Ryanair Term Paper, Grade: 74% Performance evaluation based on Presentation (Group project) + Individual Term paper

1. COLOGNE BUSINESS SCHOOL (CBS)
Case Study: Ryanair
The future of the leading low fares airline
Term paper for Transnational Management
Summer Semester 2014/2015
Lecturer: XXX
Anton Wischnewski
BA12 in International Business / International Trade
Student-No. XXX

2. Table of Contents
1 Introduction .................................................................................................... 2
2 Overview of Ryanair ...................................................................................... 3
2.1 Facts and Figures .............................................................................................. 3
3 Internal Analysis ............................................................................................ 5
4 External Analysis ........................................................................................... 6
4.1 Key Drivers of change ........................................................................................ 8
5 Porter’s Five Forces Analysis ...................................................................... 9
6 Competition Analysis .................................................................................. 10
7 Scenario Analysis ........................................................................................ 11
8 SWOT Analysis ............................................................................................ 12
9 Stakeholder Analysis .................................................................................. 13
10 Evaluation of Michael O’Leary’s Leadership ......................................... 15
11 Recommendations .................................................................................... 17
12 Reference List ........................................................................................... 19
13 Appendix .................................................................................................... 20
A1: Ryanair’s Porter’s Generic Business-Level .......................................................... 20
A2: Ryanair’s Cost Reduction Strategy ....................................................................... 21
A3: Integration into Porter’s Value Chain .................................................................... 22
A4: Resource Based View Model ............................................................................... 23
A5: PESTLE Analysis ................................................................................................. 24
A6: Porter’s Five Forces Matrix ................................................................................... 25
A7: European Competitors .......................................................................................... 26
A8: Scenario 1 ............................................................................................................ 27
A9: Scenario 2 ............................................................................................................ 28
A10: SWOT Analysis .................................................................................................. 29
A11: Stakeholder Analysis .......................................................................................... 30
A12: TOWS Matrix ...................................................................................................... 31
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3. 1 Introduction
As Tony Ryan intended to offer an alternative air route to the state-owned airline,
Are Lingus, in year 1985, he did not foreseen that until the year 2009 it will
become the leading budget airline in Europe. Built on the success of the
American Southwest Airline, Ryanair was the first airline introducing the low fares
model in Europe.
But the times are changing and new threats are emerging from the external
environment and the budget airline industry. More and more competitors try to
imitate the Ryanair’s model and they are increasing in size and scope.
Furthermore, EU regulations, substitutive transport possibilities and economical
uncertainty are challenges Ryanair airline has to face.
This term paper provides the analysis of Ryanair’s strategy and position in
Europe’s budget airline industry based on the case study ‘Ryanair: the low fares
airline - future destinations?’ by Eleanor O’Higgins. It evaluates if the budget
airline industry is an attractive industry to operate in and reveals advantages and
disadvantages of Ryanair’s strategic approach. The thesis questions ‘If and how
Ryanair can sustain its competitive advantage’ will be answered throughout the
term paper.
Finally, recommendations are presented on how to adjust Ryanair’s strategy in
order to beat the challenges and to maintain Ryanair’s leading position.
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4. 2 Overview of Ryanair
Ryanair airline was founded by Tony Ryan in year 1985. Initially, he intended to
offer an alternative to the state-owned monopoly airline, called Are Lingus,
between the countries Ireland and UK. Based on the cost leadership strategy of
the American Southwest Airlines, Ryanair was the first airline introducing the
budget airline model in Europe. After dealing with huge problems such as large
debts Ryanair transformed to Europe’s leading low fares airline in the 90’s.
Until year 2009 Ryanair has managed to become the leading budget airline in
Europe and to sustain its competitive advantage.
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2.1 Facts and Figures

