Ryanair in the European Low-Cost Airline Industry

Executive Summary

The two decades that low-cost airlines have operated in Europe has changed geography of the industry completely. Indeed, traditional players themselves are beginning to cut their operating costs in order to match the competition posed by their low cost rivals. Among low cost airlines that has contributed to the change in the way Europeans travel and how players operate has been Ryan air, managed by Michael O’Neil. Ryanair had been a small loss-making Irish airline in 1980s when the owner requested O’Neil to help develop ways of revitalizing the company. They both agreed that O’Neil fly to the United States and get some information on Southwest’s (a low cost airline) operations. O’Neil’s return to Europe and subsequent introduction of Southwest strategies changed Ryanair and European air travel for ever.

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Ryanair has increasingly been aided by O’Neil’s dedication to low cost management that has consistently resulted to competitive costs. Specializing in short haul flights and in regional markets that were ignored by major anilines also contributed to the airline’s growth and market dominance. Being obsessed with controlling operating costs resulted to reduction or complete eradication of some on-flight services, such as snacks and drinks. Instead, travelers are encouraged to buy such services on the company’s website. Other resource consuming services such as customer support are provided through the Internet, which further means more reductions in costs. The greater traffic on the company’s website has provided the company with a way to diversify income; the company sells other non-transport relates services such as insurance, hotel booking and airport exchange. The company’s value competitiveness has also been developed through internal mechanisms. First, employees are trained on the culture of creating shareholder value through controlled costs while improving efficiency and productivity. Secondly, aircrafts are sourced from one supplier, Boeing, because it lowers maintenance costs as well as attracting descent discounts. Other supplies are also sourced from single source where necessary. All these has resulted to stunt performance that has players in the industry, as well as new entrants to consider following the low cost approach to civilian air transport management.

Introduction

The genesis of low cost airlines in the European market in 1980s forever changed the way people traveled as well as operations of traditional careers. Boosted by the deregulation of the industry in the Western Europe, the small, cost-efficient careers have been able to turn tables against major airlines. The main characteristics of the players in the industry included being focused on lower operating costs, serving the mainly ignored short haul routes and operating from fringe airports that have less traffic. Ryan air, an Irish airline, was the first low cost budget in Europe and continues to be the leader in the industry. The success felt by the company will hereby be used to illustrate how low cost airlines operate in Europe. This would be achieved through the following four distinctive sections: Ryanair’s comparison with an Asian low cost career, influences in Ryanair’s cooperations, competitive advantage, and diversification efforts.

Comparing Ryanair with Asia’s Tiger Airlines

Rynair’s low model of growth has been leaned and aggressively sought by several low cost airlines in Europe and in other parts of the world. Asia, which is the fastest growing airline transport industry in the world, has had several of its low cost airlines learn from Ryan air. Tiger Airlines has been the most aggressive of Asia’s low cost Airlines. This could be originating from fact that Tiger is a joint venture between Ryanair itself and Singapore Airlines, world second largest airline in terms of profitability and market capitalization (The Economist 2006). Despite being a blend of two market leaders in their respective market segments (Ryanair leading in low cost sector and Singaporean leading in global long haul routes) Tiger has been very independent in running its activities; it has successfully gotten out of its aggressive parents’ shadows. Indeed, few individuals know of the link between Tiger and the two international market leaders. However, it is widely reported that Singaporean Airlines, the world’s trend-setter in passenger transport established Tiger to deal with the competition posed by the fast rising low cost airlines in the region. Approaching Ryanair for a joint venture was therefore a well though tactic that is paying of decently.

