CASE STUDY Ryanair
CASE STUDY Ryanair
Overview
Ryanair was founded in 1985 by the Ryan family to provide scheduled passenger services between Ireland and the UK, as an alternative to then state monopoly airline, Aer Lingus. Initially, Ryanair was a full-service carrier, with two classes of seating, leasing three different types of aircraft. Despite growth in passenger volumes, by the end of 1990, the Company had disposed of five chief executives, and accumulated losses of 25m. A new management team, led by Michael OLeary was appointed. Its fight to survive in the early 1990s saw the airline transformed to become Europes first low fares, no frills carrier, built on the model of Southwest Airlines, the successful US operator. After its makeover into a budget airline, Ryanair never looked back, as it added new bases, routes and aircraft. Despite the up-and-down cycles of the airline industry over the decades, Ryanair continued its upward trajectory, among the worlds most profitable airlines. As of fiscal 2018, Ryanair carried over 130 million passengers annually on 2,000-plus daily flights from 86 bases, connecting 222 destinations in 37 countries. Year-on-year traffic growth was 9 per cent, up from 120 million passengers in fiscal 2017, with a load factor of 95 per cent, compared to 94 per cent in 2017. (Ryanairs latest financial data can be viewed in the Investor Relations section of the Ryanair website, Ryanair Investor Relations )
Ryanairs Operational Strategy
Ryanairs objective was to establish itself as Europes biggest scheduled passenger airline, through continued improvements and expanded offerings of its low fares. The carriers stated ambition was to grow annual traffic to 200 million customers by 2024. Ryanair believes it has opportunities for continued growth by: using aggressive fare promotions to stimulate demand; initiating additional routes in the EU and countries party to a European Common Aviation Agreement with the EU, currently served by higher-cost, higher-fare carriers; increasing the frequency of service on its existing routes; starting new domestic routes within individual EU countries; considering acquisition opportunities that may become available in the future; connecting airports within its route network; establishing new bases; initiating new routes not currently served by any carrier. As always, its business model is dependent on a continuous focus on cost-containment and operating efficiencies. Ryanairs new federal corporate structure, and its openness to acquisitions in a consolidating European airline sector may be indicative of a shift beyond its traditional main airline perspective. In December 2018, Ryanair completed its purchase of Austrian-based Laudamotion, an airline founded by former Formula One champion Niki Lauda, and sold to Air Berlin. It was subsequently bought back by Lauda after Air Berlin went bankrupt. Ryanairs intention was to invest 100m to develop Laudamotion as a low-fares carrier to compete in the market dominated by Lufthansa and its subsidiaries out of Germany, Austria and Switzerland to mainly Mediterranean leisure destinations. Ryanairs long-term budget airline operational strategy consists of key elements:
Fare and route policy
Low fares low fares are a cornerstone of Ryanairs budget model, designed to stimulate demand, particularly from price-conscious leisure and business travellers. Priced to ensure achievement of high load factor targets, fares are set on the basis of the demand for particular flights, with higher fares typically charged on flights with higher levels of demand and for bookings made nearer to the date of departure. Ryanair also periodically runs special promotional fare campaigns, especially in connection with the opening of new routes. Promotional fares may have the effect of increasing load factors but reducing yield. Ryanair asserts it will offer significant fare promotions to stimulate demand in periods of lower activity or during off-peak times.
Route policy Ryanair aims to provide frequent point-to-point service on short-haul routes. In 2018, Ryanair flew an average route length of 775 miles with 1.9 hours flight duration. Short-haul routes eliminate the need to provide services like free in-flight meals and movies, expected on longer flights. Point-to-point lying allows Ryanair to offer direct, non-stop routes, avoiding costs of providing connection services, like baggage transfer and transit passenger assistance.
Ryanairs objective is to schedule a sufficient number of flights per day to satisfy demand on its most popular routes at frequent intervals. Adjustments in the number of flights on all of its routes are always ongoing, focused on high frequency and business-friendly timings between Europes main business centres. During fiscal 2018, Ryanair launched 260 new routes across its network. In a departure from its strict point-to-point policy, Ryanair has opened a new line of business by providing feeder flights to long-haul carriers. It has reached a commercial agreement in principle with Aer Lingus to feed in passengers to the latter's growing transatlantic network from Dublin, whereby passengers will be able to book connecting Ryanair flights through the Aer Lingus website and vice versa.
