Ryanair Case Study

5 May 2005

MUKHTAR AHMED HUNJRA

Agenda
 Background
 Industry Key Success Factors
 Ryanair Strategy Deconstruction
 Competitive Advantages
 Value Chain Analysis
 Growth Possibilities
 Airline Competitor Responses
 Future Strategy
 Conclusion

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Background
 Founded in 1985:
 2 Aircrafts
 Carried 82,000 Passengers
 1991: Michael O’Leary Appointed
 Transformed to Low Cost Airline
 1997: Floated on Dublin SE and Nasdaq
 Rapid Expansion (2005 Figures):
 12 Bases
 220 Routes
 95 Destinations, Across 19 European Countries
 27 Million Passenger Annually

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VMOST
 Vision:
 To be Europe’s Leading Low Fares Airline
 Objectives:
 Number 1 For Customer Service
 Strategies / Tactics:
 No Frills, Low Cost Approach
 Point-to-point Short Haul Flights
 Regional and Secondary Airports

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Industry Key Success Factors
 Low Ticket Prices
 Frequent Departures
 Possibility of Advanced Reservations
 Reliable Baggage Handling
 Consistent On-time Services

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 External Analysis:
Porter’s Five Forces
Threat of New Entrants

MEDIUM

Industry
Suppliers’ Competitors Buyers’ Bargaining
Bargaining Power Power
Rivalry Among
LOW Existing Firms LOW
HIGH

Threat of Substitute
Products

MEDIUM

Source: Adapted from Porter, M. (1998)

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 External Analysis:
Porter’s Five Forces
Threat of New Entrants Industry Competitors
 Limited, but has happened  Increased Competition:
recently:  50 Budget Airlines
 BMIBaby.com  Flag Carriers:
 MyTravelLite.com  Low Cost Affiliates
 Monarch.com  Alliances
 FlyBe.com  Air France / KLM Merger
 Compete on Limited Routes
Threat of Substitute Products
 Capital Intensive
 United Kingdom:
 None
 The Rest of Europe
 Driving holidays
 High-speed trains

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 External Analysis:
PEST Analysis
• Increased Trade-union Pressure •FuelPrice Increases
•Pilot Trade Union •Depreciation of US dollars
• EU Expansion •EU Commission Rulings:
• EU Abolishment of Duty-free Sales
• Illegal Subsidies from Airports
• Allegations of Misleading
• Overbooked Passenger Compensation
Advertising • Cancelled Flight Compensation
• “Climate Protection Charge”
• Reimbursement of Delayed
Passengers
Political - legal Economic

Sociocultural Technological
•Grey Market Increase •Wireless Technology Expansion
•Europe: Cars & High-speed Trains •Internet sales/gambling
•Increasing travelling lifestyles •Satellite television

•Increasing business travelling • Increased internet competition

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 Internal Analysis:
Porter’s Value Chain

Firm Infrastructure

Human Resource Management

Support

Ma
Activities

rg
Technology Development

in
Procurement

Inbound Operations Outbound Marketing Service

n
gi
Logistics Logistics & Sales

r
Ma
Primary Activities

Source: Porter, 1985

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 Ryanair: Value Chain
Infrastr. Minimum Corporate HQ
Low Cost Management Performance
HRM Training
Limited Crew
Control In-house Contracts

Ma
Internet Integrated Low Tech Marketing
Tech. Dev. Internet n/a

rgi
Information Systems Internet Sales

n
Boeing
Proc. Discount Alliances Outsourced Private Low Cost
Low Cost
Quality No Frills Quick Promotions
Limited
Training Turnaround Resources
Low Cost* Free Publicity

n
Low Cost Basic/Low Cost

rgi
Reliable Controversial
Suppliers

Ma
Service Internet Sales High
Airport Productivity
Yield
Agreements
Management

Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales

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 * Low Cost
Competitive Advantages
 Online Bookings
 One Class Travel
 Ticketless Boarding
 Unallocated Seats
 Flying to Secondary Airports
 Point-to-Point Flying
 In-house Marketing
 No Frills
 Reduced Turnaround Times
 No Refund Policy
 Corporate Partnerships
 No Cargo Service
 Bargaining Power
 New Aircrafts
 Owns Own Fleet
 Operations Denominated in
Euro
 Hedge Fuel Risk
 Highly Successful Ancillary
Service Offering
 Outsourcing of Services at
International Airports
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* Low Cost
Competitive Advantages (Cont.)
 Limited Airport Transportation
 Advertising on Airplanes
 Yield Management
 Uniform Fleet
 High Productivity
 High Service Levels
 General Cost Reductions
 Eliminating seatback pockets
 No blankets or pillows
 Airsickness bags distributed on request
 Charges larger penalties for overweight luggage