Like Ryanair, Tiger Airlines has approached increasingly competitive Asian market low cost strategies, which has enabled the airline to cultivate a market for itself in the region. Secondly, the airline has targeted to serve in short haul routes that have been ignored by other players in the Asian market. Being among the first entrants into this market has resulted to endearment from many Asian travelers. The success of serving short haul flights has been enhanced by the use of both primary and secondary airports. In this regard, the airlines have been able to take travelers closer to their destinations as opposed to major airlines that have been used just the major airlines. In applying these tactics in the Asian market, Tiger seems to be doing what Ryanair did in the 1980s; Michael O’Neil leaned of low cost airline management from America’s Southwest and quickly embarked on applying similar tactics in the flagging Ryanair (Gillen & Morrisson 2003). Things have never been the same again for the one small Irish airline; it has been growing with leaps and bounds ever since. Tiger Airlines is in this regard destined for better things should it aggressively sought the route undertaken by its partial parent airline, Ryanair.

Ryan entry aggressive entry into the company was aided by the deregulation of the European air transport industry, which resulted to sudden rise in the number of travelers in the continent (O’ Higgins 1999). In similar approach, Tiger Airlines entered the Asian market at a period that the region was experiencing a sudden surge in the number of travelers. Both airlines entered into their respective markets when there were few other companies serving this specific market. This means cultivating royalty and stamping dominance before competitors establish themselves. The use of this tactic by Ryanair before entry of the now dominant players such as Easyjet formed strong foundations for competitiveness. In similar regard, Tiger Airlines seems is aggressively marketing itself as budget airline of choice in Asia. This is before competitors gain teeth to eat into the company’s market share.

Another similarity between the two airlines is the reliance on single aircraft supplier in order to reduce maintenance costs; both airlines rely on Boeing aircrafts (Calder 2003). This reliance on single aircraft supplier is increasingly being used by worldwide. This is in consideration that buying both Airbus and Boeing, the two dominant is transport airplane manufacturers, leads to rise in costs of maintenance, including training cabin and maintenance crew on both frameworks. Another advantage on the use of one manufacturer is the discounts at purchase and maintenance, which rises from fact that aircrafts have longer life spans, meaning that business relationships between the companies would be long ones.

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Just like Ryanair, Tiger Airlines has aggressively sought the establishment of working relationships with other airlines and airports (Tsai 2004 ). The affiliation with major airlines sees the Tiger flying travelers from the bigger airports to inner ones, something that major airlines been avoiding. Tiger has also formed associations with some other low cost airlines in the region. For instance, the relationship with SEAir of the Philippines mean that Tiger’s travelers have more connections in the Philippines markets (Economist 2006); they do not have to travel through Manila to access other regions in the country. On the other hand, Tiger has been forging relationships with interior airports, exactly what Ryanair has been using in the last two decades. These fringe airports encourage Tiger to fly into respective areas, reason being increased tourist and business travels that benefit local economies. Borrowing heavily from the European market leader on low cost air travel has therefore set Tiger airlines on the right footing.

Stakeholders’ Influence on Ryanair

As earlier mentioned, Michael O’Neil was instrumental in the entry of Ryanair into the European low cost air travel sector. O’Neil has been at helm of the company since late 1980s, which has seen Ryan grow from insignificance to a key player in the industry. Indeed, O’Neil should be regarded as the person who introduced the low cost air travel to the world, that is, outside the United States. His management style has been unique and completely orthodox, whose results has amused many observes. Rynair’s success is accredited to O’Neil’s character as aggressively competitive. His ability to take the fight to dominant players in the airline sector has continued to provide Ryanair with greater growth. During the initial stages, O’Neil’s confidence to compete head to head with Angus, an Irish state backed airline was seen as trying to bite too much. But O’Neil was not ready to shy away; he went ahead to edge the state airline out of market dominance in Ireland. After succeeding in Ireland, O’Neil embarked on taking the battle to state airlines in European continent, most of which were also protected by the state. Entry of Ryanair in the British market was bad news to the state backed British Airways, which responded by establishing ‘Go’ that was equally out-competed by O’Neil’s airline.

