Ryanair Case Study

In 1985 Ryanair, the Dublin-based airline company, began offering services between Dublin and London, in competition with the established national carrier Aer Lingus. In the early years the company changed its business several times - initially a conventional competitor for Aer Lingus, then a charter company, at times offering a cargo service. The Gulf War in 1990 discouraged air travel and deepened the company's financial problems. In 1991 the airline redefined itself as a 'no-frills' operator, in which many traditional features of air travel - such as free meals and newspapers - were no longer available. The company aimed to serve those customers who wanted a functional and efficient service rather than luxury.

In 1997 changes in EU regulations enabled new airlines to enter markets previously dominated by established national carriers such as British Airways and Air France. Ryanair quickly took advantage of this, opening new routes between Dublin and continental Europe. Although based in Ireland, 80% of its routes are between airports in other countries - in contrast with established carriers that depend heavily on passengers travelling to and from the airline's home country.

In 2000 the company opened its booking site Ryanair.com. Within a year it sold 75% of seats online and now sells almost all of its seats on the internet. At the same time the company also made a long-term deal with the American company Boeing to purchase 150 new aircraft over the next eight years.

Ryanair is today Europe's largest low-cost airline offering its customers great value for money, something that has had a huge impact on its success. How can the company afford to offer low fares and at the same time make profits which allow it to expand rapidly? A number of factors which significantly help Ryanair - as well as other low-cost airlines - to offer low fares are as follows:

Simple fleet - using a single type of aircraft (Boeing 737) simplifies maintenance, training and crew scheduling.

Use of secondary airports - using airports away from major cities keeps landing charges low, sometimes as little as 1 per passenger against 10 at a major airport; it also avoids the delays and costs caused by congestion at major airports.

Fast turnarounds - staff typically turn an aircraft round between flights in 25 minutes, compared with an hour for older airlines. This enables planes to spend more time in the air earning revenue (11 hours compared with 7 at British Airways).

Simplified operations - not assigning seats at check-in simplifies ticketing and administrative processes, and also ensures that passengers arrive early to get their preferred seat.

No free luggage allowance - passengers can decide how many kilos they need to buy before they fly (which also means, no luggage nothing to pay!).

No free meals, drinks, newspapers etc - all of which are available for passengers but at an extra cost.

Cabin staff collect rubbish before and after landing, saving the cost of cleaning crews which established airlines use.

Airline seats have no value if they are not used on the flight, so airline companies aim to maximise the proportion of seats sold on a flight. Ryanair uses a technique known as dynamic pricing, which means that prices change with circumstances. Typically fares rise the nearer the passenger is to the departure date, although if a flight is under-booked, the company encourages late sales by offering very low fares.

Ryanair depends on securing agreements with airport operators and approvals from aviation authorities in the countries to which it flies. This often leads the company into public disputes with airport operators and government authorities. In 2009 Ryanair withdrew its flights from Manchester airport when it was unable to reach agreement with the airport's owners over landing charges. Michael O'Leary, the company's boss, is dismissive of traditional high-cost airlines, airport operators, travel agents, governments and the European Commission and accuses them of trying to protect established airlines from competition. He often takes a deliberately aggressive stance to these controversies believing that:

..as long as it is not safety-related, there is no such thing as bad publicity.

The Open Skies agreement reached between the European Union and the United States in 2008 is intended to increase the number of flights between Europe and the US. This offers new possibilities for Ryanair to extend the successful model from short to long flights - especially given the many people of Irish descent who live in the US.

Source:Management - An Introduction by David Boddy, Pearson Education Limited, 2011.

a.Refering to the case study on Ryanair, critically comment on the seven factors identified there that have helped the company keep its operating costs down. from a customer perspective.

b.Suggest other ways in which low-cost airlines can employ to help them reduce their operating costs further. Again, these should be seen to be acceptable to their customers.