013, to improve its customer service) enabled the company to brake the customers’ leaving, and even better
to increase its number of passengers by 5% from the period 1. It means that the customers have been receptive to
the Ryanair’s new offering.
Therefore, thanks to its decision Ryanair has been able to improve its brand image, as demonstrated by the rise
of its indicators (appendix 3) and reservations’ number.

5) Airlines’ punctuality (2015)

Ryanair 90% *

Iberia 88%

Lufthansa 86%

Easyjet 85%

Aer Lingus 81%

Air France 81%

British Airways’ 79%

* % of flights arrived on time in 2015

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 6) Ryanair’s projections

MARKET SHARE IN 2016 MARKET SHARE IN 2024*

(intra-European market) (intra-European market)

15% 19%
RYANAIR RYANAIR

OTHERS AIRLINES OTHERS AIRLINES

85% 81%

* Ryanair's forecast

Ryanair's EVOLUTION

Ryanair's
Forecast
Ryanair's number of customers (in million) 180

100
91
76 79 82 *
67 72

2009 2010 2011 2012 2013 2014 2015* 2024

* The company became the first airline in Europe to carry more than 100 million passengers, and the world's
largest airline in international passengers

7) Content of the “Always Getting Better” program for the year 2016

The latest initiatives, in terms of customer experience, which will be implemented by Ryanair in 2016 include
(among others):
 Lower fares
 Improvement of the “Business Plus” product
 New “extra-fine” seats on the aircrafts
 More leg-room in the cabins
 Installation of hooks inside the airplanes to hang the customers’ clothes
 Improvement of the “Gift voucher” option
 Creation of the “Ryanair Schools Travel” to facilitate school trips

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