O’Neil’s competitive character is so fierce that he takes the battle to railway companies, bus chatters and cars (Tsai 2004). This sort of competition has hardly been imagined by players in the industry. O’Neil’s competitive character has getting sharper as the airline keep increasing its dominance in the European air travel industry. Through the application of his competitive attitudes, air travel is no longer reserved fro the well moneyed; Europeans from all walks of life can now embark on choosing air as a mode of transport. Indeed, the influence that O’Neil had on other low cost airlines in several other world regions mean that that many more people in the world are benefiting. Due to the much copying of O’Neil competitive strategies in the air travel industry, O’Neil is forced to keep innovating ways and means of keeping his airline ahead of competition; he has never shied away from his combative competitive approach.

As a student of America’s Southwest airlines—world’s first and largest low cost airline in the world; it controls 50 percent of US low cost travel (Caves & Gosling 1999)—O’Neil has influenced Ryanair’s aggressive use of low costs that have resulted to competitive low fairs. IN addition, O’Neil has applied the quick 20 minute turnarounds for the aircrafts. This is also borrowed from Southwest’s emphasis that airlines make money when they are airborne and not while sitting on the gates. In this regard, employees at the company have been accustomed to working fast to ensure that passengers board faster so planes can embark on ‘making money’ as it goes airborne. The turn around has contributed to lower operating costs as preparing planes for faster turn around means less resources are utilized. This has been achieved through aggressive division of labor among the labor force. Employees therefore know exactly what they need to do during the turn around period. The specialization in these duties has resulted to employees becoming efficient at this duty. The result: continued reduction of turnaround time that currently equals southwest’s 20 minutes (Doganis 2007). In addition, passengers benefit from being transported faster to their destinations, which has endeared the airline to passengers.

O’Neil’s search for cutting operating costs also gets sought through increase in passenger numbers. Cost per passenger gets reduced as more and more individuals choose to fly Ryanair. This means that both variable and fixed costs for the company keep decreasing with increase in passengers traveling with the airline. O’Neil has therefore embarked on undertaking aggressive measures that would increase passenger numbers. One way has been increasing the number of planes, as well as routes served by Ryanair. Both of these tactics have paid of well; passenger numbers has been rising with time and the company has never had any problem with the surge. In order to ensure decreasing cost of operating upon increase in flights and passengers, O’Neil has continued to cut non-essential services such as free snacks on flights. This increase in capacity has been driving factor in the popularity of Ryanair in EU region routes. Indeed, O’Neil has been so obsessed with capacity increase to the point of searching for it even during downturns in an industry that is said to be notoriously cyclical (Burrows & Brown 2001). This was even seen after the September 11, 2001 terrorist attack in the US with the use of airplanes. When other players were cutting their flights and planes to control costs, O’Neil was busy entrenching Ryanair’s position in the European market, which was yet another unorthodox management style.

The airline’s consumers are also influential in the ways the company is run, and especially the development of strategic plans. Ryanair’s success in providing reliable cheap flights has gotten fliers completely dependent on its services. This puts pressure on Ryair management to keep innovating on strategies that will guarantee cheaper and reliable flights even when the industry could be facing tough times. The increase in the number of low cost airlines in the continent is slowly becoming a challenge to Ryanair, given that customers are getting more options. Rather than seeing increase in the number of competitor’s as threat, Ryanair takes the challenge as opportunities to improve its competitiveness. This can be seen through cost cutting measures taken by the management. The company has also been diversifying from the traditional Western European routes to Eastern Europe and Asia among other regions. Consumers served in the new routes have less disposable income compared to the airline’s traditional market. Ryanair has to therefore develop pricing strategies that would cater for new customers’ needs.

Ryanair’s Value Chain Analysis

Value Chain Analysis refers to internal processes that help companies to continue increasing their profit margins (Porter 1985). With regard to Ryan air, competitiveness is achieved through four stages that include: inbound logistics, internal operations, outbound logistics, and aggressive marketing and sales strategies—all of which will be discussed in this section.

