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Ryanair
RYANAIR
By Professor Geoff Lancaster
Overview
Ryanair pioneered low-cost air travel in Europe. The brand has become one of the best
known in the world (a Google survey recently found that Ryanair is in the top five
leading brands, alongside Ferrari and Sony). (Creaton, 2004: 3).
Ryanair operates a low-fares, scheduled, passenger airline that serves short-haul, point-to-
point routes in Europe from its bases at Dublin, London Stansted, Shannon, London
Luton, Glasgow Prestwick, Brussels (Charleroi) and Frankfurt (Hahn) airports.
This low cost revolution pioneered by Ryanair has reduced the price of air travel to below
the cost of bus and train transport and given millions of people the opportunity to visit
friends and family across Europe. 24 million people are expected to have traveled with
Ryanair in 2004. It is expected that 50 million people will use the airline during 2010.
Airlines compete primarily on fare levels, frequency and dependability of service, name
recognition, passenger amenities (such as access to frequent flyer programs) and the
availability and convenience of other passenger services.
Profits after tax 1998: 45,525, 000
Profits after tax 2002: 150,375,000
Since Ryanair began to introduce its low cost operating model in the early 1990s, its
passenger volumes and scheduled passenger revenues have significantly increased as
Ryanair has substantially increased capacity.
Ryanairs annual scheduled booked passenger volume has increased more than tenfold
over the past decade, from approximately 945,000 passengers in calendar year 1992 to
approximately 11.1 million passengers in fiscal year 2002.
Source: Securities and Exchange Commission File: September 30, 2002, signed by Michael OLeary, CEO
of Ryanair
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1. History
In operation since 1985, Ryanair began to introduce a low cost operating model under a
new management team in the early 1990s. At September 30, 2002, with its fleet of 44
planes, including 21 Boeing 737-200A jet aircraft and 23 Boeing 737-800 next
generation aircraft, Ryanair offered approximately 300 scheduled short haul flights per
day which serve 11 locations in England, five locations in Ireland, two locations in
Scotland, one in each of Wales and Northern Ireland and 34 locations in continental
Europe. (As filed with the Securities and Exchange Commission on September 30, 2002)
The 737-800 aircraft has more seats (189) than the A320 (180) or the 737-700 (149). It
gives us more revenue opportunities and lower per seat operating costs. Its fuel
consumption and maintenance cost performance is outstanding, and since we already
operate 20 of them, this growth in fleet will not disrupt our 25 minute turnarounds, but
will continue to yield economies of scale in operations, maintenance and training
(Michael OLeary. http://www.ryanair.com/investor/results/pressrelease31mar.html)
In the mid-90s, Ryanair used the new aircraft to create a UK-Ireland network based at
its headquarters in Dublin. Initially the strongest routes were from Gatwick and Luton to
the Irish capital, but quickly a whole network of options was to build up, from Cardiff toTesside. Then, crucially, Ryanair discovered Stansted.
One important step to reduce costs was to look for low cost airports, according to
OLeary the decision where to fly is based on that airport which provide them with a very
good package of facilities as well as efficient facilities, at low cost.
OLeary stated: Whichever airport provides us with the best package is the next new
route we open.
1.1 The Beginning of a New Administration
We dont look upon ourselves as an Irish airline any more, we look upon ourselves as a
European Airline- Michael OLeary.
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OLeary, chief executive of Ryanair, joined before the end of 1988. His strong vision and
focus on keeping costs down turned the small airline into a carrier that flies to more
European destinations from Stansted that British Airways does from Heathrow.
OLeary described the company as like Superman, going UP, UP, UP and AWAY.
According to him, Ryanair will be Europes largest airline in the next 8 years. His aim is
to sustain a disciplined growth strategy which will yield to lower costs, lower fares,
faster growth and increasing profits.
2. Airlines Industry Overview
2.1 European Airline Market
The Western European air transport market has historically been subject to significant
governmental regulations, both from the EU and individual countries. However, in the
1980s, the EU commenced a programme to reduce the level of regulation, substantially
reducing the ability of individual EU Member States to restrict access to routes for air
travel.
Since April 1997, EU carriers have been able to provide passenger service on domestic
routes within individual EU Member States outside their home country of operation
without restriction. There has since been a large increase in the number of airlines
providing scheduled passenger service in the EU.