5. Mission
Ryanair aims to offer low fares that generate increased passenger traffic while
maintaining a continuous focus on cost commitment and operating efficiencies.
Vision
To firmly establish itself as Europe’s leading low-fares scheduled passenger
airline through continued improvements and expanded offerings of its low-fares
service.
Values
Ryanair is committed to bring customers the lowest fares and most on-time
flights out in comparison to all competitors. Most importantly are safety issues,
punctuality, near-perfect baggage handling, and the green policy.
Goals
Ryanair plans to increase efficiency and lower costs even further in comparison
to industry rivals. The company wants to become the 2nd largest international
airline.
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6. 3 Internal Analysis
Why has Ryanair been so successful so far?
Ryanair’s success was based on a skilful adaptation of the Southwest Airline
model focusing on the cost leadership (see: Figure A1). It benefits from the first
mover advantage as it has implemented the budget model first in the European
market by negotiating best rates possible with secondary airports. Ryanair has
established a single type aircraft fleet that saves on training costs, point-to-point
flights that enable fast turn-around times and flights to secondary airports that
save airport fee costs. All of them enable Ryanair to keep its operations
extremely efficient. Furthermore, Ryanair sub contracts employees on temporary
basis, which again saves the company huge expenses making it flexible and
adaptable to environmental changes. Figure A2 illustrates all the key points as a
summary (see: Appendix). Further savings are generated through Ryanair’s
website where no advertisement is necessary. Through ancillary revenues as
e.g. on-board gaming and car renting Ryanair manages to generate highly
satisfying 20% of its revenues. The low-cost business strategy has been
successfully integrated into the Porter’s Value Chain (see: Figure A3). The
Resource Based View Model shows the internal analysis as a summary (see:
Figure A4).
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7. 4 External Analysis
PESTLE Analysis is a suitable tool in order to analyse the external environment.
It summarises all the external factors, which might create opportunities or cause
significant threat to Ryanair’s operations (see: Figure A5)
Political
The political institution European Union affects Ryanair’s strategy and operations
by establishing regulations and restrictions in the airline industry. For example,
the regulation setting a ceiling on flying hours in order to prevent pilot’s fatigue
forces Ryanair to hire more employees. In addition, the EU demands to refund air
passengers in case of delays or cancelled flights. Also, the EU might increase
the emission fees. All those EU regulations must be considered and Ryanair’s
strategy has to be accordingly adjusted in order to avoid a negative impact on the
business. In addition, Ryanair should be aware of regional distinctions as the
Irish tourist tax and national government laws acting in favour of national airlines
that increase Ryanair’s costs, e.g. national employees contracts in other
countries have different terms and conditions that must be applied and are more
expensive.
Economical
Ryanair saves costs by operating over secondary airports. In that way they avoid
primary airport charges and extra costs.
The economics downturn in 2009 has shown that Ryanair as the leading budget
airline can offer the cheapest flights attracting customers and still generate
returns. As long as the low fares are guaranteed Ryanair will do well in
comparison to its competitors.
But if fuel price fluctuations occur, an increase in price will lead to an increase of
Ryanair’s operating costs causing problems to guarantee low fares, which stand
for the core competence of Ryanair. Failures in hedging, as it happened in year
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8. 2008, should be avoided. Also exchange rates should be observed as they might
lead to supply chain disruptions.
Social
Customers perceive Ryanair’s customer service as poor, as the passengers
expect to be compensated for cancelled and delayed flights.
The poor working conditions cause legal and safety issues that can scare
established and potential new customers away.
Additionally, the provoking and misleading advertisements lead to a bad image of
Ryanair from customer perspective. Those social factors should not be ignored,
as customers are key for further growth and market expansion.
Technological
Ryanair has successfully demonstrated how to make use of modern technology
in order to save costs. Ryanair’s online check-in policy and marketing on
Ryanair’s website demonstrates how to make use of the Internet technology
avoiding expenses of travel agents and excessive advertising. Besides, if
technology such as on-board Internet connection and television are offered for a
fee they can generate additional revenue on board.
Legal
Ryanair is involved in a few legal battles with Stansted and Dublin airport that
raise their departure duties.
Besides, Ryanair’s misleading and provoking advertisement assault media law
and civil law resulting in high penalty fees.
The poor working conditions and insufficient training might be an issue of labour
law (Ryanair Documentation, Youtube, 2011). Additionally, the poor working
conditions lead to safety issues and can cause a bad image. All those legal
issues are causing handling-, penalty fees and court expenses that should be
limited.
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9. External
Labour Unions such as British Airline Pilot Association (BALPA) challenge
Ryanair’s business culture and do not accept the poor working conditions of their
employees. Ryanair is accused of unsatisfied working conditions such as long
working hours, insufficient employee training and qualification, manipulation of
employees to accept working conditions and low salary (Ryanair Documentary,
2011). Besides, EU regulations regarding environmental awareness state that
additional fees are applied if the CO2-limit is exceeded.
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4.1 Key Drivers of change
Key Drivers of Change are environmental factors likely have a high impact on the
success or failure of a strategy. According to PESTLE Analysis the Key Drivers
of Change are Economic, Political and Legal factors as those factors threaten
Ryanair’s business the most. Those factors have a tremendous influence on
Ryanair’s strategy and the power to abandon Ryanair’s operations.

