The european airline industry

Research Aims And Objectives

• Provide insight into the development of low-cost carriers on the case of Ryanair.
• What are Ryanair's sources of competitive advantage?
• How sustainable is the company's source of competitive advantage as the basis for Ryanair future strategy?
• Present airline managers, airports and governments with a well-founded analysis of the future strategies.
• Compare low-cost airlines and full-service carriers and implications for no-frills carriers tapping into the market and possibility of extending Ryanair services to long-haul travel.

Report Structure

Abstract

The European airline industry has been predominantly in hands of national carriers, such as BA, Lufthansa and Air France, with intra European routes share of around 70 percent by the end of 1998. Since 1990, however, a rising share of the market started to migrate to the budget carriers because of the deregulation policy of the EU. This paper analyses the European airline industry as a part of the transportation industry with a special emphasis on the futurre sustainable strategy. The most successful budget carriers is Ryanair will be contemplated with regard to its strengths and weaknesses. Finally, a short summary will be done about what happened in the European airline industry...........

Ryanair was the first budget airline in Europe, modeling itself on the successful USA carrier, Southwest Airlines.1 This report outlines the mature of Ryanair, describes the principal characters, Ryanair's operations and the challenges it faces. Comparative data is given with both Southwest Airlines and several of the newly founded European budget airlines. Further, it describes the competitive arena in which Ryanair operates and its resources, and capabilities. The paper discusses Ryanair's strategy and its possible future moves.

Introduction

Ryanair, the low-cost airline, provides scheduled passenger flights. Despite a growing number of passengers and airplanes, net profits and revenues, Raynair had to compete to secure its position on the market. Ryanair re-branded itself into low-fares, no-frills carrier. Success was enormous and in 2006 the company has become ‘the most profitable airline in the world'.

Ryanair serves short-haul, point-to-point routes and is now Europe's largest low-fare airline. The company is based on a low-cost, low-fee structure17, for which the ability to secure cheap labour, services, and jet fuel are essential. Ryanair is continuing to offer the lowest fare and as Micheal O'Leary said: ‘we guarantee our customers no fuel surcharges not today, not tomorrow, not ever'. Nevertheless, with a constantly changing environment and fuel prices currently on the rise the main concern is the sustainability of the strategy adopted by the company, and its ability to protect its market share (Appendix) in the future.

Nature Of The Industry

Air Transportation

Air transportation makes it possible for millions of people to travel for business or leisure, thus, playing a vital role in their way of life. The demand for air travel in Europe is set to double by 2020. European air transport industry consists of more than 130 airlines and a network of over 450 airports.

Economic And Social Benefits Of Air Transport

Air transport is essential for integration and development of Europe; it helps to link people, countries and cultures. It not only makes tourism more affordable, but also enables workers to access a wider labour market. AIR PASS> IN EUROPE The number of passengers worldwide use air travel in 2010 could exceed 2.3 billion.

In the world where business is done on a global scale, air transportation is essential. New markets are opening up, creating new jobs opportunities through attracting businesses to locations in the developed and developing world. The number of direct and indirect jobs, which are provided through air transport, is expected to reach 31 million in the current year.

Progression Of The Airline Industry In Europe

The European airline industry changes depending on the Economic situation not only in Europe, but also globally. PESTEL Analysis, included in the Appendix, analyzes the macro environment. It is important to identify the factors that are likely to influence, its level of supply and demand and its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993). Below are some of the facts that have been extracted from the PESTEL analysis and had an extensive influence on the aviation industry.

The European Level

Enlargement

Today, the EU is an essence of a single economy, with goods, people, money, and service providers moving freely across national borders. Economic integration steadily breaks down the existing barriers between the nations and their economies.

There is a strong relationship between rising real incomes and a demand for air travel. The EU members, especially those, that have recently joined the Union, exploit market opportunities and enjoy renewed economic growth and development; this consequently increases the air travel. With the increase in air traffic new airport infrastructure has being developed.

There have been major social changes across the EU with the entrance of new members. Cheap flights offered by Ryanair provide more opportunities for migrant workers for travel, thus more prospects for market expansions for Ryanair. Those countries, that have just recently entered the EU are less affluent, hence many migrant workers are likely to travel home more regularly on cheap tickets that Ryanair offers.