Notwithstanding the overall increase in the number of carriers, the majority of new
entrants are quite small, although this may change, and the overall market has been
volatile, with several new entrants ceasing operations. The major causes of their failure
were competitive responses from major airlines serving the same routes, including a
number of sustained price wars and difficulties new entrants encountered in obtaining asufficient number of slots at major airports at peak times along with rapid, unmanageable
expansion.
The independent carriers include low-fares, no-frills, carriers such as Ryanair, EasyJet
(who recently acquired Go) and carriers providing frills services more comparable to
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those of the flag carriers, but at slightly lower fares than the flag carriers. e.g. British
Airways.
Certain small carriers, including Virgin Express and Deutsche BA Luftfahrt GmbH
(which Easyjet now has an option to acquire) have become franchises of major airlines,
sharing some ticketing and other distribution systems with the flag carriers. These
franchises serve mainly regional routes where flag carriers cannot operate profitably due
to their high overhead costs and serve to feed regional passengers to their flag carrier
partners for interline service.
Charter operators currently account for a significant portion of total intra-EU annual
passenger traffic and operate primarily on routes between northern and southern Europe,
targeting mainly price-conscious leisure travellers.
Although the number of promotional fares has increased and average fares have fallen on
certain routes since the liberalization measures came into effect in 1993, substantial
across-the-board reductions in air fares such as those that followed the deregulation of the
air transport market in the United States in 1978 have not yet been experienced in
Europe.
2.2 Ireland-U.K. Market
The market for scheduled passenger air travel between Ireland and the U.K. can be
divided into two principal segments, the Dublin-London route and the routes between
Ireland and other locations in the U.K. outside of London.
The Dublin-London route (including service from Dublin to each of Heathrow, Gatwick,
Stansted, Luton and London City airports) is currently served by four carriers. Ryanair
serves three London airports (Stansted, Gatwick and Luton), Aer Lingus serves three
airports (Heathrow, Gatwick and London City) while British Midland and CityFlyer
Express each serves one airport (Heathrow and Gatwick, respectively).
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For the fiscal years ended March 31, 2001 and 2002, passengers flown on Ryanairs
routes between Dublin and London accounted for approximately 19.3% and 15.4%,
respectively, of Ryanairs total passenger revenues, with the Dublin-London Stansted
route alone accounting for approximately 10.9% and 8.8%, respectively, of such total.
(www.ryanair.com/investor/results/presrelease31mar.html)
It must be noted that Ryanairs business would be adversely affected by any circumstance
causing a reduction in general demand for air transportation services in Ireland or the
U.K., including, but not limited to, adverse changes in local economic conditions,
political disruptions or violence (including terrorism) or significant price increases linked
to increases in airport access costs or taxes imposed on air passengers.
As long as a significant proportion the Companys operations remain dependent upon
routes between Ireland and the U.K., the Companys future operations and growth will
be adversely affected if this market does not grow and by increased competition in this
market.
2.3 Service to Continental Europe
In 1997, Ryanair began service on new routes to four locations in continental Europe
(Dublin to Paris (Beauvais) and Brussels (Charleroi), and London Stansted to Stockholm
(Skavsta) and Oslo (Torp). Since that time Ryanair has substantially expanded its
continental European service and now serves a total of 34 routes.
In continental Europe, Ryanair established its first continental European bases at Brussels
(Charleroi) and Frankfurt (Hahn). Ryanair competes with a number of flag carriers,
including British Airways, Lufthansa, Air France, KLM and Alitalia, and a larger number
of smaller carriers, including low fares airlines such as easyjet with the number and
identity of its competitors varying according to the route flown.
2.4 Critical Success Factor: Safety
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In its 18 years of operations, Ryanair has not had a single incident involving major injury
to passengers or flight crew. It has not experienced any reportable incidents involving
security breaches, such as hijackings. Ryanair is highly committed to safe operations.
Safety training procedures, investment in safety-related equipment and the adoption of an
internal confidential reporting system for safety issues demonstrates some of the
measures the company takes to ensure this critical success factor in airline operations is
well managed.
