STRATEGIC REPORT

Strategic Report On Ryanair

Abstract

This paper examines the growth of Ryanair, Europe's largest new entrant airline since deregulation. The sustainability of the Ryanair product is examined, including: acceptability to passengers, the use of secondary airports, labour productivity and use of outsourcing, corporate culture, policy environment and legal and policy obstacles. The growth of the airline is expected to continue because of the popularity of low fares, the willingness of passengers to forego traditional airline services in order to avail of low fares and the ability of Ryanair to control and reduce costs.

Strategic Report On Ryanair

Introduction

Ryanair was set up in 1985 by Tony Ryan to operate low-cost flights from Waterford and Dublin in the Republic of Ireland to London. In its initial few years of operation, it struggled financially. Michael O'Leary, now Chief Executive of the company, was Ryan's financial controller at this time, and persuaded Ryan to let him try and redress the situation.

The projected Ryanair passenger number for the year ended March 31, 2005 is 28 million. In the European international scheduled airline market Ryanair will rank third after Air France/KLM at 45 million and Lufthansa at 30 million passengers respectively. In April 2004 the market capitalisation of Ryanair was €3747 m. This compares with €1206 m for Easyjet, its main low cost rival, and €4155 m for Air France/KLM, €4961 m for British Airways, €5428 m for Lufthansa and €2584 m for Iberia. This article examines the sustainability of the Ryanair model which differs substantially from the traditional European national airline model that dominated the sector before deregulation.( Barrett, 2007)

The Ryanair product

The average Ryanair fare in 2003/4 was €40 and the expectation is a €38 average fare in 2004/5. The net margin fell from 28% in 2002/3 to 21% in 2003/4 and is predicted to fall to 18% in 2004/5. The net margin has thus fallen by 10 points in two years. While the margin exceeds the industry average, it may come under pressure from factors such as further falls in yields and the lack of scope for more reductions in an already low cost base.( Barrett, 2008)

Ryanair has achieved the lowest cost base by a combination of product changes, which unbundled the traditional European national airline product, by high staff productivity compared to the European average and by reducing the costs of airport services bought in by the airline. The following sections examine these factors in turn. In conclusion the factors affecting the sustainability of the Ryanair model are examined.

Fare reductions have been the key feature in the public mind of greater competition in European aviation. Deregulation enabled Ryanair to enter the Dublin to London route in 1986 resulting in a reduction in fares of 55%, from £208IR (€264) to £95.99IR (€121). The 2004 fare of €80 charged by Ryanair, the market leader on Dublin-London, contrasts with the 2004 value of the pre-deregulation fare of over €500, giving a fare reduction of over 80% in real terms. Fare reductions have been a feature of the ...