The Global Level

Terrorism

The phenomenon of global terrorism has always been evident; yet the events of September 11th 2001 have transformed international relations. The threat of global terrorism has made security challenging for the industry. Airlines around the world have started to pay more attention to safety, as travellers are experiencing many changes in airport security procedures. Although increased security checks gave more confidence in the safety of travel, it required additional time and effort, thus reducing the convenience of air travel. New security measures reduced air travel, passenger volume and number of flights. Consequently this effected airlines profitability which was reflected with rising ticket prices.

Economic Recession

Global recession has been characterized by the outburst of the financial crisis of 2007-2010 and resulted in a drop in international trade and sharp decline in commodity prices. Moreover, the amount of business travel has decreased.

Despite the slowdown of the economy in the UK, O'Leary has a positive attitude to the situation on the market. He contradicted all speculation about the end of the low fare air travel: "Higher oil prices just increase the attraction of Ryanair's lowest guaranteed fares, as consumers become more price- sensitive and switch away from high fare fuel surcharging airlines like British Airways".

Changes In Cost Structure Of Airline Industry

Characteristics Of Low Cost Carriers

The European airline sector has historically been dominated by national flag carriers. However, since the deregulation of the industry, the most advantageous model of operation for airlines is the low cost. It seems that in the current difficult climate for European aviation, this sector is performing extremely well. The European airline industry is adjusting to the reality of low fare structure, which now captures an increasing share of the market. There is evidence that the low cost carriers are becoming the dominant service providers on a significant number of intra-European short-haul point-to-point routes.

The main difference between low cost and traditional airlines is that- low cost carriers tend to focus on short-haul routes. Affordable fares along with the range of destinations provide a great opportunity to passengers for travel. Nowadays there are more than 100 European airports with low cost travel providers available.

The advantages of low cost services have not only brought numerous rewards to travellers, in terms of radical price reductions, it also achieved clear benefits to providers of air transportation, making their operations easier. First of all low cost airlines fly to short-haul destinations and usually have one type of aircraft. This gives greater crew flexibility and fewer stand-by crews, hence lower training and maintenance costs.

In addition, to achieve the low operating costs per passenger, airlines provide large number of seats on board. They aim to fill as many of those seats as they potentially can, and fly the aircraft as often as possible. Lastly, the area of cost savings that is perhaps most apparent to passengers of low-cost airlines, is in the on-board service. The report expands on this matter in

Competition

As already mentioned above, the global economy is in recession. As a consequence, customers are choosing to fly with budget airlines. Whilst the flag-carriers are experiencing severe difficulties, withdrawing from routes and cutting number of staff, the low-cost sector continues to expand at a remarkable pace. The extent to which this expansion of the low-cost carriers is affecting the traditional airline is an interesting issue.

New budget airlines are the source of an increased competition resulting in a growing number of traditional transport providers ceasing their operations as they could not sustain the competition. Thus, trying to keep up and adapt to changes, full service airlines are adding new offers. Examples are: tickets at prices close to the one offered by low cost airlines. This is achieved through restrictions of some services, which customer receives while buying more expensive tickets. These include: ticket cancellation may not be allowed, name on the ticket may not be possible to change (or for a charge only), the date of the flight or the time may not be possible to change, and also some might exclude the in-flight meals. (See Appendix for statistical data)

Besides, there is more competitive pressure from the European railway companies (Appendix), which ‘issued a challenge to low-cost airlines'. European government expresses big concerns in regards to the environment, hence promoting faster, cheaper and greener rail services alternative to the low cost air travel. It is predicted that railways in the EU are aiming to carry 25 million passengers by the end of this year, which is almost double than in 2007.

One of the available alternatives is Thalys. it is expanding to run to 400 destinations and 15,000km by 2020. The aim of Thalys is to grab a 50% share of journeys taking less than four hours for business customers and six hours for leisure travellers.