3. Running Ryanair: Strategy and Operations
3.1 Ticket Sales
In order to reduce costs to a minimum, Ryanair changed its way of selling tickets by
adopting a B2C strategy using the internet. While the agent tapped into a computer
reservations system (CRS) and booked the flights, the travel agency picked up 9 per cent
commission, which was the industry standard for international flights. On a typical 59
return flight from Manchester to Dublin, this earned the agent barely 5; with the host of
the CRS collecting almost as much. (Calder Simon, 2003)
Unilaterally, Ryanair decided to drop commission to 7.5 per cent, in line with the rate
paid on domestic flights. Predictably, the agents howled, saying they were being asked to
sell tickets at a loss. Ian Smith, then boss of Britains biggest chain of travel agents, Lunn
Poly, announced a boycott: his 800-plus Holiday Shops would no longer sell Ryanair.
By 2001 at which point Ryanair was selling the vast majority of seats online, the airline
sent out a letter to every agent in the country explaining that, at the end of a fairly
painful retrenchment of Ryanair amongst its travel agency partners it would no longer
sell through the trade.
Our website, www.Ryanair.com made a very significant contribution to our growth.
Internet sales are now running in excess of 65% of all bookings, which when added to
Ryanair Direct means that we are now taking over 90% of all bookings direct. Travel
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Agency sales now account for just 8% of our bookings and still falling .Michael
OLeary. http://www.ryanair.com/investor/results/pressrelease31mar.html
3.2 Spotting Opportunity in Disaster
Ryanair reacted to the events of 11 September (9/11) by keeping all its staff, hiring more
people and continuing to grow, when almost every other airline was doing the opposite.
In the aftermath of the Trade Center attacks, OLeary saw immediate opportunities to cut
costs. Taking advantage of Ryanairs big cash reserves and the dire state of the market for
new planes, he ordered 100 Boeings, with options on 50 more. It was the worlds biggest
order of 2001. (Calder Simon, 2003)
Ryanair announced on 5th February 2002 record traffic and profit figures for Q.3 (end 31
Dec01). This quarter covers trading in the immediate aftermath of Sept 11 and the
weaker winter months. Despite these adverse conditions, passenger traffic grew by 30%
to 2.7 million and load factors rose to 79%.
Average yields declined by 10% due in large measure to the low fare promotions which
Ryanair launched immediately following Sept 11. As a result total revenue grew by 18%.
Thanks to continued tight control, operating costs rose by 15%, a slower rate than
revenue growth. Unlike many other airlines in the world following Sept 11, Ryanairs
margins rose from 19% to 21% for the quarter and net profit increased by 35% to
28.8m. http://www.ryanair.com/investor/results/pressrelease31mar.html
Summary Table of Results (Irish GAAP) - in
Quarter Ended Dec 31, 2000 Dec 31, 2001 % Increase
Passengers (incl. no shows) 2.1m 2.7m + 30%Load Factor (incl. no shows) 77% 79% + 3%
Revenue 114.9m 135.5m + 18%
Profit after tax 21.3m 28.8m + 35%
Basic EPS (Euro Cent) 3.04 3.98 + 31%
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These are a very strong set of results which underline the resilience of Ryanairs unique
low fares model. Ryanair led the fight back following Sept 11 by slashing fares and
offering one million seats for sale at just 9.99. It was important to respond to terrorism
by stimulating air travel and promoting consumer confidence. The travelling public
responded to the lower fares in huge numbers with the result that we carried more than
10 million passengers in a calendar year for the first time in our history.
3.3 Acquiring Buzz
From the summer of 2002, Ryanair has had to relinquish its title of Europes biggest no-
frills airline, because of easyJets takeover of Go. However in February 2003, Michael
OLeary surprised the aviation world by announcing the acquisition of its rival at
Stansted Buzz.
At a press conference OLeary announced that the price was so low that Ryanair could
not turn the opportunity down. He took delight in comparing the 3m Ryanair paid for
Buzz with the 374m easyJet had spent on Go. The Dublin-based group said it would
close a number of Buzzs unprofitable routes, while increasing the frequency and
reducing the cost of other routes. (Calder Simon, 2003)
3.4 Future Growth
Ryanair believes it will have opportunities for continental growth by:
Initiating additional routes from the U.K. to other locations in continental Europe that
are currently served by higher-cost, higher-fares carriers.
