Ryan Air Wiki

Company profile:
Background: Ryanair, Europes first and largest low fares airline started in 1985 and was set up the Ryan family with a share capital of just 1, and a staff of 25. Over the past few years the company has shown tremendous growth and now operates more than 1400 flights every day from 44 bases and around 1100 low fare routes across 27 countries which connect 160 destinations. The company now has approximately 73.5 million passengers in the current fiscal year. They provide air travel and travel related other facilities such as car hire, travel insurance, cheap hotel accommodations, airport transfer, cruise holidays, free roaming sim cards, campsite holidays and many more. All these are provided at very economical prices.

Current performance: Evolution of: Profit (Loss) before Taxation (2000 - 2009)

400,000

300,000

200,000

100,000

-100,000

-200,000

th GBP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Fame 2010

In 2010, Ryanair had a 204% increase in profits showing adjusted net profit of 318.8million. This was despite the economic downturn suffered throughout the country. Many competitors announced losses or bankruptcy but Ryanair had great profits. 51 new Boeing 737-800 aircrafts were purchased which made it 232 Boeing 737-800 in total. Negotiations of 200 aircraft order with Boeing was terminated. This will show a substantiate fall in capital expenditure over the next 3 years. Increased profitability shows rise in cash in hand by 535million to 2.8billion. The board proposes to return 500 of this cash as dividends. Also 550million may be available for return to shareholders either

through share buy back or another dividend by year end of 2013. Ryanair faced problems due to the disruption of volcanic ash and almost incurred an approximate of 50million.
As per the 3rd quarter 2011 Financial results of Ryanair, Europes largest passenger airline had a loss of 10m but revenues grew by 22% to 746m, as traffic increased 6% to 17m.The average fares also rose by 15%.

Current strategic position:

Analysis of the external envioronment:
The following current external factors can impact the performance of RyanAir:

The macro envioronment:

PESTEL FRAMEWORK:

Political and Legal: 1. Air passenger duty and Change in airport charges: The U.K. government has increased the Air
Passenger Duty (APD) to 11 in 2009. The EU Airport Charges Directive of March 2009 sets general principles that are to be followed by airports when setting airport charges .The directive is to be transposed into national legislation throughout the EU by March 2011 which may lead to higher airport charges, depending on how its provisions are implemented and applied by EU member states and subsequently by the courts and thus affecting the costs of Ryanair.(Ryan Air Holdings PLC

2010) 2. BAA airport monopoly: Recently in October 2010, UK Court of Appeal supported the Competition
Commissions recommendation and asked BAA to sell Stansted airport and either Edinburgh or Glasgow airports in the interest of competition and a better deal for consumers.(Dawber,Alistair 2010) This can help RyanAir to deal with the new owners of Glasgow and Stansted airport which if sold, to improve the traffic at Stansted which declined recently due to BAA's high costs and mis management.(Ryan Air Holdings PLC 2010)

3. Air traffic control strike: The repeated European government owned Air Traffic Control strikes can
be a cause for huge loss for airline industry as recently such strikes caused Ryan Air to cancel huge number of flights. RyanAir also had to pay compensation to passengers based on EU261 reform.

(Ryan Air Holdings PLC 2010)

Economic :

1. Recovery in global economy: As the global economic crisis is fading, IATA forecasts the net posttax profits in 2010 for the airline industry to be US$15.1 billion. But European airline industry might still suffer a loss this year due to weak economies, labour disputes and revenue losses from Iceland's Eyjafjallajokull's disruptive volcano ash. In addition the bank and sovereign debt crisis in Europe is forcing further measures that are expected to weaken a number of European economies. Due to weak U.K. economy the Companys decided to freeze growth at its U.K. bases (with the exception of launching a base at Leeds Bradford), and reduce its London (Stansted) flights. As a result its total U.K. capacity might fall by 16% in the period from November 1, 2010 to March 31, 2011.(Ryan Air Holdings PLC 2011)

2. Rise in oil prices: The rise in fuel prices is affecting the operating costs associated with the growth
of the RyanAir. Ryan Air currently handles the problem applying fuel-hedging strategy but they accept that these hedging strategies can cushion the impact on Ryanair of fuel price increases in the short term, in the medium to longer-term, such strategies cannot be expected to eliminate the impact on the Company of an increase in the market price of jet fuel(Ryan Air Holdings PLC 2010:126).By the end of 2010,fuel, which represents 40% of total operating costs compared to

35% in the prior period comparative, increased by 42% to 943.9m due to a higher price per gallon paid, and an increase in the number of hours flown. (Ryan Air Holdings PLC 2011).In future fuel costs may also increase as a result of the depletion of petroleum reserves, the shortage of fuel production capacity and/or production restrictions imposed by fuel oil producers.