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 Ryanair: SW
Strengths Weaknesses
Low Cost Leader  Poor Employee Relations
Innovative Cost Reductions  Volatile Customer Relations

First-mover Advantage  Antagonistic Relationship with

Established Market Share Competitors

Substantial Growth  Uncharacteristic Management

High Load Factor Expansion

 Dependence on Michael O’Leary
Strong Public Image

Established Routes/Network

Range of Ancillary Services

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 Ryanair: OT
Opportunities Threats
Further Growth  Increased Competition:
Advanced Cost Reduction  New Entrants
Offering Free Flights  Alliances/Mergers Between
Competitors
EU Expansion

Expansion of ELFAA
 Industry Criticism
 Antagonistic Attitude of EU
Commissioners
 Non Expansion Into New EU States

 Trade Unionism

 Substitute Transportation:
 Cars,

 Trains

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Key Success Factors
 The Ryanair Business Model
 EU Deregulation
 Boeing Discounts
 EU Expansion
 Low Acquisition Cost of Buzz
 The Southwest Effect
 Effective Publicity
 Michael O’Leary

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Has Ryanair Reached Its Limits
to Growth?
 No
 Market Characteristics:
 7% Penetration (European Market)
 Ample Growth Opportunity
 EU Expansion
 Further Evolution of the Industry
 Ryanair Potential:
 Bargaining Power
 Competitive Resources
 Consolidate: Slower, Calculated Growth
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Full Service Airline Responses
 Traditional:
 Cut Fares on Short Haul Flights
 Scrap Conditions on Short Haul Flights
 Decreased Cost on Domestic Flights:
 Larger Aircraft, 1 Passenger Class
 Reduced In-flight Service, Internet Booking

 Low Fares Subsidiaries

 Largely Unsuccessful
 Mixed Model: Full Service vs. Low Cost

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Full Service Airline Responses
 Short Haul Niche Markets
 Business Travellers
 Differentiate the Service
 Service Guarantees, In-flight Service
 Corporate Alliances

 Secure The Long Haul Market

 Lower Costs
 Capture & Sustain Market Share
 Ascend the Learning Curve
 Low Budget Airlines Will Eventually Enter
 Build Competitive Advantage

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Full Service Airline Responses
 Alternatively
 Restructure the Business Model
 Become Low Cost Airlines
 Reversed Mixed Model:
 Bulk – Budget Traveller
 Limited Service – Business Traveller
 Full Service
 Smaller Aircraft
 Charter Type Business

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Ryanair: Future Plans
 Publicised Cost Reductions:
 No Window Blinds
 No Reclining Seats, Leather Seats
 Velcro Headrests
 Carry-on Luggage
 Revenue Enhancement:
 Satellite Television
 Internet On-board
 Rented In-flight entertainment
 Ultimate Goal: Free Flights

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Future Recommendations
 Pursue Free Flights
 Third Parties Cover Costs
 Generate Revenue Through Other Means
 3rd Parties to Cover Costs:
 Sponsorships / Advertising
 Airports
 Tourist Boards, National Regions, Councils, etc.
 Holiday Providers (E.g. Euro Disney)

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Future Recommendations
 Revenue Generation:
 Ancillary Services:
 Car Rental, Travel Insurance, Accommodation, etc.
 In-flight Services (Captive Audience):
 On-line Shopping
 On-line Gambling

 Pay-per-View Television

 Food & Beverages

 Alliances
 Sell Specific Flights to Companies
 Once Off Payment OR Commission as Sales %

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Conclusion
 Aggressive Growth & Development
 Redefined the European Aviation Industry
 Unique Business Model
 Innovative Cost Reductions
 Consolidate Growth & Expansion
 Enter the Next Phase of Evolution:
 Free Flights
 Create Alternative Means of Revenue Generation

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Ryanair Case Study

Questions?

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