Read the Ryanair case and answer these four questions: 1. What has been Ryanairs competitive strategy? 2. What factors have accounted for Ryanairs success? 3. What do you think are Ryanairs distinctive capabilities? 4. Do you think Ryanairs competitive strategy is sustainable Ryanair case study 1. Ryanair was set up in the mid 1980s as a private enterprise. Its first route (1985) was Waterford in Ireland to Gatwick, London. Its second route (1986) was Dublin to London Luton, challenging the Aer Lingus/British Airways duopoly. 2. Ryanair was perhaps a natural evolution from Guinness Peat Aviation, the aircraft leasing company founded by Tony Ryan, which at its peak was the largest plane leasing organisation in the world. A widely held view was that Ryanair was created as a business for Tony Ryans sons. 3. The story goes that when Declan Ryan (one of Tony Ryans sons) first went to see Boeing to discuss the purchase of planes, he received advice from Boeing to come back when his airline had more substance to it. But Boeing put Ryan in contact with Lufthansa (who had some older but serviceable aircraft they were looking to sell) and also with South West airlines, the pioneers of the low cost approach. 4. The airline ran at a loss. In 1991 Michael OLeary took charge of its re-focusing (with the remit to make the airline profitable). He adopted the low cost no frills model pioneered successfully by South West airlines in the USA (standard fleet, point to point, etc.). 5. The European Unions (EU) deregulation of the air industry in 1992 gave European carriers the right to operate scheduled services between other EU states. 6. OLeary built routes around secondary airports, which offered lower landing charges than larger/established airports. He believed Ryanair could use its low cost model to compete with the established European carriers, many of whom were subsidised by their parent countries. 906SMGT.1 Compulsory formative assignment: case study 7. The organisation went public in 1997, raising money to expand the airline into a pan-European carrier. Financial performance for the year following floatation was ?¦48m profit on ?¦231m revenue. 8. Since floatation, Ryanair has never paid dividends on its shares, retaining earnings to fund the business (including the purchase of aircraft for the expansion into new routes). 9. In 1998, using its new capital, Ryanair placed a $2bn order for 45 Boeing 737- 800 series aircraftits first step in operating a one-aircraft fleet. 10. Ryanair doesnt recognise unions, or negotiate with them. Ryanair staff have reportedly found themselves incurring the wrath of the organisation for union involvement. 11. Ryanairs HR practices are sometimes unconventional, for example reportedly requiring ground staff in Spain to open bank accounts in Gibraltar for their wages. 12. Ryanair launched its website with online booking capability. The site gave Ryanair the opportunity to deal with customers directly and by-pass travel agent costs. Despite online booking starting as a marginal part of the website, within a year it was handling 75% of the airlines bookings. 13. In 2001 it ordered another 155 Boeing 737-800 series (to be delivered over an eight year period to 2010) and in 2003, 100 more. The deal with Boeing was believed to be at a substantial discount. 14. Ryanair acquired a competitor, Buzz, from KLM in 2003. 15. By the end of 2003, Ryanair flew 127 routes, of which 60 had opened up in the previous year. In 2003 passenger numbers exceeded 21m. 16. Ryanair fell into loss (?¦3m) in the second part of 2004its first loss for 15 years, but recovered quickly after. 17. By 2004, around 60 low cost airlines were formed and Aer Lingus, two years before that, moved to a low fares strategy. (Aer Lingus architect in this was Willie Walsh, and it was because of these credentials, that Walsh was invited into the top job at British Airways). 18. In 2004, Fortune magazine awarded Michael OLeary the European Businessman of the Year. He has been similarly cited by the Financial Times. 19. In 2006 Ryanair launched a bid to buy its Irish rival Aer Lingus. The bid was rejected. Page 3 20. In 2006 Ryanair moved to charge passengers for airport check-in (driving them to online check-in), enabling Ryanair to reduce overheads. 21. Michael OLeary announced in 2007 that it intended to launch a long-haul airline, with a low-cost standard and business class, to rival Virgin Atlantic. (In 2010 OLeary said the launch of this airline would be postponed until 2014 due to a shortage of suitable, cheap aircraft). 22. Ryanair has continuously been provocative in its marketingin 2007 it showed Sinn Feins Martin McGuiness (then Northern Irelands Deputy Prime Minister) with Gerry Adams and the speech bubble Ryanairs fares are so low even the British Army flew home. The UK Office of Fair Trading found Ryanair to have breached advertising rules seven times in two years. 23. In 2008, Ryanair launched a second takeover for Aer Lingus (cash offer of ?¦748m, a 28% premium over the value of Aer Lingus stock). The Are Lingus board rejected the bid and the Irish government (major Aer Lingus shareholder) also rejected it (citing an under-valuation and harm to competition). Ryanair walked away but it still retains a stake in Aer Lingus. 