Ryan Air Performance Analysis - Essay Example

The Ryan Air Case I. INTRODUCTION The Ryanair, written by Eleanor R.E. O'Higgins is a case study which illustrates the challenges and problems facedby the Irish airline "Ryanair". The study also shows the different business strategies the airline did in its success as an airline carrier through rendering quality service at a cheaper cost, as well as the challenges that the industry has been facing since 2004. This paper highlights these strategies that were taken by Ryanair, and also their resources and capabilities which made them one of the biggest airline industries in Europe. It also identifies the future steps that Ryanair will take in response to the challenges ahead of it. II. BRIEF BACKGROUND Birth The Ryanair, founded in 1985 by the Ryan Family, is an airline which provides airline services that cover routes between Ireland and the United Kingdom. This airline industry served first as a second choice for passengers because the main airline that time was Aer Lingus. During its first years of operations, Ryanair was a "full service conventional airline", with two different seat classes and renting three varied types of aircraft. (O'Higgins 2004) Early Setbacks In the early 1990's, Ryanair encountered problems in terms of management and profit gains. The lack of a stable management led by a good CEO resulted to losses amounting to 20 million Irish pounds. Before the appointment of Michael O'Leary as chief executive, five people have already held that same position in a short span of time. (O'Higgins 2004) The New Formula With the leadership of the newly appointed CEO Michael O'Higgins, Ryanair underwent reforms in order to recover the losses the airline had in the early years. The new formula includes setting-up cheap fares, having no frills or decorations, and adopting the Southwest Airlines model. These reforms started the big turnaround in the airline company in the latter years of the decade. In 1997, Ryanair was a company "floated in an IPO1 on the Dublin Stock Exchange and on Nasdaq- 1002 but the following year, it registered 9.1 million shares on the London Stock Exchange." By the year 2002, the company was included in the Nasdaq- 100. (O'Higgins 2004 p. 834) III. STRATEGIC INTENT Low Cost Airfares The main goal of Ryanair is to keep the company as the leader of low fare airlines which operates "point-to-point short-haul flights" out of regional or secondary airports in Europe. (O'Higgins 2004, p.835) All the other strategies revolve around the primary objective of providing "no-frills service with low fares". This approach tries to target the budget conscious leisure and business travelers, as well as people who are never used to travel by air instead used other means of travel like land and water. (O'Higgins 2004) The air company provided the cheapest way possible to travel by air. It distributed most of the seat inventories to the lowest fare class. The no frills services made the company focus more on other services that are essential to the customers like: (1) frequent departures, (2) advance reservations, (3) baggage handling, and (4) consistent on-time services. It also removed the "non-essential extras (advance seat assignments, free in-flight meals, multi class seating, and access to a frequent flyer program, complimentary drinks, and other amenities) that interfered with the reliable, low cost delivery of its basic flights." (O'Higgins 2004, p. 835) Impacts The strategies of Ryanair which are centered to providing the cheapest air travelling services contributed to very good results. The company surpassed the Aer Lingus as the number one airline covering travels between Ireland and United Kingdom. This fantastic result is due to increased number of passengers (4 million) availing the low cost airline services. The increase of the company's market share to 37 percent enabled them to expand from Irish-UK route to 133 routes, with 86 destinations from 16 countries around the world. (O'Higgins 2004) By the end of 2003, the company had achieved the following: Ryanair became the "most profitable and the most highly valued airline in Europe" as it surpassed the giant German flag-carrier Lufthansa and doubled its value over British Airways. In September 2002, "Ryanair had issued a charter on customer service." In April 2003, Ryanair finally took over the Buzz, which is the budget airline subsidiary of the Dutch national airline, KLM. Ryanair was involved in promoting "several episodes of free seat giveaways on its routes, converting itself, in part, from a 'low-fares' to a 'no-fares' airline. (O'Higgins 2004 p. 836) In addition, the company experienced unusual growth in "fleet, routes, traffic, revenues and profitability" even though they faced the effects the September 11, 2001 attacks. Passenger volumes increased by almost a half (42 percent) and seat numbers grew by 60 percent in 2004. The fast paced expansion was got together with the fall in the "load or seat occupancy factor" from 82 percent to 77 percent in the first half of 2004. (O'Higgins 2004, p. 838) IV. ROLE OF THE STAKEHOLDERS Principal Shareholders Ryanair was founded and chaired by Tony Ryan. He has three sons namely Cathal, Declan and Shane. Aside from the Ryan family other principal shareholders are Michael O'Leary and Irish Air. In July 1998, the major shareholders - Ryan Family, O'Higgins, and Irish Air - sold 12.6 million shares which are equal to 10.6 percent decrease in their total shares (62 percent to 51.4 percent). David Bonderman, chairman of Ryanair, bought shares through the Irish Air which totaled 14.7 percent. In the span of 3 years, the Ryan family has sold off shares amounting to 400 million Euros. Tony Ryan, remaining non-director, family member of the board had a total share of 1.42 percent stakes. His sons Cathal, Declan, and Shane held 2.57 percent, 2 percent, and 2.9 percent shares respectively. Michael O'Leary, after selling shares close to 200 million Euros, remained the largest holder of shares with 5.4 percent stake. (O'Higgins 2004) V. RESOURCES AND CAPABILITIES Aircrafts and Airlines The airline company further raised its capital expenditures through aircraft fleet expansion in order to reach its goals. Ryanair also made series of negotiations with Boeing, aircraft manufacturer, for new aircrafts at cheap prices. By 1998, the company acquired 45 new Boeing 737-800 aircraft with 189 seat capacity amounting to 2 