Low operating costs
Management believes that Ryanairs operating costs are among the lowest of any European scheduled-passenger airline. Ryanair strives to reduce or control four of its primary expenses:
Aircraft equipment and finance costs aircraft costs are controlled by operating a single aircraft type, utilising next-generation Boeing 189-seat 737-800s and the updated 197-seat Boeing 737MAX-200 aircraft designed to replace the Boeing 737-800, from Spring 2019. Ryanair will become the launch customer, purchasing up to 200 of these aircraft. It expects to have an operating fleet comprising approximately 520 Boeing 737s by 2024 with a mix of Boeing 737-800s and Boeing 737-MAX-200 aircraft. Aircraft from a single manufacturer limits costs associated with personnel training, maintenance, and the purchase and storage of spare parts, with greater flexibility in the scheduling of crews and equipment. Personnel costs Ryanair employed 14,583 staff in fiscal 2018, with 4,831 pilots and 8,263 cabin crew. Ryanair had created 1,500 new jobs during the year. Up to autumn 2017, Ryanair was very successful at controlling its labour costs through flexibility and high productivity, as remuneration for personnel emphasised productivity-based incentives. These incentives include sales bonuses for onboard sales by cabin crew and payments based on the number of hours or sectors flown by pilots and cabin crew, within strict limits set by industry standards or regulations fixing maximum working hours. Share option plans for employees add to staff remuneration packages. Customer service costs Ryanair negotiates fixed-price, multi-year contracts with external providers at certain airports for ticketing, passenger and aircraft handling, and other services that can be more cost-efficiently provided by third parties at competitive rates. Airport access and handling costs although the airline has begun to use some primary airports, such as Zaventem in Brussels, it prioritises secondary and regional airports that offer competitive prices on the basis of growth contracts with Ryanair. Such airports do not have slot restrictions that can increase operating expenses and limit the number of allowed take-offs and landings. Ryanair reduces its airport charges by opting for less expensive gate locations and outdoor boarding stairs, rather than jetways, which are more expensive. All passengers are required to check in on the internet, reducing airport handling costs and speeding the journey from arrival at the airport to boarding. Ryanair was among the first airlines to introduce a checked-bag fee, which is payable on the internet at the time of booking or post booking and is aimed at reducing the number of bags per passenger to further reduce handling costs. In 2018, it introduced a 5 fee for larger carry-on bags.
Ancillary services
Ancillary revenues have been an increasingly important source of income, accounting for approximately 28 per cent of Ryanairs total revenues in fiscal 2018. Over the years, ancillary revenue initiatives were constantly being introduced. It was the first airline to charge for check-in luggage and in-flight food and beverages. Virtually all budget airlines have followed suit. Ryanair has continued to find ways of charging passengers for services once considered inclusive.
Customer service
Up to 2013, Ryanair took an indifferent, even negative attitude to customer service, maintaining that its low fares and getting passengers to their destinations in a timely manner were sufficient. However, in 2013, adverse publicity about Ryanairs off-putting treatment of passengers, alongside pressure on fares and profits, forced an about-turn by the carrier, whereby Ryanair introduced a series of customer-service related initiatives under the Always Getting Better (AGB) customer experience programme. This entailed the first appointment of a Marketing Manager, Kenny Jacobs. AGB included an easy-to-navigate website, a mobile app, reduced penalty fees for passenger flight changes or cancellations and allocated seating. Ryanair also introduced several new product offerings to customers. For example, Family PLUS offers families travelling with Ryanair a set of bundled ancillary discounts. PLUS, designed to attract business travellers, gives customers a discounted bundle of ancillaries including a 20kg bag, priority boarding, security fast track at selected airports and a reserved seat. Other customer-service initiatives include scheduling more flights to primary airports. Ryanair claims to achieve better punctuality and fewer lost bags than its peer group in Europe. Customer satisfaction is measured by regular online passenger surveys.
Safety and quality maintenance
Ryanair has always been conscious of safety as a critical factor, and that any safety-related harmful incidents on Ryanair or another budget carrier could adversely affect its business. It places resources into safety training of its staff and maintenance of its equipment. A board-level safety committee constantly reviews safety. In its 2018 Annual Report, it states, Although Ryanair seeks to maintain its fleet in a cost-effective manner, management does not seek to extend Ryanairs low-cost operating strategy to the areas of safety, maintenance, training or quality assurance. Ryanair carries out routine maintenance of its Boeing fleet but outsources overhaul engine and component ser-vices to third parties. The commonality of the fleet helps to curb maintenance costs.
Environmental regulation
Ryanair is committed to reducing emissions and noise through investments in next generation aircraft and engine technologies. Among environmental measures are committing to eliminate all non-recyclable plastics by 2024 and allowing customers to donate to carbon offsetting programmes. Certain features of Ryanairs budget model inherently reduce adverse environmental impact anyway, by decreasing fuel burn and emissions per seat-kilometre flown high-seat density and load factors; using underutilised secondary and regional airports limiting the use of holding patterns and taxiing times, reducing the need for new airport infrastructure; direct services as opposed to connecting flights cutting the number of take-offs and landings per journey. According to the Air Travel Carb and Energy Efficiency Report published by Brighter Planet, Ryanair is the industry leader in terms of environmental efficiency. The criteria used include the numbers of passengers and seats, the age of the planes (older aircraft consume more kerosene), freight share and the distance of flights.
Selected Performance Data
A series of exhibits offer ways of comparing Ryanair to its rivals and other European based airlines on key performance and other statistics:
Table 1 shows comparative fare levels (for Dublin-London and Barcelona-London routes) for Ryanair versus other airlines.