10. 5 Porter’s Five Forces Analysis
The Porter’s Five Forces Framework helps to identify the attractiveness of an
industry in terms of five competitive forces. In Ryanair’s case it determines if the
European budget airline industry is an attractive one. (see: Figure A6)
1) The Threat of Entry
The low fares industry, especially, with established leading players as Ryanair, is
really hard to enter. The entrants need high capital requirements in order to
generate high economies of scale to compete in the European market. Besides,
access to distribution channels is required. That means that the factor threat of
new entrants is pretty low.
2) The Threat of Substitutes
A service that creates equivalent value to the customers as the airline industry
does is the railway networks, sea transports and car rental firms. The only
significant threat is the train service because the other options are too expensive.
Even though Europe has a good train network like EuRail, the disadvantage of
trains is the journey time. It takes much longer to reach a destination by train
than by plane, which results in a higher opportunity & transaction costs. To
conclude, the threat of substitute is low.
3) The bargaining power of buyers
Customers have a high bargaining power because switching to another airline is
simple and there are no additional expenses required (e.g. EasyJet and Virgin
Express). Especially, in a strategy of cost leadership each customer becomes
important. Besides, an increasing problem is that more and more competitors
start to offer cheap prices, as well.
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11. 4) The bargaining power of suppliers
The bargaining power of suppliers is high, as there are only two manufacturers
competing in the aircraft industry. Supplier switching costs are high, as the pilots
will need to be retrained and high capital investments must be made. Ryanair’s
main supplier has traditionally been Boeing. But Ryanair can allow itself to
change suppliers because of its healthy cash flow and because it has already
tried to purchase Airbus aircrafts after the purchase of 200 jets from Boeing got
cancelled.
5) The extent of Rivalry between competitors
The number of competitors that are trying to imitate Ryanair’s cost leadership is
increasing. As the market share of the budget airline is only 30% of the whole
airline industry the market contains the potential to grow. This might also be the
problem for Ryanair and its expansion strategy. As the threat of entry is high the
extent of rivalry stays as middle.
6 Competition Analysis
As it can be seen from the statistical figures (see: Figure A7) Ryanair is the
leading airline in terms of passenger numbers, which is 57,7 million. Besides,
Ryanair operates over 140 airports which is the highest number in the budget
airline industry. Costs per customer make up 36€ and an outstanding 89% cost
difference compared to the closest competitor EasyJet.
The Skytrax rating gives an overall evaluation rating for budget airlines. Criteria
of the evaluation are such as customer service and customer satisfaction. The
range goes from 1, as the worst, to 5, as the best rating. Ryanair received a
rating of 2, which is the lowest one in comparison to its competitors and which
indicates a bad customer service and satisfaction.
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12. 7 Scenario Analysis
Based on the Key Drivers of Change (see above: 4.1 Key Drivers of Change)
and the factors of external environmental (see above: PETSLE, Porter’s Five
Forces) scenarios are developed. Scenarios are possible outcomes on how the
external environment, that could harm or benefit the company, might change.
According to those scenarios action plans are constructed on how to react to
those changes.
Scenario 1 (see: Figure A8)
As an economic downturn and fuel prices are major threats for Ryanair, Scenario
1 illustrates possible outcomes setting Economy according to the fuel price.
Scenario 2 (see: Figure A9)
As political factors and competition may harm Ryanair’s business Scenario 2
illustrates possible outcomes setting EU regulations according to competition.
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13. 8 SWOT Analysis
The Strengths, Weaknesses, Opportunities and Threats - Analysis is the
summary of the Resource-Based View and the PESTLE analysis (see: Figure
A5: PESTLE Analysis).
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14. 9 Stakeholder Analysis
Did the Aer Lingus bid make strategic sense?
Since the year 2006 Ryanair made a huge effort to take over the state-owned
Aer Lingus airline. The strategy made totally sense, the merger will allow Ryanair
to increase its market share significantly: 80% of all flights between Ireland and
other European countries will be operated by Ryanair in the future. Besides, it
should help Ryanair to focus on long-haul flights that correspond with its
prospective strategy plans.
Should Ryanair launch another bid for Aer Lingus or any other carrier?
Ryanair has managed to bid until the year 2012 three times without success. Aer
Lingus and the European Commission rejected Ryanair’s bid arguing that the
acquisition will transform Ryanair to a monopoly, which is against the anti-competition
law. Furthermore, Aer Lingus stated that a harmonic cooperation of
both airlines is impossible. Both airlines have been competing with each other for
more than 20 years.
To conclude, Ryanair should not continue trying to take over the Aer Lingus
airline. As the majority of Aer Lingus airline, the Irish government, as well as the
EU Commission are against the merger (see: Figure A11).
On the other hand, Ryanair should keep the Aer Lingus shares in order to avoid
a possible merger of Aer Lingus with another budget airline as EasyJet.
In addition, if Aer Lingus continues to lose share value Ryanair should focus on
Aer Lingus international operations only. In that way Ryanair captures its
prospective plans to expand internationally.