“Eurostar, which has taken market share from airlines because of delays at airports, is offering faster services between Scotland, the north of England and Wales via the new terminal at St Pancras in London to the continent. It has 69% of the market to Paris and 64% of travellers to Brussels....Eurostar offers a £59 return to Paris and saw a 13.2% jump in sales in the first quarter. It says it will make its cheapest fares available throughout the network. The new services promise to reduce passengers' carbon footprints as well as matching or beating journey times offered by low-cost airlines on shorter routes. They draw on the experience of Thalys which has killed off scheduled flights between Brussels and Paris by cutting the journey time to one hour and 22 minutes”. (For more issues on train vs air travel see Appendix)

Company Overview

Historical Developments Of Ryanair

Europe's experience of low cost providers of air travel began in 1991 when Irish company Ryanair re-launched itself. The new strategy had great success, and made Ryanair the biggest passenger carrier on Dublin-London route and started a new era of growth for the company. Further growth of Ryanair has been achieved through building up a network of intra-EU routes linking London's third airport, Stansted, with over 50 under-utilized secondary airports in a number of countries, making Ryanair the second largest low-cost carrier in Europe.

Since then the company was rapidly growing by adding new routes and covering new airports (including 7 British Airports: Birmingham, Durham Tees Valley, Edinburgh, Liverpool, London, Manchester and Newquay), achieving constant increase in the passenger level.

Following its pervious success of acquiring the Dutch airline Buzz, Ryanair announced the plan to merge with Aer Lingus. Through merger Ryanair would be able to establish its position not only in Europe but as a global carrier. Furthermore, the merger would have allowed the company to gain 80 per cent of all the flights made between Ireland and the rest of the Europe. Unfortunately, the takeover bid of €1.48bn (£1bn) was not accepted. Aer Lingus Chief Executive Dermot Mannion was very explicit in his opposition to a merger: ‘I cannot conceive of the circumstances where the Aer Lingus management and Ryanair would be able to work harmoniously together…this is simply a reflection of the fact that these organizations have been competing head to head, without fear or favour, for 20 years…'

Despite the unsuccessful acquisition, the company services more than 1,100 scheduled short-haul flights per day to over 147 locations throughout Europe and Morocco, and 26 in the UK and Ireland. It carried approximately 49 million17 passengers in the year 2008.

Last year Ryanair had another attempt to acquire their competitor, receiving a different reaction from Aer Lingus this time. According to the article in NY Times as of August 28, 2009 “Rapidly using its cash and unable to stem a decline in revenue, Ireland's former flag carrier Aer Lingus softened its stance on Thursday toward a possible deal with Ryanair the discount airline whose hostile takeover bids it has twice fought off. Aer Lingus said its net loss tripled to 73.9 million euros ($105.5 million) in the six months to June 30, from 21.5 million euros a year earlier. It conceded that its bankers were refusing to provide new loans to finance its operations. The situation puts significant pressure on Christoph Mueller — who takes the helm as chief executive on Tuesday — to wring out further savings and ferret out new revenue, or face losing its independence.“

Business Model / Competitive Advantage

Since Ryanair re-launched itself their strategy was to stay profitable through providing fares that are quite low to attract new customers but high enough to make an adequate operating margin. This is achieved through focusing on costs, securing low cost labour, strongly persuading suppliers and negotiating low airport charges. Although the company's main goal is to decrease its costs, it is constantly working on being more appealing to their customers through fares offered. This strategy is considered to be an important differentiator from its competitors. (Strategy Capabilities and Resources in the Appendix)

First of all, Ryanair achieves its competitive advantage through a blend of uncongested secondary airports and point-to-point service. The main reason for so doing is the significantly low charges. Secondary airports are less busy, and therefore delays due to congestion are more seldom. By offering point-to-point flights (tickets are sold on a one-way basis) the company eliminates the minimum stay requirements.

In addition to that, the company has limited its entire fleet to the use of Boeing. This allows saving on training costs (all staff are trained for one type of aircraft) and staff mobility throughout the entire fleet, as well as simplifying maintenance and repairs.

Furthermore, Ryanair has greater aircraft productivity through low-fares. The company has repeated offers especially for weekday flights, which stimulates demand for their flights as well as for its ancillary services.

Another area where Ryanair gains its cost advantage is distribution. Significant cost savings are made by selling directly to customers via the Internet and by using electronic ticketing. The company had sold 99% of tickets through its online reservation system in year 200817. This proves that an online reservation system is more cost-efficient than the traditional agent-based ticketing. By not selling via travel agents, Ryanair avoids travel agency commissions as well as computer reservation system fees. In addition to the above, the carrier saves money for every ticket they do not print and mail to customers.