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Inbound Logistics

Inbound logistics refers to how factors of production are incorporated into company operations (Porter 1980). Ryanair incorporates production factors in ways that help increase efficiency and productivity. With regard to labor, the airline’s management ensures that employees receive high quality internal training. This training also involves employees’ introduction to internal operations of the airlines; it includes being introduced to ways in which they can help the airline achieve even lower cost of production. Sine employees are well oriented in how the company operates; they are more likely to practice low cost with high efficiency culture associated with the company. Ryanair also improves inbound logistics by sourcing most of its supplies from single suppliers. For instance, the airline sources planes from Boeing. Planes leased from other companies are also Boeing made. In this regard, Ryanair is able to benefit from discounts in purchase and maintenance. Some other discounts are achieved in rest of supplies. This emphasis on singles sources has become central to cost cutting strategies applied by this low cost airline. In addition to the two inbound logistics techniques, Ryanair also enters into operation agreements with regional airports, most of which approach it top start flying in their territories. Though this tactic has been attacked by critics as equating to subsidies, Ryanair has not shied away from reducing operating costs by operating in airports with less restrictions or providing incentives.

Operations

Ryanair operations have been characterized by ever decreasing cost per passenger, even as the airline becomes bigger. The airline has used three key strategies of reducing operating costs. First, the number of crew members on its flights is minimal compared to competitors. This was borrowed from America’s Southwest that even requires cabin crews help with tasks during flight and turnaround times. Sharing of tasks by crew no matter their position in flights has decreased the need for more employees, which means stagnant or well controlled operating costs. Second, unlike competitors who have airport kiosks and customer support services, Ryanair has increasingly invested in internet technology to provide that services (source). The low cost of maintaining this facility compared to customer support departments has resulted to controlled operating costs. Third, the association formed with other airlines and airports (mentioned above) has provided the airline with reduced cost of flying to some routes, as this is done through code sharing. This provides Ryanair with the opportunity to concentrate with more profitable routes, as partners who are strong on other routes ferry Ryanair clients. This relationship is mutually beneficial, because other airlines’ clients benefit from lower fares provided by Ryanair.

Outbound Logistics

Outbound logistics refers to the execution of strategies developed through the combination of factors of productions. This is the point where management comes in handy. Ryanair management comes in close contact with employees, who are the ones that execute the company’s operational strategies. Among the outbound logistics used by the management is the flights turnaround, which is closely monitored to ensure that it keeps dropping. Taking closer control of turnaround helps management understand which areas of the processes could be improved in order to improve the time it takes to empty Ryanair planes, have outbound passengers board and the eventual taxing. This is all in the emphasis of having planes in the air most of the time, which is further explained by the shift to fringe airports that have fewer plane traffic and hence quicker in getting in and out. The airline also depends on integrated communication systems in order to pass information to control points to the crew during turnarounds, further reducing the time.

Marketing and Sales

Ryanair is known for its aggressive marketing and sales strategies that has resulted to increased dominance even when other airlines suffer during low seasons. N order to achieve the high degree of marketing, the airline performs internal training to its sales employees (Chan 2001). Sales and marketing employees are therefore well prepared to use the company’s untraditional marketing techniques. Low cost culture is also used in the sales and marketing operations. This is done through lo cost Internet marketing and sales, which has gone as far as into potential travelers’ email address. In addition, Ryanair benefits from its wider clientèle, which embarks on using word of mouth to pass information regarding the company’s low cost fares in the region. Indeed, publicity from the masses has been one of the biggest marketing tools that have benefited this low cost airline. All these competitive strategies have resulted to improved margins in the company that has consistently been envied by competitors in the airline industry and other sectors of global economy.

SWOT, Pestel, and 5 Forces Analysis

This sections shall scrutinize the airline using three analysis tools: Swot, Pestel and 5 Forces—all of which will be discussed concurrently.