3. Fluctuation in Interest rates: The fluctuation of interest rates in UK can affect both the income and
expense of Ryan Air. RyanAirs interest income and similar income decreased by 68.8% in the 2010 fiscal year due to lower market interest. On the other hand Ryanairs interest charges and similar charges decreased by 44.7%, in the 2010 fiscal year, primarily due to the impact of lower market interest rates.(Ryan Air Holdings PLC 2010)

4. Foreign Exchange Rates: The fluctuations in currency rates can affect the revenue earned by
Ryan Air. Ryanair recorded foreign exchange losses of 1.0 million in the 2010 fiscal year. This is due to the strengthening of the U.K. pound sterling and U.S. dollar exchange rates against the euro during the 2010 fiscal year((Ryan Air Holdings PLC 2010)) Social: With the growth of globalization, people have become more open towards travelling be its regular business tours or student exchange programs. This can directly affect the growth of travel industry in future. Environmental The main challenges for the natural environment posed by current aviation practice and infrastructure, and any future expansion are:

1. The contribution of aviation to greenhouse gas emissions and thus to climate change; 2. The direct, indirect and cumulative impacts on the natural environment from existing and
proposed air transport infrastructure and air traffic;

3. The adverse impacts on environment from increased aircraft noise. Certain airports in the U.K.
(including London Stansted and London Gatwick) and continental Europe have established local noise restrictions, including limits on the number of hourly or daily operations or the time of such operations. Ryanair is currently the industry leader in terms of environmental efficiency and is constantly working towards improving its performance using the following strategies:

1. Ryanair operates a single-aircraft-type fleet of Boeing 737-800 next generation aircraft with an
average age of only 2.94 years which are aimed at minimizing drag, thereby reducing the rate of fuel burnt and noise levels. The unit emission per passenger due to the inherent capacity increase in the Boeing 737-800 aircraft is also reduced. 2. Ryanair provides direct services as opposed to connecting flights, in order to limit the need for passengers to transfer at main hubs and thus reduces the number of take-offs and landings per journey from four to two, reducing fuel burn and emissions per journey;

3. Ryan Airs operations like the remote location of the majority of airports Ryanair operates from, the
absence of night operations etc. Reduces environmental impact CO2 Emission control: On November 19, 2008, the European Council of Ministers added aviation to the EU Emissions Trading Scheme as of 2012. This scheme is a cap-and-trade system for CO2 emissions to encourage industries to improve their CO2 efficiency. As per the legislation, airlines will be granted initial CO2 allowances based on historical revenue ton kilometres and a CO2 efficiency benchmark. To address any further requirement, allowances need to be purchased in the open market and/or at government auctions. This can affect RyanAir's cost management based on the allowances to be needed in 2012.(Ryan

Air Holdings PLC 2010)

Technology:

1. Use of internet: Internet is the most powerful tool available to travel marketers. It is used today to
buy a travel ticket, and also to compare the prices online. Ryanair and also some of its competitors have their internet-based reservation system which helps to increase the number of passengers but again the ability to compare the prices of different travel options increases the competition.

2. Use of Geodemographic tools: Nowadays, many companies in the UK use Geodemographic tools
to identify and understand consumers better in terms of the demand for products and services. (Kamarulzaman Yusniza 2010)European Journal of Social Sciences Volume 16, Number 2 (2010):196). These enables to examine the profile of e-shoppers based on their demographic and geographic data as well as the purchasing pattern of travel services. The use of such tools can give RyanAir and its competitors a competitive advantage.