Ancillary revenue (more explanation in Appendix)

Today, Ryanair is aiming for further cost reduction in their operating costs. The company scrapped all airport check-in desks and increased luggage check-in charges. The main Ryanair presence at airports is bags drop-off areas for passenger luggage. This would potentially save the airline about 46m and would help maintain their low cost strategy.

On one hand online check-in enables the passenger to avoid check-In lines at the airport by printing the boarding pass from home, on the other hand passengers face mandatory online check-in fee since September 2009. Passengers now are forced to register for their flights online at least four hours before their flight at £5 a flight, or £10 for a return flight. Besides, failure to print out the boarding pass will cost additional £40 to replace it at the airport.

As for check-in (see also article guardian.co.uk included in Appendix) of luggage, the cost per bag has risen from £20 to £30 for return flight, while the levy on a second bag increased from £40 to £70. Ryanair said the higher fees would reduce checked-in luggage and cut baggage-handling costs, allowing the airline to lower ticket prices. Despite the sceptical views that add-on charges could turn off passengers, Ryanair has continued to grow. It carried 19% more passengers in August 2009, compared to last year, as it maintained aggressive expansion plans.

Total number of passengers carried last year reached 58.5 million, generating a total revenue of €2,942 million. A significant €600m of total revenue was raised from its add-on fees, such as baggage check-in and credit card booking costs. Ryanair's argument in favour of all add-on fees lies in the fact that those passengers who do not require baggage, priority boarding or other premium services are able to benefit from the lowest possible price by giving customers the flexibility to choose what they pay for. This is a very valid point and makes economic sense; however there are obvious hidden benefits from such pricing methods for the company. Add-on costs reduce price transparency for the customers, and make it difficult for them to see the total cost of the service. This makes competition less efficient, as comparing prices with other carriers becomes more difficult for the customer, when booking. Without seeing the add-on costs straight away, their choice is biased towards Ryanair.

Pricing Strategy

The way the customers pay for the add-on fees has some significance as well. Other than paying the total price for the flight at once, when booking, the customers pay for some of the add-ons on their journey. As the payment for the service is broken down into separate transactions over a journey, it becomes more difficult for the customer to see the total cost of the flight. They may sometimes forget about a certain payment in the rush of things, leaving them with an illusion of a cheaper service, than in reality. The pricing methods used by Ryanair are very effective with first time customers, however this effectiveness eradicates with time, as the customers become more educated about the add-on fees. It could be argued that in long term this source of competitive advantage cannot be sustained. A customer may feel cheated by this lack of transparency in pricing and see it as spiteful actions by the carrier. He or she is very likely not only to be disgruntled by the service and hesitant to fly with Ryanair again, but to share the bad experience with friends and family. With very large numbers of passengers using the service, this negative word of mouth could be a very important factor in the marketing efforts of Ryanair.

On the positive side, several of Ryanair's services are superior to those of their competitors. Ryanair consistently beat on punctuality and missing bags (Table: Customer Service Levels, 2004, Appendix). Passengers almost always assured of getting to their destination on time with their luggage.

Company has “no refund” policy that extends an adverse impression. In the case of delays or cancellations due to weather, passengers are provided with no hotel accommodation or meal vouchers, let alone a refund.

Extended Companies Services

Ryanairs' strategy enables them to offer low fares, as a result demand has been stimulated, not only for leisure travel but also for business purposes. One of the options, which the company is already pursuing, is to provide packaged deals for hotels. In year 2008 Ryanair had discussed with Expedia the possibility to offer customers, who shop for flights on Ryanair.com, the exclusive right to book hotel accommodation at the same time. This would have given Expedia the access to 58 million annual passengers. The deal was failed because Expedia has breached a number of payment obligations and had failed to honor contractual obligations under the agreement.

“We have already received approaches from a number of other hotel providers across Europe and expect to have a replacement partner up and running before the end of the year so that hotel accommodation can continue to be available on Europe's biggest travel website, Ryanair.com at the lowest prices to 58 million consumers who already enjoy Europe's guaranteed lowest fares. Should Expedia remedy its breach within the 30 day period, Ryanair will continue the partnership.”

Since the failure of the deal with Expedia, Ryanair has announces a partnership with Perfect Gataways. This partnership provides web-enabled reservations that are a rising trend. Ryanair now provides one-stop solution to discounted fares on hotels, vacation packages, flight schedules, car rental in addition to airlines online reservations. Together with Perfect Gataway, Ryanair offers self-catering on the Ryanair Rentals page. This allows Ryanair customers to take advantage not only of cheap travel, but also guaranteed cheap holiday homes. ..........................