Increasing the frequency of service on its existing routes out of London, Glasgow
Prestwick, Brussels and Frankfurt.
Starting new routes within the U.K.
Considering possible acquisitions that may become available in the future.
Landing at other airports within its existing route network and establishing more new
bases in continental Europe. www.ryanair.com/download/DCRyantextCLN.PDF
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Ryanair expects to see its passenger numbers grow at rate of over 20% in the next seven
or so years, as a result of assured fleet and network expansion. By 2010, it expects to
account for about 9% of gross passenger numbers and more than 60% of the low-cost
segment.
3.5 Operational Requirements
According to Donne Michael (in Low Cost Airlines) the operation of Ryanair is like the
rest of commercial aviation, in that it depends on an established air transport environment
in which to flourish. They require communities of sufficient size to justify the existence
of an already highly-developed, efficient and safe aviation infrastructure. He highlights
that they need efficient airports, not necessarily grand in scale, but swift and efficient to
move through, comparatively inexpensive to use and reasonably placed in relation to
local communities so that transit times on the ground to and from city and town centres
are smooth and convenient and reasonably priced.
In this LCA (low cost airlines) model, they use well-proven aircraft types which are
reasonably inexpensive to buy and to fly. They base their operations on high frequencies
(up to seven or eight or even more flights on a given route each way) with swift
turnaround times. The length of the journeys is another aspect Michael mentions Shorthauls mean less fuel consumed while the discomforts of more spartan seating and limited
food and beverage availability can be tolerated better than they could on long flights
....the longer the distance, the fewer flights in a day, and the less revenue earned.
Since Ryanair began to introduce its low cost operating model in the early 1990s, its
passenger volumes and scheduled passenger revenues have significantly increased as
Ryanair has substantially increased capacity.
The combination of expanding passenger volumes and capacity, high load factors and
aggressive cost containment has enabled Ryanair to generate increase operational profits
and profits after taxation. Ryanairs operating profit increased from 84.1 million in
fiscal year 2000 to 114.0 million in fiscal year 2001, and to 162.9 million in fiscal year
2002, while profit after taxation increased from 72.5 million in fiscal year 2000 to
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104.5 million in fiscal year 2001 and to 150.4 million in fiscal year 2002 . http://
www.ryanair.com/download/DCRyantextCLN.PDF *See appendix I for a more detailed financial analysis.
Ryanairs future operations will be affected by various factors:
overall passenger traffic volume,
the ability to finance its planned acquisition of aircraft,
its ability to discharge the resulting debt service obligations,
economic and political conditions in Ireland, the U.K. and the EU,
seasonal variations in travel,
government regulations,
fuel prices, foreign currency fluctuations,
competition,
public perceptions of safety on low-fares airlines,
aircraft acquisition and leasing costs,
future fuel cost increases as a result of the current shortage of fuel production
capacity and/or production restrictions imposed by fuel oil producers.
maintenance expenses which might increase as a result of Ryanairs fleetexpansion and replacement programme,
costs of insurance coverage for certain third party liabilities arising from acts of
war or terrorism which has increased dramatically as a result of 9/11.
3.5.1 Ancillary Services
Ryanair offers a variety of ancillary, revenue-generating services in conjunction with its
core transportation service, including onboard merchandise, beverage and food sales,
charter flights, cargo services, accommodation reservation services, advertising, travel
insurance, car rentals and rail and bus tickets. Ryanair distributes car rentals,
accommodation services and travel insurance through both its website and its traditional
telephone reservation offices. Management believes that providing these services through
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the internet allows Ryanair to increase sales, whilst at the same time reducing costs on a
per unit basis.
3.6 Reservations System
Passenger airlines generally rely on travel agents for a significant portion of their ticket
sales and pay travel agents a commission for their services. Following the introduction of
its website-based reservations program, Ryanairs reliance on travel agents has been
eliminated.
Recently Ryanair initiated significant changes in it reservations operations with the aim
of improving direct contact between its customers and its own reservations centre. In
1996, the company transferred its reservations operation from two locations in London
and Dublin to a single new facility in Dublin operated by Ryanair Direct Limited, and
arranged for callers to be able to reach the centre from anywhere in the U.K. for the price
of a domestic call.