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15. Does the proposal to introduce long haul flights make strategic sense?
As Ryanair has to plan for the future it would make sense to introduce long haul
flights only if they manage to keep the prices lower as the prices of competitors.
Ryanair would establish itself in a completely new market segment competing in
the international market. With operations over secondary airports it will be
possible to offer low fares. But it must be considered that in the international
market there is much stronger competition as in Europe. Southwest Airline can
become Ryanair’s threat that is operating in the much bigger US market. A
merger with a popular airline in Europe that offers long haul flight is a possibility.
Keep watching Aer Lingus development also should be considered.
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16. 10 Evaluation of Michael O’Leary’s Leadership
Michael O’Leary is an extraordinary figure and key personality in Ryanair’s
management. He owns an aggressive and innovative leadership style. His
statements are provoking and direct. Even though he has a deep financial
understanding and became a wealthy person by selling 5 billion of Ryanair’s
shares, he still lives the life of a middle-class person.
Strong Leadership style
O’Leary has an energetic, motivating leadership style. Former employees are
praising his leadership style and he received a the European Businessman
Award from the magazine Fortune.
Innovation abilities
O’Leary persuades Ryanair to adopt the strategy model of Southwest Airlines
even though the majority of the management team was not willing to do so.
He was the inventor of charges for online check-in.
Skilful Promoter
O’Leary was able to bring Ryanair to the customers by doing provoking stunts
and curious advertisement. He always managed to attract the attention of the
media and was able to put the company Ryanair on the first page in the news.
Maintaining Core Competencies and effective Organizational Culture
Over the years, O’Leary managed to build a low-cost culture amongst Ryanair
workforce. The corporate culture determines how Ryanair operates and conducts
its business.
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17. Developing Human and Social Capital
Social capabilities are O’Leary’s disadvantage. As he is totally focussed to
squeeze out everything out of the available resource, e.g. the employees, to
lower costs and offer the lowest price, he forgets about the social component. If
he and the company want to survive they need to start developing closer
relationships without exploiting all the resources. Ryanair has to manage to move
away from an autocratic leadership style and transfer to a democratic one.
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18. 11 Recommendations
Would you recommend any changes to Ryanair’s approach in view of the
changing environmental circumstances?
SO strategy
Ryanair should definitely proceed with its plan to open up 146 routes in year
2010 according to its five years plan. Expanding further in the market pursue the
goal to achieve economies of scale that provide a guarantee to offer the lowest
price in the airline industry. Moreover, Ryanair should make use of the strengths
as its young, commonality aircraft fleet and start to promote a Greening-image.
Besides, more revenue can be generated by increasing cross-selling over the
website.
ST strategy
Ryanair should keep buying the newest aircraft models from Boing as supplier.
That will allow Ryanair to minimise its emission costs that will lead to competitive
prices. Especially, in time of increased competition Ryanair should promote the
greening image. In times of an economics downturn Ryanair can even allow to
raise the prices as the competition is forced to do the same and Ryanair
possesses a wide price difference of 89% compared to its competitors.
WO strategy
In order to counteract against the bad public image because of controversial
advertisement and poor customer service Ryanair should try to look for a
dialogue with labour unions and its customers. The successful dialogues with the
labour unions should be promoted in marketing channels. Furthermore, Ryanair’s
website should be equipped with a feedback area for customers complaints. The
complaints must be constantly reviewed and responded.
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19. WT Strategy
Ryanair should definitely pay attention to its public image. The poor customer
service and safety issues can scare away customers. All problems concerning
safety must be eliminated. In order to decrease the pressure from employees
more staff should be hired.
(see: Appendix, Figure A12: TOWS Matrix)
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20. 19
12 Reference List
CAPA - Centre for Aviation (2014). Ryanair SWOT analysis – Michael O'Leary's
maniacal focus on being the lowest cost producer. Retrieved 2014
from http://centreforaviation.com/analysis/ryanair-swot-analysis--michael-olearys-maniacal-
focus-on-being-the-lowest-cost-producer-96465
Eurail (2014). Retrieved 2014 from http://www.eurail.com/eurail-passes/what-eurail
Metro (2014). Ryanair’s top 10 cost-cutting plans. Retrieved 2014 from
http://metro.co.uk/2009/07/06/ryanairs-top-10-cost-cutting-plans-245605/
Ryanair (2014). About us. Retrieved 2014 from http://www.ryanair.com/en/about/
Ryanair (2014). Section: Presentations and reports. 3. Quarter Results 2009. Retrieved
2014 from http://corporate.ryanair.com/investors/presentation-reports/
Ryanair (2014). Section: Presentations and reports. Annual Report 2009 and 2010.
Retrieved 2014 from http://corporate.ryanair.com/investors/presentation-reports/
Eleanor O’Higgins (2007). Ryanair: the low fares airline - future destinations? Republic
of Ireland.
Telegraph Media Group Limited (2014). Ryanair's new controversial cost cutting plan:
one toilet per aircraft. Retrieved 2014 from
http://www.telegraph.co.uk/travel/travelnews/8823614/Ryanairs-new-controversial-cost-cutting-
plan-one-toilet-per-aircraft.html