Uncontrollable Facts

Airlines which incur high costs of fuel, ground handling charges, maintenance and airport charges, of which they have few alternatives in minimizing those costs. Therefore, the best solution is to optimize in areas like crew costs, administration, marketing and distribution, and passenger services. As mentioned above, there are some charges that Ryanair is maintaining carefully in order to bring costs down. In this part uncontrollable costs are looked at, some of which company manages successfully and some are not.

Increasing Airport Charges

The ability to secure low airport fees is an integral part of the company's low cost structure. Ryanair is often able to secure these lower charges than many of its rivals through aggressive negotiations. It constantly fights the increase in the prices in an effort to keep its costs down; however, the fees that the company pays for the use of airports are rising significantly throughout many of company's hubs. The increase is mainly due to contract expirations and vast competition. One example includes the agreement for airport charges, which Ryanair had with Stansted Airport. The contract expired in 2007 and the increase in the price had been tremendous, almost as high as 100%. A year later, in 2008, there was a further increase of Stansted's charges by 15 %, which influenced Ryanair to cut services from that airport. As Ryanair cuts unprofitable flights it faces a decrease in revenues unless more suitable routes are found.

Fuel Costs

Fuel costs are continuously increasing and are widely expected to continue rising further, thus having an adverse effect on all players of the airline industry. Jet fuel cost is accounted for about 35 per cent of all operating expenses for the company, just over a year ago (July 2008) this figure has increased to almost 50 per cent. It seems that Ryanair's strategic policy not to include any surcharges (Appendix) on its pricing might not be sustainable in the future. To secure lower prices in the future, the company purchased the option to buy its fuel at a predetermined price, thus “hedging” its exposure to rising prices. If the prices will fall in the future, the option will become worthless, and the hedge will only add to the costs for the business.

Currency Exchange

Ryanair earns most of its revenue in Euro or Pound sterling, however many of the expenses are paid in US dollars. For example, fuel supplies are bought in US dollars, thus when sterling and Euro value increases against the dollar, Ryanairs revenue benefits. In 2009 due to the financial crisis exchange rates in pounds and Euros relative to the dollar have fallen considerably, which had a negative effect on the company's profits. With a strengthened dollar, the expenditure of the business has become more costly in terms of pounds and Euros.

Environmental Taxation

As mentioned previously, governments of the EU are concerned with environmental issues (read more in Appendix). The increased level of taxation could have a significant unfavourable result for European air transportation. Ryanair argues that despite the emissions, which the company insists are considerably lower than emissions produced by road transport, air transportation delivers huge economic benefits. These come in form of lower cost air travel for consumers, increased tourism, regional and social cohesion, job creation and inward investment.

In 2005 The Economist published an article, which argues that compared with most forms of transport, aviation is undertaxed. Government is concern over the capacity of airports and increase in flights and the impact on the environment. Therefore, a tax may be seen as an appropriate way of addressing these issues.

Michael Cawley said: "Governments have always liked to tax the aviation industry, because they have traditionally been used to creaming profits off state run monopoly airlines. Airlines are already taxed like a bride ready to be violated at a wedding when it comes to the unfair air passenger duty, which represents a very significant portion of the cost of Ryanair flights".

Future Strategies And Recommendations

Option 1

In spite of success of the low cost carriers, there is insufficient evidence to conclude that full cost carriers have been severely cannibalized. Could this mean that Ryanair might expand their services to other parts of the world through completely different strategic model? It appears unlikely that a no-frills airline might offer long-haul services to any significant extent; however Ryanair announced in 2007 that is ready to go from no frills to high bills with plans for a new luxury long-haul transatlantic service. The company will operate entirely separate from Ryanair, but is a part of the company. O'Leary explains the reason for this: “the minute you put a long-haul on a top of a short-haul operation you kill it.” This shows that there is always enough room for both full cost and low-cost carriers to co-exist, and Ryanair understands this and takes advantage of any opportunity that come along.

