Essay Preview: Ryanair
Report this essay
Ryanair is a low-cost, no-frills airline carrier in Europe that set up in 1985. Theyve managed to maintain the lowest prices over the years despite the entry of competition after deregulation of air travel in Europe in the late 1990s. Due to their reputation and long-term success, they have a lot of experience and brand recognition.
Their low prices have been made possible through numerous strategies. First, they use a standard fleet of planes (Boeing 737s), which has cut down on training requirements (increasing the flexibility of current employees) and has allowed for economies of scale. Their use of secondary airports outside of the major cities lowered their landing and airport fees significantly. In addition, Ryanair averages a 25 minute turnaround in comparison to 60 minutes of other major carriers, which increases their efficiency. Ryanair has a very high productivity since their airplanes were hardly ever on standby and they use fewer employees per plane, lowering their wage cost. This still fits in with their strategy because they are focused on low-prices with a lower service scope than most carriers. As a result, they do not offer anything for free (food, drinks, other services like baggage check-in). They even turned the usual big cost of food into a revenue opportunity by selling them on the planes. Ryanair has very simplified operations, as they dont assign seat numbers and their flights are point-to-point, which means they dont have to deal with the complication of transferring baggage and passengers to other planes. Perhaps one of their greatest areas of profitability has come from their online sales. By 1993, 95% of their bookings were done online. This cut transaction costs substantially. Another way they were able to reduce costs even more was through their partnerships with car rental companies, hotels, life insurers, and mobile phone companies who would give them commission on subsequent sales.
Ryanairs biggest low-cost competitor, easyJet, entered the market in 1995, as they competed on many of the same routes. Despite their similarities, they each had their unique strategies. Ryanair used secondary airports, which provided them with a cost advantage, while easyJet would fly directly to the main city destinations. Because of this, Ryanair targeted solely to leisure travelers who only sought the lowest price, while easyJet targeted leisure and business travelers who were more focused on convenience. In addition to this, easyJet had to compete with the major carriers, who had more resources and governmental support, while Ryanair did not have to worry about this head-on competition. easyJets average planes were 3 years old, while Ryanairs were about 15 years old. However, Ryanair was able to make a deal with Boeing (in significant competition with Airbus) in which they purchased 25 planes for $15 million, which were originally priced $30 million. Ryanair had 80% less unit costs than easyJet. easyJet also had 60-70% higher fares. Due to these cost differences, Ryanairs breakeven load factor was 53%; easyJets was 71%. Ryanair was also much better with punctuality. Even though Ryanair had lower revenue totals, their net income was much higher than easyJets.
Ryanairs position in the airline industry is very similar to that of Wal-Marts. There are significant barriers to entry that would be difficult to surpass, namely the lowest cost. Unless Ryanair experiences an accident or regular malfunctions, its not likely they will lose their position. They continue to buy planes, maintain partnerships, and implement their