24. At the time some commentators likened Ryanairs possible acquisition of Aer Lingus to Manchester United joining Liverpool and Michael OLeary has reportedly had second thoughts about the investment. 25. Ryanairs commitment to the low cost model has seen it introducing charges for services outside the standard no-frills service. In so doing it has generated publicity and also criticism (charging a wheelchair user a seat premium, excess costs of baggage, ideas to levy a fat tax and for the use of the onboard toilet). Holiday Which? magazine pronounced it the worst airline for charges on optional extras. 26. In 2008, The Economist wrote that Ryanairs cavalier treatment of passengers had given it a deserved reputation for nastiness. 27. Also in 2008, Ryanair failed to hedge its fuel costs before oil rose to $147 a barrel. It later bowed to shareholder pressure to hedge at $124 a barrel for the majority of its fuel, just before oil dropped to $33 a barrel. Fuel costs are perhaps Ryanairs greatest cost concern (due to a combination of scale and fluctuations in them). 28. Ryanairs shares fell to ?¦1.97 in 2008, 12 months after their high of ?¦6.30. Its PE ratio was at half that of Easy Jet (13 against 29); Ryanair has often underperformed its low cost rivals on this metric. For the five years up to this point Ryanair was the worlds most profitable airline. 906SMGT.1 Compulsory formative assignment: case study Page 4 29. In 2009 Ryanair said it was in discussion with both Boeing and Airbus about new planes, although this was denied by Airbus. Later that year, Ryanair announced that negotiations for new aircraft had failed, Ryanair agreeing only to take aircraft that had been completed in the build programme. 30. Ryanair designated itself the Worlds Favourite Airline on the basis that, in 2009, it was ranked as the largest international airline by passenger numbers. 31. The firm hasnt been slow to close unprofitable routes and replace them with more profitable ones. In 2009, the organisation won a FT-ArcelorMittal Boldness in Business award, stating that Ryanair had changed the airline business outside North America, driving the way the industry operates through its pricing, the destinations it flies to and the passenger numbers it carries. 32. By 2010 all Ryanair check-in desks were closed. Account transactions were done online and customers left bags at bag drops. 33. In 2010, Michael OLeary indicated that the poor economic climate was a boon to the no-frills airline industry. That year it planned to open nearly 150 new routes, increase market share and capitalise on the demise of several competitors. 34. This week, the Swiss research firm Covalence released its annual ranking of theoverall ethical performance of multinational corporations. To complete its ethics index, Covalence compiled both quantitative and qualitative data, spanning seven years, for 581 companies. The data encompass 45 criteria that include labor standards, waste management and human rights records. And because it is a reputation index, the Covalence survey also incorporates media, industry and NGO documents into its evaluation. It came as absolutely no surprise to us, therefore, to discover Ryanair listed in the top 12 worst companies in the World. (ihateryanair.org) 35. Ryanairs 2010 half year results saw a (rare) loss, as its ?¦140m operating profit was countered by depreciation costs and a write-down on its Aer Lingus shares, resulting in a ?¦180m loss. 36. Although sometimes not considered a particularly benevolent employer, Ryanair remunerates staff well, incentivised around business performance. The airline also works hard at maintaining flight punctuality and service efficiency. 37. In 2011 Ryanair opened a new maintenance hangar at Glasgow Prestwick (becoming Ryanairs biggest maintenance base). It also temporarily grounded 80 aircraft, reportedly due to high fuel prices and the economic climate. 38. Ryanair has met a legal back-lash against surcharges. In 2011, Ryanair said it would fight the UK Treasurys plan to ban high charges levied when people pay for flights by credit card. 906SMGT.1 Compulsory formative assignment: case study Page 5 39. Later that year, Ryanair and COMAC (Commercial Aircraft Corporation of China) signed an agreement to cooperate on the development of a Boeing 737 competitor aircraft. 40. Ryanairs average fare was around half that of its nearest rival, Easy Jet, although 20% of Ryanairs income was from ancillary revenue (other than ticket fares). Ancillary income was growing at 22% per annum, compared to 5% for ticket income. 41. By 2012, Ryanair had a fleet of Boeing 737800 series aircraft (the only model it uses). Later aircraft have a simplified cabin arrangement (e.g. non-reclining seats) to save on purchase price and operating costs. 42. Ryanair probably runs the most fuel efficient air fleet (new aircraft and certain fuel efficiency modifications) but Ryanair was predicted to be the fourth most affected airline in the world when the EU introduced a form of emissions tax on aviation in 2012. 43. In 2012, there was a staff complement of 8,500 people of which 1,200 were pilots; a ?¦339m profit was made on ?¦3,013m revenue. 44. Easy Jet founder, Sir Stelios Haji-Ioannou, has recently suggested that the low cost model is now the only operational model for short haul air travel in Europe
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