Ryanair, a European pioneer of low-cost airline

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Ryanair, a European pioneer of low-cost airline

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Abstract

Ryanair was founded in 1985 by the Ryan family. At inception, the airline was a full-service conventional airline, with two classes of seating intended to provide scheduled passenger airline services between Ireland and the United Kingdom. However, over the years, the airline has changed fundamentally. Today, Ryanair is the leader of low-cost airlines in Europe and, according to a magazine, the most profitable airline in the World . In 2006, despite an increase of 74% in fuel costs, the company succeeded in generating a 12% increase in net profit. Air traffic had grew by 26% the same year, from 27.6 million passengers in 2005 to 34.8 million in 2006.

However, the airline was not satisfied with this position, and Ryanair set new goals for itself.

Tags: Strategic problem of Ryanair, Ryanair case study, Ryanair strategic management, Strategic analysis of Ryanair, Ryanair business strategy, Ryanair low cost strategy

What are the key elements of Ryanair's strategy as of 2007? What type of competitive advantage is Ryanair trying to attain over rivals? Which of the five generic competitive strategies discussed in Chapter 5 best matches the competitive strategy that Ryanair is employing?
What grade would you give Michael O'Leary for the job he has done as CEO of Ryanair? Be prepared to support your answer based on how well (or not so well) he has performed the five tasks of strategic management discussed in Chapter 2?
What was Tom Ryan's original strategic vision for Ryanair? How does Michael O'Leary's strategic vision for Ryanair differ from Ryan's? Why did the strategic vision change? Is the company's strategic vision likely to undergo further evolution?
What is your assessment of Ryanair's financial performance from 2005-2007 and operating performance in 2005 and 2006? Does the company's performance indicate that Ryanair's strategy is working well? How does the company's performance compare with that of rivals?
What forces are driving changes in the European airline industry?
What are the key success factors in the European airline industry?
What are the key policies, practices, business principles, and procedures that underlie how Michael O'Leary and Ryanair's management have implemented and executed the chosen strategy?
What issues confront the company as of 2006? What should Ryanair's management be worried about?

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[...] When O'Leary decided to make Ryanair the largest low-cost airline in Europe, he carried out a turn-around that was without precedent in Ryanair's history. In fact this decision was surely influenced by the success of budget carriers in United States, mainly with the model of Southwest airlines. We can also assume that after the Gulf War in 1990/1991 and the sudden increase of oil prices, it was important for O'Leary to change from the airlines' conventional model and find a new one, which more able to protect the company in times of crisis (like in 2006 when Ryanair succeeded in delivering a 12% increase in net profit, despite a 74% increase in fuel costs). [...]

[...] On the other hand, cabin crew receive a good wage in average), higher than any other major European airline to stimulate their productivity. But this pay included also commissions for on- board sales, which permitted to increase their salaries but meanwhile carrier revenues. > Passengers service costs: Ryanair's management thought that passenger check-in and luggage handling operations could be improved. In 2006, they introduced cost-cutting/yield-enhancing measures to increase their efficiency. Thus, Ryanair launched its own reservations centre and internet booking facility. [...]

[...] The European airline industry is a fragile sector where competitors have low profit margins and a multitude of costs to manage. Thus, several factors may have an important influence on the European Airline composition such as: - Terrorism and security: Different terrorist attacks had a huge influence on the airline industry in Europe. Indeed, after terrorist attacks in September 11 air traffic was paralyzed and demand was deeply weakened for several months. This situation touched head on all airlines in Europe. [...]

[...] From the merger of the two Irish airlines a new company was born, that was able to compete with European giants such as Air France-KLM, Lufthansa or British Airways, on the low-fare segment. The second key element of Ryanair's strategy as of 2007 was to guarantee their customers no fuel surcharges. As said before, in 2006 fuel costs increased by which is a huge increase, especially for airlines, because this expenditure represents a high percentage of their operating costs. When oil prices increase, they immediately affect the competitiveness of the airlines. [...]

[...] Despite a strong Euro with respect to the Dollar, some European carriers were struggling for their survival: some had to go out of business or to merge with others in order to achieve economies of scale, and get a stronger bargaining power What are the key success factors in the European airline industry? Key success factors have several direct and several possible uses for any business unit whether it is for-profit or not-for-profit, large or small, domestic or foreign. In strategic analysis of a business unit, key success factors often initially appear as analytical tools for examining the character of the industry in which the business unit competes. [...]

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