Therefore, one option Ryanair could consider in the future is to stay where they are now (two separate ventures with short- and long- haul services). With the economic recovery after a long recession period people feeling less financial pressure and have more cash to spend. Therefore, those individuals who switched to Ryanair just to cope with the difficult time might change their preferences to better and more expensive service suppliers. By providing luxury long-haul travel Ryanain could be right on time to capture those customers and to get them on the boards of their planes.

Company might also consider of extending their services through their IT systems as well. It is an ideal tool to optimize the company's existing operating model, which could help them boost revenues as well as cut operational costs even further, thus enabling Ryanair to stay ahead in the competition.

Ryanair may look at the option to open multi-user kiosks, which some companies, such as BMI, are already doing. Self-service kiosk could boost customers' satisfaction by letting them easily check-in at the airport, select or change passenger seat, print out a boarding pass without the need to stand in the line. Although such kiosks will cut down ancillary revenues, they are likely to provide more customer satisfaction.

Option 2

The success of Ryanair's strategy is influenced by the economic conditions, in particular the demand for low-cost travel in a new market. Ryanair successfully increases number of flights and extends the portfolio of the countries they are covering, yet competition among air travel providers remains sky high. The current expansion of EasyJet exposes Ryanair to more head-to-head competition (Apperndix) as both companies now provide flights from the same airport, London Stanstead. Many carriers hitherto tried to avoid such competition. The future of Ryanair in this airport is uncertain, as EasyJet provides extra services for its customers- coach transportation from and to the airport. Such a service serves as a very important complement to the flight itself, and makes Easyjet's brand more appealing as a consequence.

The high level of competition requires efficient strategic options in order to advance and generate higher profit. Ryanair's business strategy emphasizes low price value, low cost base products, and differentiation. Therefore, a possible strategic option to consider for the future, taking into account the availability of resources, is to extend the services they currently provide. Using the same cost-efficient strategy model Ryanair could look into possibility to provide coach journey to and from the airports. As similar services already exist on the market, through covering other areas of the country, providing more pick up points, and, of course, compete on prices offered, will make the travelers' journey more convenient.

Moreover, M&A had become more and more popular corporate-level strategy, which could be proven a good option for the company to grow further. Ryanair might consider merging with one of the on-land transport providers SkyShuttle Limited. In the future in might be feasible to acquire an existing company, as there are cash resources available to deliver this strategy. This will give them an already built infrastructure that will enable the company to provide extended service to their customers, improve its capabilities and acquire more competitive advantage. With SkyShuttleRyanair will extend its services and offer airport shuttle service that is an affordable option for transferring to and from the airport.

Option 3

Meanwhile, more and more carriers respond effectively to the market opportunity and the low cost segment is available to ever more entrants. How much further could the company expand with the European market being greatly saturated so many companies providing similar services?

To escape current conditions of the EU market, Ryanair might look at the option to go internationally with its no-frills model. There are, however, a number of factors that pose significant barriers to entry into international air transport markets. Air transport is not fully liberalized; in particular, non-EU transatlantic countries restrict competition on aspects like the number of possible flights and airports that can be served. In these countries air transportation is still regulated on the basis of bilateral agreements, which differ widely in restrictions imposed on carriers. Moreover, the regulatory restrictions to international air services affect the competition analysis of international transactions such as alliances and co-operative arrangements. Therefore, before deciding on the international move Ryanair should dot the extensive research on polices of the particular country. If the policies are not restricting the co-operative arrangements, than it could be an interesting and, moreover, easier option to consider for development of the company's future strategy that could substantially increase market share of the company.

There is an option to grow to BRIC countries, as today's advanced economies become a shrinking part of the world economy and emerging markets are becoming an increasingly important strategic choice. What is more, BRIC countries together represent 42% of the world's population and enormous future purchasing power. Through weighting the market entry modes advantages and disadvantages, it seems Licensing is a reasonable strategy to consider. First of all it gives limits economic and financial exposure, thus protect if failure occurs. Second, the income is contractually agreed through sale of production and marketing rights. However, as this part of the world it is not Europe, cultures and values are different, the level of return might not be accepted from stakeholders, considering the level of risk involved.

Conclusion

Flight fares are always known to be overpriced. This discourages traveling and usually leads to unnecessary expenses. The added fees are supposed to make convenient the entire flight experience. Ryanair intends to rebel against all of the said 'free' services. It believes that every airline goal is to take customer from Point A to Point B with no questions asked. Thus this is the No Frills Strategy where it cuts down on marketing costs, staff costs, airport charges, contracting out of services and fleet commonality . Ryanair itself is appalled of the high airline fares that has been dominating the Industry and boastfully asserts that traveling does not need to take so much money. In fact the flight fares Ryanair offers cost as little as cents to none at all (excluding the taxes and other costs). It truly serves traveling to the masses.