SWOT

The airline has in the past years capitalized on SWOT in positioning itself in the competitive industry. Ryanair’s strength comes from its ability to control operating costs and therefore provide travelers with competitive fares. This is something that competitors have been struggling with. The major weakness seen in the airline is the poor customer service that has been associated with the company. O’neil himself is regarded as a rough character who does not have time for customer service. This weakness has, however, not affected customer royalty or profitability. Ryanair’s business opportunities accrue from fliers desire to fly on cheap flights, especially when flying short distances. Success that has been achieved in the last 20 years of operation seem to have planted a mentality that business opportunities in cheap airlines are infinite. This has resulted to competing not just with fellow airlines but also with buses, trains and even personal cars. Increase in the number of low cost airlines in the European market provides a threat to the company. Ryanair has responded with aggressive strategies that has seen it retain its position as the market leader. Another threat to company operations has been the rising operating cost arising from the upward trend in fuel prices.

Pestel

This analysis—which stands for Political, Economic, Social, Technical, Environment, and Legislative—is used to illustrate how individual company responds to pressure coming from the larger society. With regard to the political aspect, Ryanair’s operations has resulted to authorities changing their views on the airline industry. Many are the political regions that have changed regulations in order to welcome Ryanair in local airports. The economic factor of Pestel develops from the European integration that is providing the airline with an expanding market. The effect on Ryanair has been positive; the airline has been venturing into Eastern Europe markets to position itself for the fast growing travel in the enlarging Union. The airline is also subject to changes in the aviation technology, something that airline companies do not have control. Manufacturers and assemblers of aircraft equipment are the ones who determine trend for air transport companies like Ryanair. The worldwide debate on global warming is the major environmental issue that affects the airline industry. Aircrafts are regarded as some of the biggest polluters, which has led to being pressured to be more environmental friendly. Operating in diverse regions and countries has continued to subject the airline to different legislations that are developed in respective markets.

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5 Forces

This analysis illustrates the industrial forces that lead to changing of competitive strategies in respective players. The five forces include: new entrants, suppliers, consumers, substitutes, and competitors. With regard to new entrants’ powers, Ryanair is consistently challenged by new entrants in the market. However, the airline has consistently shown its strength by out-competing newer entrants. Another party of industrial players include airline manufacturers. Royalty to suppliers is increasingly becoming a must to airline companies. This develops from many benefits that come with single sourcing, the primary one being the lower maintenance and training costs. For this reason, Ryanair sources its aircrafts from Boeing manufacturers. Consumers are another group the has influence over the industry. Consumers’ power develop from the larger number of low cost airlines, meaning that they can switch from one to the other. Indeed, customer loyalty in the airline is a challenge to the players. Operating in short distances expose low cost airlines to competition from trains, buses and personal cars. Ryanair has successfully been competing against these players.

Ryanair’s Diversification Strategies

Ryanair has historically been engaging in diversification efforts that supplement on the income gained from its cheap tickets. The ability to generate income from various sources has indeed been one of the major source of income. In addition, Ryanair has succeeded in developing a competitive advantage on various fronts of its diversification program. Following are some of the ways used by the airline to diversify and increase profitability.

One way of achieving this goal has been greater focus on auxiliary income that is not directly connected to its core operations. For instance, the company fails to provide freer snacks and drinks on its flights, but provides travelers with opportunities to purchase meals on board. This is all done on the company’s website; traveler chooses all the services they want provided while on board. As a result, Ryanair website has become a key source of income as more and more passengers purchase extra services on the site (Gillen & Morrisson 2). The traffic generated by the large number of travelers using Ryan’s website has attracted advertisers; the airline has not been shy in inviting them to advertise of its website. Ryanair.com has in itself become an independent money maker for the company. Other than advertisements from other companies and proving travel information, the company has embarked on selling services such as insurance, airport transfers, car hire, and hotel bookings among others.

