Ryanair

By 1990 Ryanair, headed by Tony Ryan had made losses of IR20 Million. After appointing Michael O'Leary as CEO, & Ryainair's focus on low cost air travel the company had turned it's fortunes around in 2005 made a net profit of 237 Million. i Ryanair started as a full service conventional airline, with two classes of seating & three types of aircraft (leased). It was a conventionaly performing airline, which meant that it was taking losses. In 1991 Ryainair (headed by O'Leary) began to focus on low cost air travel, following the model of Texas Soutwest Airlines. Instead of trying to be all things to all people they focused on low cost & became the European leader in low cost travel. They managed to lower their costs by: Having one low cost class of seating droping it's cargo service in 1997(anual cost IR400,00 in revenue). shorter turnaround times no more free drinks (charging for drinks & snacks) outsourcing non central services (bag handling) outside its Irish base fleet commonality of Boeing 737-200's reducing travel agent commision eventually selling e-tickets over the phone & online using smaller airports with lower fees point to point flights, no connecting flights or reliance on other airlines low basic pay for staff with commision for increased productivity(performance related pay, adopted 1992) lowering marketing costs(providing advertising on outside of it's jets) ryanair direct limited(1996) to handle phone bookings more routes to non irish-anglo destinations its refusal to acknollege traid Unions Non-central services outsourced:

baghandling ticketing heavy maintenance

Competitive advantage It was through this cost lowering that Ryanair managed to attain superior performance in terms of their operating costs, which they then passed on in the form of lower fares.Ryanairs competitve advantage is in being the cheapest, no frill carrier in Europe. They drive down their costs in every available area. It also seems that national carriers competing against ryanair are simply not able to operate at the same kind of low costs as ryaniar. And to compete in price the have to take losses. Business model Ryanairs business model follows: a single passenger class a single type of airplane, the or Boeing 737 (reducing training and servicing costs) a simple fare scheme (fares increase as the plane fills up, which rewards early reservations, known as "yield management") unreserved seating (encouraging passengers to board early and quickly) flying to cheaper, less congested secondary airports (avoiding air traffic delays and taking advantage of lower landing fees) short flights and fast turnaround times (allowing maximum utilization of planes) simplified routes, emphasizing point-to-point transit instead of transfers at hubs (again enhancing aircraft utilization) emphasis on direct sales of tickets, especially over the Internet (avoiding fees and commissions paid to travel agents and corporate booking systems) employees working in multiple roles, for instance flight attendants also cleaning the aircraft or working as gate agents (limiting personnel costs) "Free" in-flight catering and other "complimentary" services are eliminated, and replaced by optional paid-for in-flight food and drink. ii Industry structure & profitability There seem to be 2 types of carriers in the airline transport industry, low fares(Ryaniar, Easyjet), & national carriers (BA, SAS, AirFrance) The national carriers generally can't compete with low fares carriers on the same (european) routes. Some competitors Go launched by BA 1998 to compete with easyjet, bought by easyjet in 2002 iii KLM uk merged with KLMCityhopper in 2004.iv KLM Cityhopper KLMs regional arm, uses Fokker 50,70 & 100. v Debonair Meant to be an more upmarket low cost carrier, Went out of business in October 1999, was competing directly with Easyjet. vi EasyJet the same as ryanair except they fly to main airports, whereas ryanair fly to smaller ones. Ryanairs main competition, both claim to be the largest low fares carrier in europe.vii 2

Bargaining power of customers The customers bargaing power depends on the following factors

destination where they're flying from how important price is for that customer the date & time of the flight (is it what the customers wants) time period tickets purchased (one week or one month before the flight) what alternatives the customer has (bus,train,ferries or other airlines)

From Ryanair's success it can be extrapolated that the customer has relativly little bargaing power. Bargaining power of supliers After sept 11th many carriers cancelled orders for new aircraft. This put aircraft manufacturers in a difficult possition, reducing their pool of clients.Ryanair has taken advantage of this situation & ordered 143 new aircraft from boeing very competitve rates. Another way Ryanair attempts to reduce the bargaining power of its suppliers is with multiyear contracts at fixed prices, buying in bulk (they buy their fuel in bulk, & so aren't subject to temproary spikes in fuel prices). They also choose more desperate suppliers (smaller airports) where they can have more influence(such as lower airport taxes etc). The EU directives forbidding groundhandling monopolies will also increase Ryanairs bargaining power with airport authoritys. Threat of new entrants Ryanairs fleet (currently) 91 Boeing 737, with 143 737's ordered viii 200 routes between 104 airports in 18 European countries. ix Eurpoes largest & most proffitable low cost carrier This is what new entrants into the air carrier market have to face, not only this there are significant barriers to entry.

high costs (aircraft, staff) lack of avaiable parking space at major airports competing directly with other low cost carriers at smaller airports the air carrier market in europe is becomeing more mature

Threat of substitute products In Ryanair's case they are providing a service, not a product. And there is a very real threat of a substitute coming along. The competitive advantage is their low price(price differentiation), for a substitute to do damage they just need to offer the same (or similar) service at a lower price. During Ryanair's early day's there was the threat that a national carrier would do this, to run them out of the market, & once gone raise their prices. This has been done succesfully by a number of national carriers. However Ryanair is well enough established & such a good earner that this is no longer a significant threat. The intensity of competitive rivalry Competition between national carriers: Ryanair has stolen huge amounts of market share from Aerlingus & British Airway's , & to a lesser extent other national carriers. With O'Leary intending to increase pressure on it's competition by giving away over 2 million free seats.x The intensity between carriers is fierce, with Ryanair eating away at the marketshare of national carriers European routes. Easyjet is Ryanair primary competition in the lowcost arena with one key difference. Easyjet fly to larger airports that Ryanair don't giving them some differentiation & shielding them from too much competition.

i http://www.ryanair.com/site/PT/news.php?yr=05&month=nov&story=reg-pt-071105 ii http://en.wikipedia.org/wiki/Low-cost_carrier#Business_model iii http://en.wikipedia.org/wiki/Go_Fly iv http://en.wikipedia.org/wiki/KLM_uk v http://en.wikipedia.org/wiki/KLM_Cityhopper vi http://en.wikipedia.org/wiki/Debonair vii http://en.wikipedia.org/wiki/Easyjet#Strategy viiihttp://www.ryanair.com/site/EN/about.php?page=About&sec=fleet ix http://en.wikipedia.org/wiki/Ryanair#Destinations x http://www.usatoday.com/travel/flights/2005-11-02-ryanair-no-airfare_x.htm