Emily Kustoff

SMU ID: 48372913

Ryanair Case Analysis

In 1991, Ryanair’s struggling business was overhauled when Michael O’Leary was named
Deputy Chief Executive. O’Leary’s strategy for the nearly bankrupt airline was to minimize
costs wherever he could, in order to be able to heavily drop fare prices and mimic the successful
Southwest Airlines model. O’Leary turned the airline into a cost leader through frugal actions
and a no-frills mindset. He accomplished this by eliminating routes that weren’t profitable,
charging for in-flight amenities, and getting rid of costly air bridges in exchange for metal stairs.
Instead of serving free food and drinks while in-flight, flight attendants transformed into sales
associates. Flight attendants sold duty-free items and offered food and drinks for a charge. By
shifting their cost structure Ryanair was able to reduce their ticket costs allowing them to better
accommodate a more cost-conscious individual, which resulted in a large spike in passenger
volumes for the company and returned them to profitability. Ryanair was able to understand their
customers’ willingness to pay which was the lifeline of their business. Ultimately, Ryanair was
saved from bankruptcy by O’Leary’s effective competitive positioning and became one of the
most profitable airlines in the world by 1999.

Due to their success, Ryanair faced several threats around 1999. First, Ryanair served mostly
secondary airports outside of the city center which allowed them to keep their costs low. This
advantage might dissipate if other airlines are able to get their prices down at major airports
proving to be more convenient for. It is important to also note that Ryanair didn’t make it an easy
seamless process for passengers to make connecting flights. This was another weak point in their
model that could be taken advantage of by competitors. Additionally, Ryanair was losing a large
portion of their customer base which flew in and out of Ireland as Ryanair didn’t consider having
a Dublin hub. Ireland customers constituted a significant portion of their profits and losing them
to a competitor with a Dublin hub could be devastating. What all of these boil down to, is the
most serious threat that Ryanair faces: competition. New competitors with similar models to
Ryanair, flooded the industry with the deregulation of the European airline industry. While many
couldn’t survive, Go seemed to be a fierce competitor. Go had substantial funding and support
from its parent company British Airways and benefited from their existing brand reputation.
There was even speculation that Go was created with the intention of putting other low-cost
airlines like Ryanair out of business and send customers back to British Airways. Go’s business
model was different from other low-cost airlines in that customers had an assigned seat, were
given fancy food, and had a unionized workforce. Additionally, Go was the first low-cost airline
to have a full-scale TV campaign. Go was proving to be a valiant competitor and even turned a
profit earlier than anticipated. This combination would prove to be highly challenging for
Ryanair who initially didn’t view them as a threat. The success of Go posed the question if
Ryanair’s competitive advantages were sustainable long term and would keep them in their
profitable position as a low-cost airline market leader.

Ultimately, Ryanair’s competitive advantages are not sustainable. As mentioned, several

competitors noticed Ryanair’s successful model and attempted to replicate it. While few airlines
in Europe have been able to imitate the model successfully, there is some promise for the
European market because of the large success of low-cost airlines in the United States. In order
for Ryanair to have a sustainable competitive advantage, Ryanair would need to create a superior
market position and defend their market position better than their competitors. Just doing one of
 Emily Kustoff
SMU ID: 48372913
these would not be sufficient for Ryanair to protect their competitive advantage and keep a larger
gap between value and cost than their competitors. Ryanair has no security that they will be able
to keep their costs as low as they currently are. Airports could increase prices, or even begin
charging them, and airplane manufacturers could increase costs. Additionally, Ryanair had great
success from the sale of duty-free items on their planes, and in 1999 the EU mandated that
Ryanair had to pay duties on the items sold which cut into their profits. Most importantly,
Ryanair saved a considerable amount of money due to their quick aircraft turnover times. If other
airlines are better able to imitate this, Ryanair will lose an advantage over competitors. Ryanair
will also need to establish a union for their workforce. If other airlines are able to unionize like
Go has done, Ryanair will need to better meet the needs of their staff as they can’t deal with
large scale strikes like they have done in the past. Most importantly, Ryanair is in a major growth
phase and this will not be able to indefinitely persist. Ryanair will have to find creative ways to
continue to cut costs without new additional sources of income from new routes that they are
currently profiting from. It will be difficult to maintain this advantage forever. They will need to
focus on ways to prevent imitation as an isolating mechanism to defend their superiority.