billion US dollars. The newly acquired aircrafts joined the existing fleet of 20 Boeing 737-200's (with 130 seat capacity, average lifetime of 15 years, and 25 years life expectancy). Overall, the air fleet of Ryanair increased from 22 aircrafts in 1999 to 54 by the end of 2003. The existing contract with Boeing would deliver additional 125 planes by the year 2009. (O'Higgins 2004) The Ryanair Airlines purchased the Buzz, which is a subsidiary of KLM and based on Stansted. The challenge in this acquisition is Buzz has been losing money at an average of 1 million Euros a week since its inception in year 2000. On the other hand, the purchase of Buzz further increased the share of slots of Ryanair at Stansted Airport by 16.5 percent (33 percent to 49.5 percent). To solve the losses incurred by Buzz, Ryanair restructured the staff of Buzz in which only 170 of 610 crews were retained. The ones retained would earn more and fly more. Ryanair also decreased the routes taken by Buzz from 24 to 10 routes. (O'Higgins 2004) Human Resources In the human resources, Ryanair strengthened the senior management team headed by O'Leary by creating two deputy chief executives positions in 2002 and 2003. These positions were filled up by company veterans in the names of Michael Cawley, former chief financial officer, and Howard Millar, finance director. Other positions that were created are director of communications, and director of treasury. (O'Higgins 2004) Market Resources The company has introduced the in-flight magazine and on-board travel insurance sales on UK to Ireland flights. These added to their revenue-generating sources aside from "on- board sales, charter flights, travel reservations, car rentals, website, and advertising outside its aircraft" which involves putting up a logo of corporate sponsors on the company's aircrafts. The airline company also advertises its low fares on its website, newspapers, radio, and television. It also created the Ryanair Direct Limited in Dublin in 1996 which transfers its "reservations operations from two locations in Dublin and London." The Ryanair Direct allowed "management control over customer service quality and consistency and increased sales of ancillary services." (O'Higgins 2004, p. 845) Aside from Ryanair Direct, the airline also launched its website, the www.ryanair.com in January 2000. The creation of the website has saved money on staff costs, agent's commissions, and computer reservation charges. 95 percent of bookings were done in the website which also provided extra sources of revenue like in "advertising and selling ancillary services like travel insurance, car rental, connecting rail services, and commission on sales of other services such as hotel reservations." The website was regarded as the most user-friendly and most visited travel websites in Europe. (O'Higgins 2004, p. 845) 'Low-fares' to 'No-fares' airline According to the CEO of Ryanair, Michael O'Leary, half of their passengers will be free of charge by the year 2009. He also foresaw a drop of Ryanair fares by 15 percent annually or roughly one out of five tickets sold starting 2003. In order to attain this, the airline company adopted both "revenue enhancing and cost-cutting" measures in its flights. (O'Higgins 2004, p. 842) These compensated for the loss revenues due to decreases in fares; as well as increasing its efficiency of travel. Examples of these measures as quoted in O'Higgins article are: "the Ryanair fleet would heretofore be devoid of reclining seats, window blinds, headrests, seat pockets, and other essentials [and] leather seats instead of cloth ones." (O'Higgins 2004, p. 843) VI. COMPETITION WITH OTHER AIRLINE CARRIERS Ryanair's competitors like the easyJet, Virgin Express, Aer Lingus, MyTravelLite, bmibaby and flybe tried to operate 'low-fares' flights to challenge Ryanair. The competitive advantage of Ryanair would be its experience in operating flights with cheaper charges. Ryanair has been a budget airline carrier since O'Leary took the position as CEO in the 1990's. On the other hand, Virgin Express tried to become a budget airline but during its first years, it failed to gain a profit. Virgin Express recovered in 2001 and 2002. However it registered losses in 2003. (O'Higgins 2004) All aircrafts that Ryanair were using are Boeing models. The uniformity of aircrafts is an advantage since the pilots need not to be familiarized with many kinds of aircraft. They will not have complicated time in operating aircrafts since every plane is the same. In the case of easyJet, the company ordered 120 aircrafts from Airbus which made them operate a mixed fleet or having different models of planes. Their decision was costly because it will require additional training for pilots because of a new set of aircrafts. (O'Higgins 2004) Another competitive advantage of Ryanair is that it has already established its identity as the sole budget airline carrier before the other airlines started charging cheaper fares. Its advertisements in its website, newspapers, radio, and television paid off. The Birmingham-based MyTravelLite which was founded by former Ryanair sales and marketing director Tim Jeans tried to compete with Ryanair by charging same fares relative to Ryanair. Ryanair responded by selling airline tickets at much power prices. Jeans saw this as an opportunity to gain publicity. He did every strategy to make his company controversial because he sees this as the way to compete with Ryanair. (O'Higgins 2004) VII. FUTURE STRATEGIES The leadership of O'Leary brought back Ryanair to life and became one of the largest airline companies in the world. He received several recognitions like belonging to the 25 European Business Stars of 2004. Ryanair also received awards such as the Best Managed Airline. Although faced with criticisms and conflicts with the European Union, O'Leary remained strong and now continues to lead his airline to future heights. (O'Higgins 2004) For Ryanair to become as successful with its counterparts, Ryanair must continue to provide quality services in a cheaper cost. It must also ensure safety in order to eliminate doubts from the passengers that budget airlines are unsafe. Discovering more cost-cutting and revenue-enhancing measures would put them into a greater advantage relative to other airline companies. List of References O'Higgins, Eleanor R.E., 2004. Ryanair. University College Dublin, Republic of Ireland. p. 832-852. Read More