This is a significant strength of Ryanair. With its impressive cost management and outlook to increase more passenger seats and expand routes, Ryanair may come off just fine after the 2004 crises. Ryanair knows how to anticipate difficult times due to increasing fuel prices and rivals and set their goal. Bearing these segments and economics in mind, Ryanair must select routes carefully to generate enough traffic to fill the larger aircraft they use.

Profitable markets must also have a large leisure-and private-travel component--the mainstay of the customer base of most low-cost carriers. A majority of these carriers follow the same basic rules, but with some differences in approach. Ryanair, which is as cheap as it gets, operates routes from London Stansted to many secondary airports--for example, to Carcassonne and Biarritz, in southern France, and to Pisa and Verona, in Italy. Low airport fees help keep the carrier's costs 65 percent below those of a typical scheduled airline. Ryanair can thus offer cheap fares and still make a profit if more than 55 percent of its seats are occupied. Thus it must proceed its goal in expanding to more little known routes and increasing more passengers in their planes while offering more premium services that the customers will end up purchasing for a more convenient flight.

Ryanair continues to make risks because of increasing and overlapping cost pressures. However, if it sticks close to its low-fare model as it has been intending to, it may continue its sustainability because true to the Walmart model, the cheapest product always wins. Eventually being the lowest cost and lowest fair airline will attract several passengers that will compensate for rising fuel costs especially since Ryanair is good at increasing passenger seats and expanding routes.

Criticism: Ryan Air, in its commitment to low-cost airfare has sacrificed its processes and services. The human resources of the company are not seen as a potential source of competitive advantage. The company does not seem to value its people. There is a growing belief that a company's human resources is the most important source of competitive advantage. Human resources or the company's people are one source of sustainable competitive advantage. In a fast-changing environment where technological innovations and other strategies can be copied, it is the human resources that bring a sustainable competitive advantage.

From its scrappy beginnings as an upstart, Ryanair had become a world aviation leader. It had accomplished this in the face of fierce competition from established players and new discount operators, industry-wide shocks that put several competitors out of business, and a host of bureaucratic obstacles.

The company's value adding activities allow Ryanair to secure its profitable strategy. It manages its relationships with suppliers of the planes, food and beverages suppliers; this ensures that goods are received of required standards and on time in-order, as a result adding value through out Ryanair value chain. (See more on Value Chain in Appendix)

Ryan Air continues to be the lowest cost airline in Europe. The firm manages to maintain its cost leadership despite the presence of other low cost airlines in Europe. The source of competitive advantage of the company is its ability to drive down costs to sustain low fares while at the same time remains profitable. This is done through:

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http://www.uk-airport-news.info/stansted-airport-news-141008.htm

http://www.shephard.co.uk/news/laranews-net/ryanair-terminates-expedia-hotel-deal/400/

“HEDGE (vb trans.). To secure oneself against loss on (a bet or other speculation) by making transactions on the other side so as to compensate more or less for possible loss on the first. Hedging by airlines essentially takes one of two forms: contracting to forward-buy kerosene at a pre-determined price for future delivery or taking a financial contract out (that is placing a bet) on the movement in oil prices on a traded exchange. Either way, the outcome, financially, is effectively the same.” Source: http://www.thisislondon.co.uk/standard-business/article-23634924-ryanair-boss-keeps-losing-by-hedging-his-bets-on-oil-price.do, article: “Ryanair boss keeps losing by hedging his bets on oil price” by Robert Lea, 05.02.09

http://www.ryanair.com/it/about/ryanair-and-the-environment

Ryanair deputy chief executive

http://www.flightmapping.com/news/newsletters/October%202004/Ryanair%20Environment.asp

http://www.flightglobal.com/articles/2007/04/11/213208/ryanair-boss-michael-oleary-plans-launch-of-transatlantic-no-frills-airline-with-fleet-of-50.html

Merges and Acquisitions

Brazil, Russia, India and China

http://www.worldsecuritynetwork.com/showArticle3.cfm?article_id=11805