Table 2 shows some comparative short haul fares for European airlines, adjusted for sector length.
Table 3 displays Airline Product Quality ratings based on passenger experiences. The first
column shows 2016 Skytrax star ratings, based on the perception of delivered front-line product and service quality for Ryanair, other budget airlines and some mainstream carriers. Skytrax ratings are scored out of a maximum score of 5 and are based on reviews from passengers. The second element of airline quality ratings is derived from airlineratings.com., a website which rates airlines on safety and quality. Its product quality ratings are based on a number of components, including Overall Value for Money, Seat and Cabin Space, Customer Service, Meals and Beverages and In-Flight Entertainment. Full-service airlines are rated out of 7, whilst regional and low-cost carriers are rated out of 5.
Tables 4 shows punctuality statistics for scheduled flights at 24 UK reporting airports for January to September 2015.
Table 5 shows certain operating data of Ryanair for each of the fiscal years shown. Such data are derived from the Companys consolidated financial statements and from certain other data.
Table 1. Comparative Fare Levels
Route: DublinLondon: Weekday Return (2 Nights)
Airline From To Total Price
AER LINGUS DUBLIN HEATHROW 103
AER LINGUS DUBLIN GATWICK 74
BRITISH AIRWAYS DUBLIN HEATHROW 127
BRITISH AIRWAYS DUBLIN LONDON CITY 129
CITYJET DUBLIN LONDON CITY 122
RYANAIR DUBLIN GATWICK 74
RYANAIR DUBLIN STANSTED 65
RYANAIR DUBLIN LUTON 71
Route: BarcelonaLondon: Weekday Return (2 Nights)
Airline From To Total Price
BRITISH AIRWAYS BARCELONA GATWICK 209
EASYJET BARCELONA GATWICK 131
IBERIA BARCELONA GATWICK 189
NORWEGIAN BARCELONA GATWICK 267
RYANAIR BARCELONA STANSTED 159
VUELING BARCELONA GATWICK 130
Table 2. Average European Short Haul Fares*
*2014; Adjusted for sector length
Table 3. Airline Product Quality Ratings
Skytrax airlineratings.com
CityJet 3 4.5/5
KLM 44/5
Aer Lingus 3 4/5
Scandinavian SAS 3 3.5/7
Air France 4 5.5/7
Brussels Airlines 3 4.5/7
Norwegian 3 4/5
Ryanair 2 2.5/5
EasyJet 3 2.5/5
Swiss Airlines 4 5/7
Alitalia 3 5/7
Germanwings 3 3.5/5
Lufthansa 4 6/7
Flybe 3 3/5
Vueling 3 3.5/5
British Airways4 6/7
Wizz Air 3 2.5/5
Pegasus 2 3/5
Emirates 4 7/7
Iberia 3 4/7
Turkish Air 4 6/7
TAP Air Portugal 3 6/7
Jet2 3 2/5
Monarch Scheduled 3 3/5
Air Berlin 3 3.5/7
Southwest 3 4/5
LOT Polish Airlines 3 6.5/7
Table 4. Comparative Punctuality Performance
Table 5. Selected Operational Data
Operating Data: 2021 2020 2019 2018 2017
Operating Margin* (51)% 13% 12% 23% 22%
Average Booked Passenger Fare () 37.65 37.46 37.03 39.40 40.58
Ancillary Rev. per Booked Passenger () 21.80 19.71 17.14 15.48 14.83
Total Rev. per Booked Passenger () 59.45 57.17 54.17 54.88 55.41
Cost Per Booked Passenger () 89.95 49.58 47.01 42.08 42.62
Average Fuel Cost per U.S. Gallon () 1.74 2.06 1.79 1.65 1.83
Other Data: 2021 2020 2019 2018 2017
Revenue Passengers Booked (millions) 28 149 142 130 120
Booked Passenger Load Factor* 71% 95% 96% 95% 94%
Average Sector Length (miles) 776 761 774 775 770
Sectors Flown 204,828 823,897 789,771 725,044 675,482
Number of Airports Served at Period End 225 242 219 216 207
Average Daily Flight Hour Utilization (hours) 2.37 9.11 9.02 9.13 9.33
Team Members at Period End 15,016 17,268 16,840 14,583 13,026
Team Members per Aircraft at Period End 33 37 36 34 34
*Operating Margin: Represents operating profit as a percentage of total revenues.
*Booked Passenger Load Factor: Represents the total number of seats sold as a percentage of total seat capacity on all sectors flown.
Your task:
As an operations manager, you need to examine whether existing operations meet the operational goals of the business and to what extent they may impact on the achievement of organisational goals. To do this you need to use relevant data (not limited to the data provided, for more performance data please conduct some research and collect relevant data for using in your analysis) and apply Operations Management principles to analyse the airlines operations and draw some insightful lessons as to how to improve the business so that future passengers receive quality services. Refer to the Assessment 1 Description in the 'About Assessments' section of the MGB235 CANVAS site for more information on the case study requirements.