The airline has also entered into agreements with call centre operators to provide foreign
language reservations services to customers in France, Italy, Germany, the Netherlands
and Scandinavia. Management believes that these companies will provide competitively
priced reservation services in language other than English, which will in turn mean that
Ryanair does not have to recruit and train foreign language speakers for its Dublin
reservations centre.
In August 1999, Ryanair launched an internet-based reservation and ticketing service that
allows passengers to access its reservations system through Ryanairs website at
www.ryanair.com. In January 2000, the system was enhanced and integrated with
Ryanairs new Flightspeed reservations system. Passengers can now make reservationsand purchase tickets directly through the website.
The level of internet bookings has grown rapidly, accounting for approximately 92% of
all daily reservations as of September 2002. Management anticipates that the internet-
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based direct sales system will allow it to continue to benefit from substantially reduced
distribution costs.
3.7 Aircraft
As of September 30, Ryanairs owned fleet consisted of 21 Boeing 737-200A aircraft,
each having 130 seats and 23 Boeing 737-800 next generation aircraft, each having 189
seats. On January 2002, Ryanair announced that it had entered into a new series of
agreements with Boeing to purchase an additional 100 new Boeing 737-800 seat aircraft
over a six-year period from December 2002 to December 2008.
Ryanairs purchase of the 737-800 aircraft under the 1998 contract is being financed by a
combination of a bank loan facility supported by guarantee from the export Import Bank
of the United States and cash flow generated from the Companys operations. The airline
is investing in its employees as well, currently owns and operates 737-200 and 737-800
flight simulators for pilot training, and recently entered into a contract to purchase two
additional 737-800 flight simulators from CAE Electronics Ltd of Quebec, Canada.
http://www.ryanair.com/investor/results/pressrelease31mar.html
4. Marketing
European low-fare airline market share, 2002
Airline Passengers (000) Percentage of low
Cost market
Percentage of total
market
Ryanair 6939 34.6 2.3
EasyJet 6262 31.2 2.1
Virgin Express 2976 14.8 1.0
Go 2823 14.1 0.9
Buzz 1080 5.4 0.4Total 20,080 100 6.7
www.ryanair.com/charter_home.html
4.1 Ryanairs Marketing Strategy: Price
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At the business unit level, firms face choice about how to compete with rivals. Porter
identified two basic types of competitive advantage: low cost or differentiation
(McDonald, 2003). Management of Ryanair adopted the cost leadership strategy to gain
competitive advantage on the market and started the knock-out game by the means of
price war. In 2001, its passenger numbers rose by 35% to 7.4 million and pre-tax
profits increased by 37%. In contrast to the difficulties experienced by most of Europes
national flag carriers this was an impressive performance.
Ryanairs success, based on offering low-priced, no frills service, is modelled on South
West Airlines of the USA. Under this model costs are driven down in a variety of ways:
No in-flight meals are served
Cabin crews do the cleaning, speeding up turnaround times and allowing aircraft to
fly more hours everyday
The fleet comprises one type of aircraft, the Boeing 737, reducing costs such as parts
and maintenance
Using secondary airports at which landing charges are low (and sometimes zero)
By keeping out of the market for connecting flights, aircraft are not delayed waiting
for passengers
Emphasis is on direct sales: in 2001/2002 70% of Ryanairs tickets were booked over
the Internet, 22% by phone and just 8% through travel agents; this saved the company
62% in selling costs
(Ryanair competitive strategies, The Economist, issue 26 May 2001)
4.2 Customer service
Ryanairs marketing consists of:
Determining passenger needs
Selling tickets
Communication with passengers
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Responding to feedback.