3. Use of GPS tools: Many airlines are starting to use GPS receiver to fly better and synchronize their
operations into and out of congested airports. These intelligent and expensive tools can help any airline to fly safe and better way. (Lindsay, Greg 2009) Key attributes and scenario: 1. Global economy and rise in oil prices:

Global economy is unstable and with the growth or fall of the economy, the passenger volume might change affecting the revenue of RyanAir. Oil prices are expected to rise in coming years. Moreover as Europes lowest fare airline, Ryanair uniquely guarantees no fuel surcharges for any rise in fuel prices. Though Ryan Air applies hedging for oil but rise in oil prices can increase operating cost of Ryan Air. 2. Air passenger duty and airport charges:

Increase in air passenger duty will increase the travel fare and passengers will be more critical in taking their travel decision. This can affect the passenger volume in Ryan Air. Airport charges are going to increase in 2011 and Ryan Air operating costs can get affected. 3. CO2 emissions control:

With the whole world becoming more and more environment conscious CO2 emissions control by EU Emissions Trading Scheme as of 2012 is important and its implications can affect the operating costs of Ryan Air. 4. Online reservation system:

As maximum amount of bookings of Ryan Air is done through their online reservation system, proper maintenance and regular improvement of the system is needed, to make it more customer friendly.

Industry (or sector):

POTER'S 5 FORCES FRAMEWORK: The attractiveness of the airline industry for RyanAir has been analysed using Porter five forces as given below: Threat of new entrants: UK airline industry is currently quite competitive for the short haul airlines and thus less attractive for new entrants. Ryanair has consolidated its position in the market with a brand differentiation as low-cost airline. Moreover its robust route network helps it to access a large volume of passengers with cost efficiency. For a new entrant to enter the short haul market, access to suitable airport and low cost bases is needed. As RyanAir and its competitors are already ruling the market with their low cost strategy, any new entrant should have a differentiation to enter the market. Threat of Substitutes: Substitutes in airline industry are the main challenge for any airlines especially in case of short haul budget airlines. Depending upon the price/performance ratio passengers of airline can opt for the land travel substitutes like trains, cars or ferries. In case RyanAir, the high speed trains in UK like Eurostar are the main competitors as these trains give almost same services in similar budget as that of RyanAir rather many a times the stations are nearer the city centre than the regional airports. For example, the prices of RyanAir between Paris and London are limited by charges of high speed trains like Eurostar for the same route. The power of buyers: As the customer switching cost for short haul low cost airline is low, Ryanair should consider its other extracost factors like customer service, punctuality etc for attracting the customers. Though RyanAir has 7% growth in volume of passenger in third quarter of 2011 but they are not having good customer service feedback and this can be a threat in long term.But as long as they can maintain focused on price the market is on their side, the power of buyers will remain diminished even though there is practically no switching cost for the buyers. The power of suppliers: The suppliers for RyanAir include aircraft suppliers, airports, and fuel suppliers. There are not many aircraft suppliers available in the market.Boeing and Airbus are the only two players. RyanAir uses only single type of aircraft of type Boeing 737-800 and so faces high switching cost related to maintainability. RyanAir uses regional airports which have low bargaining power as they have minimum customers. Though RyanAir uses hedging to control the rising fuel prices but the fuel price can be a threat in future. Competitive Rivalry: The low cost airline industry in UK is highly competitive. One of the main competitors of RyanAir is Easyjet which like RyanAir offers no-frills, short haul travel in low cost. Due to more or less static or rather declining growth in the sector any growth is normally at the expense of the rival.(Johnson, Scholes and Whittington 2010). In this case, as cost and routes are the main differentiation, competetion pressurises on profit margin. It is also to be noticed, the big players like British Airways are also concentrating on their short haul model. (BA annual report).Thus In budget airline sector the differentiation is low and people tend to focus on price and can easily switch between competitors on the basis of price.

