RYAN AIR CASE STUDY

Introduction
Ryanair was set up in 1985 by Tony Ryan to operate low-cost flights from Waterford and Dublin in
the Republic of Ireland to London. In its initial few years of operation, it struggled financially.
Michael O'Leary, now Chief Executive of the company, was Ryan's financial controller at this time,
and persuaded Ryan to let him try and redress the situation.
O'Leary developed a strategy heavily influenced by Southwest Airlines in the US, the world's first
low-cost carrier, and not only stemmed Ryanair's losses, but turned it into a huge success: its profit
after tax for the year to March 31st 2008 was euro 480.9m. Its operations have also expanded
massively in geographical coverage: in the current financial year, Ryanair flew to 160 destinations
across 27 countries using 44 European bases. The first flights to Bulgaria were launched in October
2010 to Plovdiv and Estonia is a new destination from December when the first flights from 7 cities
will land in the capital, Tallinn. The company also has plans to more add 64 new aircraft to its fleet
in the next two years (www.ryanair.com). However, despite passenger numbers increasing from
50.9m in the financial year 2007/08 to 58.5m in 2008/09 (15% increase), profit after tax for the year
to March 31st 2009 plunged to euro 105.0m; a 78% fall.
Ryanair Strategy
Ryanair's objective is to firmly establish itself as Europe's leading low-fares scheduled passenger
airline through continued improvements and expanded offerings of its low-fares service. Its strategy
to achieve this is:
- low fares
- industry-leading customer service
- frequent flights on short-haul routes
- low operating costs, addressing aircraft and equipment, personnel productivity, customer service
costs and airport access fees
- taking advantage of the internet and
- commitment to safety and quality maintenance
(www.ryanair.com)
The company operates a policy of offering the lowest fares available from any carrier. If a
competitor tries to undercut it, it will match their prices (www.ryanair.com). This may seem to be an
anomaly given the company's commitment to customer service, but the two strategic elements are
complementary. Ryanair's policy of using small regional airports for its operations helps keep costs
lower but also means less traffic congestion for passengers travelling to the airports and less chance
of delays. Frequent, short-haul flights mean that the airline does not need to provide services which
would be expected by passengers on a longer flight, such as meals.
Cutting costs to a minimum wherever possible is key to the success of the Ryanair operation. The
airline is notorious for its ban on staff charging mobile phones on the premises (Clark 2005b) and
also charges crews for uniforms, highly unusual for the industry (Creaton 2005: 239). On the sales
side, the internet enables prices to be kept low through removing the cost of agents. Telephone
bookings can also be made, but count for only around 4% of bookings, compared with 96% made
over the internet (www.ryanair.com).
Operationally, in the company's foundation years, some older planes had various technical problems
and O'Leary has said that if there had been a major incident, it would have closed down the airline
(Creaton 2005:57). Safety and quality are vital to operations because, in the case of a low-cost
operator, suspicions are more likely to be harboured that maintenance is subject to cost-cutting.
The Southwest Airlines Model
O'Leary visited Southwest in the early 1990s. Its strategy has been emulated by Ryanair, although
there are some differences, particularly in company culture.
Porter argues that the success of Southwest's strategy is due in part to its consistency and
integration:
"What makes Southwest Airlines so successful is not a bunch of separate things, but rather the
strategy that ties everything together. If you were to experiment with onboard service, then with
gate service, then with ticketing mechanisms, all separately, you'd never get to Southwest's
strategy" (in Hammonds 2001)
Southwest pioneered the use of short flights between secondary airports: its business model was
based on a rejection of the traditional method of flying passengers to a hub, then out to their
destination because of its inefficiencies, with planes waiting for other arrivals to transfer, and the
necessity for passengers to make two journeys with the inconvenience of a change (Creaton 2005:
68). It drove down turnaround times to increase the number of sectors (A to B journeys) an aircraft
could undertake in a day. The minimum of on-board services were offered.
These strategies differentiate the airline from competitors, and were adopted perhaps more by
Ryanair than by other low-cost European airlines: easyJet, for example, focuses on major airports
more than Ryanair does.
However, there are a number of strategic elements in the Southwest strategy that are very different
to Ryanair's approach.
Southwest is very unionised, and its Chief Executive, Herb Kelleher, has encouraged this. His
argument is that without a union, employees feel vulnerable, whether or not they have need to.
O'Leary has tried to prevent unionisation at Ryanair (Creaton 2005: 252). Southwest staff are
among the best paid in the US aviation industry, partly through stock holdings, while Ryanair looks
to minimise staff costs (Clark 2005b). The company culture at Southwest involves fun and humour
as well as hard work: crew have to be touchy-feely extroverts (Creaton 2005: 72), and the
company's offices take Halloween off for a party, with departments given budgets to create party
themes (ibid: 71). Ryanair has acquired a reputation for relatively poor employee relationships:
according to the deputy general secretary of Impact, an Irish trade union:
"It's a very, very oppressive regime there and they have extremely high staff turnover, particularly
among junior pilots and cabin crew" (in Clark 2005b).
In recent years, recruitment has turned to agencies in Eastern Europe due to a shortage in Ireland
(ibid). With the airline industry increasingly buoyant, there is a wider range of options for Ryanair
staff and would-be applicants. With Ryanair planning a large expansion - it has ordered 64 new
aircraft to be delivered over the next two years (www.ryanair.com), recruitment difficulties must be
addressed.
Conclusion
From the discussion above, it is clear that Ryanair's strategy has several differences from those of its
competitors, and that these differences directly and indirectly contribute to its competitive
advantage.
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Websites
www.ryanair.com
www.southwest.com
www.boeing.com
News.bbc.co.uk
BA relaunches UK regional airline at http://news.bbc.co.uk/1/hi/business/4598360.stm