Steve Tkalcevich

Ryanair “the world most profitable airline” Thompson, Strickland and Gamble (2005) operates a low cost strategy and primarily sought to grow in 2007 by way of acquisition of long time competitor Aer Lingus which fell did not go through citing “Aer Lingus has no long term future” Michael O’Leary (2007) after announcing excellent first half of 2007 financial results. Ryanair had multiple secondary revenue drivers that contributed to its increased market share and revenue, with a 36% increase in 2006 faster than passenger revenuers which considerably have high very margins. Secondary revenues included non flight scheduled services (travel insurance, Ryanair personal credit card and personal loans…etc). Ongoing projects such as mobile phone on board, online and onboard gambling have generated some pushback but are part of Ryanair’s strategy; they are not a quiet flight airline service.   Such initiatives are not new with an in-flight entertainment system being pulled due to the short flights passengers did not consider it was a worthwhile investment.

Ryanair, as stated in my opening is an overall lost cost provider of short duration flights within Europe. Throughout the value chain Ryanair seeks to operate cost-effectively. This can be seen as they choose to fly at secondary or regional airports to reduce airport charges for example rather than major airports to reduce costs. Although as I live in Canada I compare Ryanair to Wal-Mart in that they have labor, employee, government, environmental and PR issues being frugal in seeking to realize their strategy. Ryanair protested charges and conditions at some airports, epically one of its major hubs in a building project. “Ryanair will continue to oppose this waste and has appealed the planning decision” Thompson, Strickland and Gamble (2005) in reference to the British Airport Authority airport monopoly to build a gold plated facility at Stansted. Ryanair had challenges with the Irish Airline Pilots Association (IALPA) in regards to contractual agreements with its pilots.

I see Ryanair has made some enhancements to their airplanes that are more environmental and fuel efficient. “The newer aircraft produced 50 percent less emissions, 45 percent less fuel burn and 45 percent less noise emissions per seat.” Thompson, Strickland and Gamble (2005)

Ryanair is controlling costs in with passenger service such as usage handling and check-in procedures and costs such as web based check-in from March 2006 with an estimated 50% utilizing this service. These practices help them become leaner as it promotes carrying less baggage by charging for check-in bags after a predetermined limit. Not only does this help with less baggage handling but less weight resulting in less fuel and charging for those that use more of the service then others. I see this as a utility based model, pay as you need vs. one fee built-in to your ticket.

In reference to Michael O’Leary and his 20 year career with Ryanair “he was credited with single-handy transforming European air transport” Thompson, Strickland and Gamble (2005).With the failed acquisition of Aer Lingus some could view this as a failure; I view this as a good decision not to proceed further in the matter once they found the results for the first half of 2007. Aer Lingus is a direct competitor and they are taking same ticket sales away from them in a low margin industry. This lets Ryanair perform value chain activities more efficiently and inject cash into other areas to diversify and fund operations. Perhaps after several years of success they can acquire Aer Lingus for a lower price if they can continue to take market share from Aer Lingus. Mr. O’Leary has challenged those that can or do increase the cost to do business and compete. Being called in August 2006 by Air Transport Magazine, “the most profitable airline in the world, on the basis of its operating and net profit margins, on a per-airplane and per-passenger basis.” Strickland and Gamble (2005) concludes that Mr. O’Leary is doing an excellent job. There is always room for improvement, new projects and axing old ones that are not proving a return on investment that can be done. By looking at the characteristics of an effective strategy it was focused (low cost, short routes, within Europe), flexible (remaining profitable with rising fuel costs), desirable (return on investment, great service for low cost flights for business and personal passengers alike and the strategy is easy to communicate as a low cost provider.

Of the possible shortcomings by fighting unions and airport authorities as well as increasing airplane capacity in fuel efficient plans is a forward looking strategy amongst many others. Ryanair did not go to broad in its strategy in my opinion they simply moved up and down their value chain by proving loans, automated check-ins, mobile phone services and online gambling facilities. They did this to maximize the value in each activity (on the plane, transporting, staff efficiency and customer satisfaction). From the text they could come across bland but I would need to be a customer to be the judge of the experience. Perhaps of the classmates in the course can provide experiences with the airline. I would say they are distinctive in that from the case study they had a common theme and did not depart from that train of though. The text cited as “unfriendly staff were cited as the worst part of the Ryanair experience”. Strickland and Gamble (2005) .This is a failure on managements part to ensure compliance. Employees that touch the customer experience should go through and be evaluated for providing excellent customer service. This does not cost any money to do although to ensure it gets done does cost Ryanair management time. There are only several groups of employees that would be responsible for this fumble in customer service, this is not excusable.

In the text when in discussion over Mr. O’Learys departure there were references over possible strategic failures in the future and referencing it was Mr. O’learys time to hand over command to another member. Potentially he could have stepped down a year or two earlier but I do not see any issues other than PR blunders in his final years at the firm.

Tom Ryan’s strategy was a to provide service between Ireland and the United Kingdom as an alternative to Aer Lingus. Initially Ryanair was a full service airline with multiple seating choices and flying three types of aircrafts. Despite growth challenges aroused and there were multiple CEO’s appointed and financial losses occurred. At this time Ryanair changed its style to be a no frills airline like Southwest Airlines. Mr. O’Leary joined at this time and crafted the current strategy and vision of the company. The change in strategy was from wide diversity to a more narrow focus on avenues and to maximize those value chain activates. This can been seen by standardized planes and no preset seating arrangements for passengers. This made Ryanair more flexible and efficient in their operations as well as to be more efficient by being less diverse. Future evolution is enviable, the market dictates value. Perhaps proving internet access on flights or trying to operate within the continental USA with the same strategy once they mastered it in Europe.

Ancillary revenues increased significantly from (In thousands) 190,921 in 2005 to $259,153 in 2006. This is accounted by the additional services offered. Fuel and oil costs surged the most and could be causing the most damage to the financial performance of the low cost business model. Costs went from (in thousands) 265,276 in 2005 to 462,466! This is a large increase that cannot be controlled directly. With the increase in the value of the euro foreign exchange losses were close to 40% lower than 2005 figures. Aircraft rental spiked in 2006 from 2005 perhaps from demand?

Looking at the operating performance average staff increased 18% while average staff per aircraft decreased 0.3% is explained by the increase in total aircraft from 87 to 103 in 2005 to 2006 respectively. Expansion into other airports accounted for a 17% increase from 95 to 111. This is important with the increased total aircraft; they have more planes to service more locations. Perhaps several locations increased in passengers? The operations statistics does not go into this detail. Average fare prices have increased by 2% from 2006 to 2006 while there was an increase in total passengers by 26%. This could be accounted for in the purchase of new planes and other expansions. I do not see anything worry some with these figures. These figures accounted for the largest increases and decreases amongst the operational statistics for 2005 to 2006.

With Ryanair having the largest percentage of total passengers in the low cost airline in 2006 with  29.90%, easyJet comes in a strong second with 25.90% while Air  Berlin / Niki third only has 11.80% of total market share. The rest of the low cost airlines range from 0.4% to 5% total market share. When comparing rivals to Ryanair Aer Lingus and easyJet it is interesting to note that easyJet has a small net profit margin of 3.2% with Aer Lingus is at 8.9%.