21. 13 Appendix
A1: Ryanair’s Porter’s Generic Business-Level
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22. A2: Ryanair’s Cost Reduction Strategy
21

23. A3: Integration into Porter’s Value Chain
22

24. 23
A4: Resource Based View Model
Resources (Tangible)
(= what we have) Capabilities
(= what we can do)
• No-dividend policy
• Healthy cash position Financial
• Healthy liquidity condition allow Ryanair to
make Investment (e.g. Merger and
Acquisitions)
• Youngest fleet in Europe
• Fleet commonality
• Point-to-Point Flights
• Contracts with
secondary and regional
airports
Physical
• New aicrafts allow to produce less
emission and reduce maintenance costs
• Operating with only one aircraft type will
allow to reduce expenses for employee
training
• Fast turn-around and elimination of
additional cost, e.g. baggage transfer
• Operating from secondary airports allow
Ryanair to keep charges
• Ryanair website Technological
• 99% of reservations are booked through
Ryanair's website. There is no need for
travel agents.
Resources (Intangible)
(= what we have) Capabilities
(= what we can do)
• 6369 crews from 25
different countries,
almost doubled over 3
years
• Michael O'Leary's
leadership
Human
Resources
• Passenger-per-employee ratio of 9195
was the highest in the industry
• Innovation, low-cost culture, promotion
• 100% web check-in
policy: online check-in of
bags and luggage
• 100% carry-on luggage
Innovation
• Ryanairs’ benefit:
• Financial savings through less
administrative employees operating check-ins
• No need for expensive accumulative
facilities
• Time savings
• Customers benefit:
• avoid long check-in procedure
• avoid baggage discrepancies and loss
• Strong Marketing:
• Controversial advertising
• Public stunts
• First mover advantage
Reputational
Resources
• Minimise its marketing and advertising
costs
• Negotiated best rates with secondary
airports

25. 24
A5: PESTLE Analysis

26. 25
A6: Porter’s Five Forces Matrix

27. 26
A7: European Competitors
Sources: *European Low Fares Airlines Association (ELFAA), Company reports;
*² Skytrax star rating from 1-5 - not all airline rated. *³ Ryanair - Q3 Results - 31 Dec 2009; *4
Skytrax - The 3 Star Airline Rating

28. 27
A8: Scenario 1

29. 28
A9: Scenario 2

30. 29
A10: SWOT Analysis

31. 30
A11: Stakeholder Analysis

32. 31
A12: TOWS Matrix