Competitors and market:

Identifying Strategic group and market segment: Considering the scope of RyanAirs organisational activities, the strategic group of RyanAir includes mainly the low budget, no frills, short haul airlines in Europe. In UK, Easyjet is the main competitor of RyanAir. Geographically, though RyanAir has head quarter at Dublin airport, Ireland and easyjets head quarter is at Luton airport, London but both the airlines target the European market. Easyjet and RyanAir operates in 49 routes and 43 routes respectively

among the top 100 European routes. Incidentally Easyjet operating routes are mainly between primary airports whereas RyanAir operates mainly in secondary airports. As budget airline, both EasyJet and RyanAir target similar market segments comprising of the short distance travellers with low budget who will not expect extra facilities like snacks, movies etc. But easyjet is more focussed towards attracting business travel market. They are adding more routes to business destinations and operating frequent flights during the peak times of the day. However, RyanAir promotes their online booking systems intensely and internet bookings are usually more attractive to leisure travellers as they look for low-cost carries more than the business travellers(Harvard business review http://web.ebscohost.com/ehost/pdfviewer/pdfviewer? hid=112&sid=0f28f1b5-1899-48e6-af14-c7aa892c2dbe%40sessionmgr112&vid=4, strategies to fight low-cost rivals by Nirmalya kumar) Identifying the critical success factors:

1. Low cost: The main customer value for the target market segment is mainly low cost. These
customers can compromise frills as they are travelling short distance.

2. Customer service: As no frills are offered by the low budget airlines like Ryanair, there is very low
differentiation among the players. As a result customers expects and look towards providers with better customer service which includes punctuality, better handling by the crew, comfort during travel, proper treatment during crisis etc.

3. Safety: Safety is an important factor for the low budget airline industry and a serious accident by any
budget airliner can affect all other budget carriers(book).

Analysis of the internal envioronment:

SWOT ANALYSIS (Strength and weaknesses): To analyse the internal environment of RyanAir using SWOT framework, strength and weakness of the airline has been identified below:

Strengths:
1. Strong operating strategy: Ryanair provides no-frills, point-to-point services on short haul routes. The selection of short-haul routes allow Ryanair to offer its low fares as it can cut down the unnecessary frills like meals, video etc, which are usually not expected by short distance travellers.'In the 2010 fiscal year, Ryanair flew an average route length of 661 miles and an average flight duration of approximately 1.55 hours' (RyanAir Holdings PLC 2010).The selection of secondary and regional airports helps it to avoid congestion, perform higher rates of on-time departures and reduce turnaround time. Faster turnaround times help in maximum utilization of aircrafts by Ryanair (Datamonitor 2010). In 2010 the rate of on-time departure was 88%(RyanAir Holdings PLC 2010).The source-to-destination service cuts down extra service charges on connecting passengers and baggage transfer and also occurrences of baggage loss are reduced. Ryanair earned about 22.2% from its revenue ancillary services like selling different goods, snacks etc in the flight, offering advertising spaces in its website, providing accommodation services etc. 2. Cost efficiency: Ryanair's continuous effort in cost reduction helped in its better performance. As of December,2010 the operating profit increased by 20% compared to previous quarter. The main cost control policies are:

The costs of airport charges have been reduced by operating from low cost secondary and regional airports and using low cost terminals. The promotion and implementation of on-line reservation system helped to eliminate travel agent commissions whereas on-line check in system helped to reduce the passenger handling charges. The rising fuel charges and fluctuating currency rates have been controlled to an extent by hedging. The labour cost is controlled by continuous improvement in productivity and productivity based pay incentives which includes commissions for on-board sales.

Aircraft acquisition and maintenance cost is controlled by using single type of aircraft Boeing737-800 with average age of 2.9 years. These aircraft, with large seating capacity, can cover long distance without refuelling. Moreover, they also have lower emissions, fuel burn and noise emission.

3. Proper route policy: The route network of Ryanair is very strong. 'As of June 30, 2010, the Company offered approximately 1,300 scheduled short-haul flights per day serving 155 airports throughout Europe and Morocco, with an operating fleet of 250 aircraft flying approximately 1,100 routes'(RyanAir Holdings PLC 2010:33). This continuous growth in route network enhances passenger volume by enabling the company to get access to the new markets as well as improves the quality of service.

