The growth of Ryanair
Category : British Airways Case Studies, Business Strategies, Reward Systems in Organisations, Ryan Air
Ryanair is one of Irish low cost airline, with headquarters in Dublin International Airport and its largest operational bases at Dublin International Airport and London Stansted Airport. It currently employs a team of 5,961 people, comprising over 25 different nationalities.
Brief History and Growth
The Ryan family with a share capital of just £1, and a staff of 25 introduced Ryanair in 1985. It launched its first route in July with daily flights on a 15-seater Bandeirante aircraft. The total passengers that year were 5,000. Come 1986, Ryanair obtained permission from the regulatory authorities to challenge the British Airways and Aer Lingus' high fare duopoly on the Dublin-London route. The first flights operated in May from Dublin to London. Ryanair then starts the first fare war in Europe. In 1987, Ryanair acquired its first jet aircraft by leasing three BAC1-11 aircraft from the Romanian state airline. They increased its network with 15 scheduled routes from Dublin to Liverpool, Manchester, Glasgow, and Cardiff, open up new routes from Luton to Cork, Shannon, Galway, Waterford, and Knock in the West of Ireland. In 1988, Ryanair leases another three BAC 1-11 jets and leases a brand new ATR 42 turbo prop aircraft from GPA to service the smaller Irish regional airports. They launched two new routes from Dublin to Brussels and a once weekly to Munich. Then Ryanair launched a business class service and a Frequent Flyer Club. The year 1989, they leased two more ATR42 turbo props and used these aircraft to retire the small Bandeirantes and the old 748's. After three years of rapid growth in aircraft, the year 1990 launched routes and intense price competition with Aer Lingus and British Airways, and Ryanair accumulates £20m in losses and goes through a substantial restructuring. In 1991, the Gulf War breaks out causing passenger traffic to collapse. They responded by lowering airfares and got rid of the turbo props by returning 3 x ATR 42s to their owners, a decision which results in the withdrawal from regional routes to Kerry, Galway and Waterford airports. In May 1991, Ryanair switches its main London base from London Luton Airport to the new London Stansted Airport in Essex. This is the only time in Ryanair's ten years of operation that traffic and employment numbers fall. Despite the impact of the Gulf War, Ryanair makes a profit for the first time with an audited profit of £293,000 for the year. In 1992 up to 1999, EU’s deregulation of the air industry in Europe gave carriers from one EU country the right to operate scheduled services between other EU states and represented a major opportunity for Ryanair. After a successful floatation on the Dublin Stock Exchange and the NASDAQ Stock exchanges, the airline launched services to Stockholm, Oslo, Paris and Charleroi near Brussels. In 1998, flushed with a new capital, the airline placed a massive $2 billion order for 45 new Boeing 737-800 series aircraft. Come 2006, a record of 42.5 million passengers was carried that year. Ryanair becomes the world's first airline to carry more than 4 million international passengers in one month. While other airlines maintain their fuel surcharges, Ryanair remains the only airline to guarantee, "no fuel surcharges ever," prompting even more passengers to flock to because of the lowest fares (2008).
Key Strategies Ryanair Must Acquire
With a current growth of 25% per year and a mission to firmly establish the Ryanair brand as Europe’s leading low-cost passenger airline, Ryanair needed strategies that keep costs low, but still provide the accurate and up-to-date information its executives need to make decisions. The airline realized that to achieve its objective it needed to update its IT infrastructure. Ryanair needed a robust and fully integrated IT solution that could support the airlines continuing expansion. Undoubtedly, the most significant cost initiative in recent years was the launch of the www.ryanair.com Internet site. Its immediate success and instant customer acceptance enabled the company to increase the proportion of direct bookings to almost 75%, which generated large savings in central reservations systems fees and travel agent commissions.
Creating a sustainable marketing strategy for Ryanair means to organize its future. To plan the future one has to know the present in a broader perspective. This is the starting point of an environmental analysis, which identifies the internal and external parameters of the particular environment an organization is operating in (Beesley, 1999) and translates it into useful plans and decisions. Since the airline, industry is very much influenced by changes taking place in the environment and has undergone rapid and dramatic changes during the last decades this analysis is especially important for Ryanair. For the low cost strategy prices of fuel, taxes, and government regulations are especially important. The airline deregulation not only helped Ryanair but also increased competition and air traffic. This has lead to increased regulations by the EU government in terms of safety and environmental rules. This again increases operating costs within the EU. When Ryanair wants to maintain its low fares it has either the possibility to cut costs elsewhere in order to compensate increasing costs for safety and environmental taxes or it has to finance those costs by increasing ancillary services revenue (Arthur, 1999).
Challenges and Competitiveness
Efficiency and low prices are due not the least to the company’s lower labor costs. Ryanair controls these costs through a performance related pay structure. This system is dependent on EU social/employment legislation, which is always subject to change. A major problem is the uncertainty of the oil price, which is again tied to political developments. Since the political situation in most major oil producing countries will stay unstable for the foreseeable future, the oil prize will remain a major problem for airlines. The fuel cost difficulty is exacerbated by unpredictable currency exchange rate fluctuations since aircraft fuel prizes are denominated in US dollars. Nevertheless the weak dollar has compared to sterling has had a positive impact for Ryanair.
Ryanair’s profit could be halved due to ever risen fuel cost and a weaker UK pound. The quarter of 2007 net profit dropped with as much as 27%. Applying the Southwest business model it is well know for being a “no frills airliner” generating sound financial figures. The business model is mainly focused on the price sensitivity of customers. On the one hand, this is created by cutting costs out of the traditional airliner model; use Internet for reducing channel costs, no food served and additional charges for luggage, use of smaller airports, and a single model aircraft. On the other hand, the business model focuses on stimulating revenue streams by maximizing the utilization of aircrafts and yield management pricing strategies .The ever rising fuel prices drive costs, but not in the parts of the business model Ryanair controls. A weakening position of the Sterling has its negative effect on the utilization of the aircrafts, where possibly the cheaper seats will still sell out, but the more expensive ones will become harder to sell. The combined effect in addition to the downturn on the whole industry of these recent developments result in weakening profits and possibly what Ryanair’s CEO Michael O’Leary calls “a perfect storm” (Creaton, 2007).
What does the Future Hold for Ryanair?
There have been significant cost increases, such as higher oil prices, as well as a decrease in ticket prices. Surprisingly, sales increased 16% over the quarter, greatly due to a 21% increase in the number of passengers. However, this was not enough to combat the increases in expenses, and profits fell over 25% for the quarter. One word of encouragement for the company is that O'Leary is still predicting that the company will be profitable this year, predicting a 17% increase in profits from the previous year period. If O'Leary wants to prevent shares from falling further, he' must be wise to start comforting investors with ideas on how the company will improve, and how he plans on weathering the storm. If all the investors have to focus on is fear of the future, stock prices may not soar again anytime soon.
Canniffe, M 1997, 'Ryanair Comes to Market at a Very Opportune Time,' Irish Times, 17 March, p. 8.
Beesley, A 1999, 'Ryanair Revises Strategy for Dublin Airport Terminal,' Financial Times, Companies & Finance Sec., 10 May, p. 18.
Creaton, Siobhán (2007). Ryanair: The full story of the controversial low-cost airline,
Ryan Air Online, viewed 14 January 2009, <www.ryanair.com>