The airline also diversifies its income on charging for travelers’ baggage (Ruddock 2007). This is in consideration that more baggage increases time it takes for planes to be emptied and reloaded. In this case, the management tends to ensure that the long time it takes to load baggage is well compensated through the charges. This translates to increased cost of traveling on consumers’ side. The travelers thus choose to travel with less baggage in order to avoid the extra cost. Such turn of events helps the company to maintain faster turnaround times. Ryanair thus benefits either way: more income if passengers come with extra baggage or faster turn around if they travel with less.

Ryanair further diversifies income by responding to calls by responding by calls from regional airports to start flying in their territories (Tsai 2004). The incentives provided, such as lower landing rates helps reduce operating costs in the affected lines as well as the entire company. Regions themselves benefit from increased traffic, which uses local facilities, as well as opening respective regions to tourists. In addition to increased passengers, the airline’s website benefit by having more information that attract bigger numbers of visitors and thus more advertisements potentials. Some of these benefits explain why Ryanair has consistently shrugged-off critics attacking the airline for accepting regional subsidies.

The expansion of the European Union eastwards has provided the company with new sources of growth. Like Asia, Eastern Europe is quickly emerging as an important market. In this regard, Ryanair has embarked on expanding routes eastwards. This would mean competing with other airlines. This would be among the first long haul routes that the airline would be cultivating. The application of low cost approach would therefore lead to attracting larger number of potential fliers in the region much to the detriment of competitors. Considering that disposable incomes in the region is lower compared to Western Europe leads to conclusion that lower fares would help boost company earnings and thus increase shareholder value. It is with no doubt that expansion into Eastern Europe will expose the company into other businesses in its new operations. Other than Eastern Europe, Ryanair’s joint venture with Singaporean Airlines in the Tiger Airlines, discussed above, serves as another strategy to diversify incomes. Participating in two quickly expanding markets (Eastern Europe and Asia) provides the company with great diversification potentials in air transport.

Untraditional advertisement methods are also being used to diversify Ryanair’s sources of income. As other companies busy themselves to paint their aircrafts with company or national colors, Ryanair does not shy away from having its aircrafts serve as advertisement portals (O’ Higgins 1999). Indeed, both inside and outside of Ryanair aircrafts are sources of income. Airline’s popularity in the region has resulted to significant numbers of companies to advertise of these surfaces. Ryanair thus makes complete use of the airline as income producing asset. Even the few (twenty) minutes that aircraft stays at boarding gates is used as chance to make money through the display of ads.

As shown in the above mentioned diversification strategies, Ryanair has succeeded in engaging in various diversification and increased its competitive advantage. Despite its aggressive diversification efforts, the company has succeeded in keeping costs lower, which has translated to even higher margins.

Conclusion

Being the low cost airline in the European market provided Ryan with loads of challenges, chief among them being state protection of national careers. However, under the visionary leadership of Michael O’Neil, a one small airlines was able to navigate through the challenges and embark on upward growth. O’Neil’s heavy emphasis on low cost management has resulted to lower ticket prices that have become Ryanair’s competitive advantage (Barrett 2000). Ryanair’s ticket prices have been too low to a point that the airline is competing against bus and train transportation. Other than pricing, Ryanair’s competitive advantage has also developed from its focus on serving short haul flights and in regional airports that have for long been ignored by traditional careers. The combination of these three factors has led to endearment to travelers in the region. Success achieved by the airline in the European market has resulted to the introduction of budget airlines in growing markets worldwide. For instance, Asia, world’s fastest growing economic region has seen an explosion of budget airlines in recent past. One airline that has completely copied Ryanair’s strategies is Tiger Airlines—a joint venture with Singaporean Airlines. Despite being owned by leaders in their respective markets, Tiger has been granted total freedom to operate independently. Results have been stunning as indicated by the company’s performance. The success of low cost air transport in Europe and subsequent introduction in the fastest growing region is testament that traditional careers have to change strategies or perish in this competitive industry.

References

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