Weaknesses:
1. Customer service: RyanAir has poor public image and often dissatisfies customers. In different customer satisfaction surveys, Ryanair has been voted among the bottom players. The reasons for this often includes unfriendly staff, uncomfortable seats, hidden costs, safety etc.(Harry 2010)Recently RyanAir has accused for charging for charging passengers for boarding pass. It has also been criticised for extra luggage allowance and higher credit card fee per passenger.

2. Legal proceedings: Ryanair is crowded by different legal proceedings which involve damages, fines, penalties etc .Currently Ryanair is under investigation by European Commission for the issue the agreement between Ryanair and other airports such as Brussels (Charleroi) and Frankfurt (Hahn) was illegally stated. This regular involvement in legal issues can earn Ryanair with bad reputation as well as huge financial penalties. 3. Issues with unfunded pension contribution: Ryanair has unfunded pension obligations which reported to around $40 million in 2009 but assets were $25.5 million. This will pressurise the company to improve its liquidity position in coming years to cover the gap.
4. Airport Location: The use of secondary airports can be a source of problem as these airports are usually far from the city centres and travelling to these airports might be a cost overhead for the passengers. This can be a possible threat to the passenger volume for RyanAir. For example, RyanAir says that it flies to Frankfurt but the RyanAir's base airport i.e the secondary airport Hahn is 60 miles away from Frankfurt and requires1 hr. bus ride.(Evans, Campbell and Stonehouse 2003)

Strategic capability:

1. Brand value: RyanAirs brand has already been established as low cost, short haul airline.
Customers considering about budget airline will always first think about RyanAir though their brand loyalty might not be strong. But, it is very clear to the customers either by different promotions or due to different controversial statements by CEO, Michael OLeary.This brand value is not easily imitable.

2. Strategy and vision: RyanAir uses low cost/low fare model in the airline industry to survive and to
attract its customers. It remained the cheapest airline in Europe as of January, 2011.The capability to offer customer such low fare is their cost leadership by which it managed to control cost efficiently with the changing environment .At the same time it effectively used different ancillary services to earn profit. In 2010 fiscal year, ancillary services accounted for 22.2% of Ryanairs total operating revenues,Its punctuality and safety measures have added to its customer value.RyanAir maintained 88% punctuality in 2010.Its safety measures include high quality training to its pilots and crew menbers and proper aircraft maintenance and repair services.Incidentally,RyanAir never faced a fatality till now.

3. Innovation: RyanAir has always shown a capability to be innovative.At one hand it has shown
innovation in advertising on the seat back and extensively on its website, on the other hand innovative ideas to save like fuel

SWOT analysis

OPPORTUNITIES STRENGTHS
Using low budget model in long haul market Strong operating strategy Cost efficiency Proper route policy + Growth in European airline industry + Growth in tourism market

THREATS
Intensive competition EU regulations

+ +

+ +

+ +

+ +

WEAKNESS

Customer service Legal issues Unfunded pension obligations

+ -

+ -

+ -

IATA is now estimating the industry will post net profits of $9.1 billion in 2011 but the growth in European market will remain supressed. This is an opportunity to attract higher rate passenger volume as the demand in low cost airline will remain. Moreover Ryanair with its strong operating strategy, cost efficiency and continuous expansion of new routes and establishing new bases in EU can grow rapidly in future.. Ryanair has already established a strong base in cost efficiency. Using this strength Ryanair can enter the long haul market with its low cost strategy and its other operating strategy like using of secondary airports, earning ancillary revenue, point to point service added to its brand name as low cost airline can give it a

competitive advantage. The global tourism industry is expected to grow by a rate of 4.3% per annum for the period 200817.As a part of ancillary services, Ryanair is also provides accommodation through Booking.com. Ryanair can themselves invest in this business as they are already growing in different routes and promote their business through their website and aircrafts. But as the UK airline industry is becoming more and more competitive with EU linearization, even premium airlines thrashing prices. This might be difficult to sustain if the price war starts between low cost airlines. So, for Ryan Air it is important to strengthen its customer loyalty by improving customer services and provide differentiation using there operating strength. Another threat is the rising fuel prices which is expected to increase in future. Ryanair currently handling it with its hedging strategy but in long term it might be difficult. Moreover Ryanair guarantees not to add any fuel surcharge in its fare. In that case, RyanAir should control its cost more efficiently otherwise it might have to increase its fare. Moreover different EU regulation like compensation for travels for delay, cancellation of flights, regulation with CO2 emission etc can have adverse effects in the operating cost of the airline and RyanAir should use their cost leadership to overcome such challenge.

Conclusion and recommendation: After doing the external and internal analysis, it can be said that RyanAir has already established itself as leading low cost airline. It has maintained its position by using different operating strategy and controlling cost efficiently. But as the low cost market is highly competitive and customer values the price most, it is very important to continuously discover efficient strategy to generate revenue, control cost and increase profit margin. Moreover, customer loyalty plays important role in this case and RyanAir should improve its customer relationship by being more transparent and providing occasional low cost promotional offers. RyanAir can use its experience in cost leadership in long haul market and might consider the opportunity to establish as comparative low cost model in long haul market. Moreover, it can consider central and eastern Europe for its expansion through new bases and routes. Acquisition and merger will also help to strengthen its position.

References: Ryan Air Holdings PLC (2010) Annual_report_2010 [Online] available from <http://www.ryanair.com/en/investor/download/2010> [7 February 2011] Ryan Air Holdings PLC (2011) 3rd Quarter Results 2011[Online] available from <http://www.ryanair.com/en/investor/download/2011>[7 February 2011] Johnson,Gerry.,Scholes,Kevan.,and Whittington,Richard (2010) Exploring Corporate Strategy. Edinburgh:Pearson education. Dawber,Alistair (2010) Court of Appeal tells BAA to sell Stansted and a Scottish airport 24 October 2010 The Independent [Online] 24 October available from<http://www.independent.co.uk/news/business/news/court-of-appeal-tells-baa-to-sell-stansted-and-ascottish-airport-2106069.html> Ford,Richard (2010)No-fly lists, scanners and ban on flights from Yemen to tighten air security The Sunday Times [Online] 21 January available from <http://www.timesonline.co.uk/tol/news/uk/article6995224.ece>[7 February 2011] Emery,Cherry (2009) Cheap Airfare Promoting Cheap Student Travel in an Inexpensive Way[Online] available from<http://www.articlesbase.com/travel-articles/cheap-airfare-promoting-cheap-studenttravel-in-an-inexpensive-way-1021944.html>[7 February 2011]

Natural England (2010) Aviation 2040 Future Scenarios for Aviation and Airport Infrastructure Consultation paper [Online] available from<http://www.naturalengland.org.uk/Images/05-012010%20Aviation%202040%20_tcm6-20399.pdf>[7 February 2011] Ryanair's environmental record (2006)[Online] available from<http://www.ryanair.com/en/about/ryanairand-the-environment>[7 February 2011] IATA(2010),Financial Forecast [Online] available from<http://www.iata.org/whatwedo/Documents/economics/Industry-Outlook-Dec-10.pdf>[7 February 2011] Nigel Evans, David Campbell, George Stonehouse(2003)Strategic management for travel and tourism [Online]available from<http://books.google.co.uk/books? id=X0zpJ4DCyj8C&pg=PA377&lpg=PA377&dq=The+secondary+airports+used+by+RyanAir+are+far+from+c ity&source=bl&ots=xcydv5orpS&sig=jc5O3T5CZgSjGUvBUmQCjG95s3w&hl=en&ei=aYdVTbJNZKHhQegsMTqDA&sa=X&oi=book_result&ct=result&resnum=10&ved=0CGkQ6AEwCQ#v=onepage&q=s econdary%20airports&f=false>[7 February 2011] Harry,Wallop.(2010) 'Ryanair and Thomas Cook worst short-haul airlines, Which? Says' The telegraph [Online] 23 June available from <http://www.telegraph.co.uk/travel/travelnews/7849481/Ryanair-andThomas-Cook-worst-short-haul-airlines-Which-says.html> [7 February 2011] Datamonitor(2010) Ryan Air Holdings PLC[Online] available from<http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=7&sid=f79647f6-34cd-44a9-b57fd88fcd1b291f%40sessionmgr10&vid=7>[7 February 2011]