The objective is to create value for a potential ticket buyer, so that they become on-
going customers. At Ryanair this needs to be achieved in a cost-effective manner, fitting
in with company strategy. Competitive advantage rests primarily in the low prices of
Ryanair tickets. However, Ryanair claims that its success is due not only to low fares, but
also to a winning combination of a good on-time record, friendly and efficient crew and
good service. The company also claims (contrary to popular opinion) that the company
puts emphasis on customer feedback illustrated as follows:
Feedback
Ryanairs Record of Service:
On-Time punctuality 93.5%
Complaints/1000 passengers = 0.43%
Baggage complaints/1000 passengers 0.74%
Complaints answered within 7 days 100%
(Charles F. Banfe, 2003)
4.3 Advertising
Ryanairs primary marketing strategy is to emphasise its widely-available low fares. In so
doing, Ryanair primarily advertises its services in national and regional newspapers in
Ireland and the U.K. as well as on radio and television in these markets. In continental
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Determine
passenger needs& demands
Interrelatedmarketingstrategy
Provide total
service forcustomer
satisfaction
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Europe, Ryanair advertises primarily through regional and national newspapers, as well
as on radio, billboards and other local media. Currently, the slogan Ryanair.com, the
Low Fares Airline is prominently featured in all of the airlines marketing to build its
brand identity.
Other marketing activities include the distribution of advertising and promotional
material and cooperative advertising campaigns with other travel-related entities,
including local tourist boards.
Ryanair generally runs special promotions in coordination with the inauguration of its
service into new markets. Starting approximately four to six weeks before the launch of a
new route, Ryanair undertakes a major advertising campaign in the target market and
local media and editorial attention frequently focuses on the introduction of Ryanairs
low fares.
Ryanairs sales teams also visit each area and target pubs, clubs, shopping malls,
factories, offices and universities with a view to increasing consumer awareness of the
new service.
4.4 Internet
During January 2000, Ryanair converted its host reservation system from the BABS
(British Airways Booking System) to a new system called Flightspeed, which it operates
under a five year hosting agreement with Acenture Open Skies. Open Skies provides the
reservations systems for most of the low-fares carriers in Europe and many of the smaller
low-fares carriers in the United States. As part of the implementation of the new
reservation system, Open Skies and Ryanair jointly developed an Internet booking
facility called Takeflight. The Takeflight system allows Internet users to access Ryanairshost reservation system and to confirm and pay for reservations in real time through
Ryanairs website Ryanair.com.
Ryanair launched its Takeflight Internet booking system in mid January 2000. Since then
it has heavily promoted its website through newspaper, radio, television advertising with
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the result that internet bookings have grown rapidly, accounting for in excess of 92% of
all reservations on a daily basis as of September 2002.
Today, the Web accounts for 95% of overall bookings. Ryanair has been named the most
popular airline on the Web for 2003 by Google. Much emphasis is placed on Internet
marketing and more routes are constantly being added to update the already extensive
network. Besides online booking http://travel.yahoo.com, additional facilities such as
flight search, hotels, cars and cruises reservations, deals, travel guides, interest guides
(such as top beaches, top family vacation etc) top destinations are also posted on the
website. (www.luchzak.be/article-topic-21.html)
5. Human Resource Management
Ryanair is committed to the practice of continuous appraisal and encourages counselling
to develop its employees.
5.1 Training
Ryanairs flight operations and customer ground operation personnel undergo recurrent
training. A substantial portion of the initial training for Ryanairs cabin crews is devoted
to safety procedures and cabin crews are required to undergo annual evaluation and fire
drill training during their tenure with the airline. Ryanair pays for the recurrent training of
employees and has established an in-house apprenticeship programme to train engineers
who complete advanced training in certain fields of aircraft maintenance along with a
salary inducement.
5.2 Regulating
Training programs are subject to approval and monitoring by the IAA. In addition, the
appointment of senior management personnel directly involved in the supervision of
flight operations, training, maintenance and aircraft inspection must be to the satisfaction
of the IAA. Ryanairs employees earn productivity-based pay incentives, including
commissions on in-flight sales for flight attendants and payments based on the number of
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hours or sectors flown by the pilot and cabin crew personnel within limits set by industry
standards/regulations fixing maximum working hours. (Gerry Johnson, Keven Scholes, 1999)
6. Finance
Ryanair is a very liquid company with current ratio of 5.16. This is backed by current
assets of about 500m. This can be attributed to the fact the organisation trades only in
cash and the percentage of internet bookings which now account for about 90% of all
bookings. The business model of direct bookings presents the organisation with the
opportunity to reduce overheads whilst maximising revenue. This also explains the
positive cash flow of the business. The cash flow position has increased by about 2300%
from 1998, but represents a drop of about 50% from 2001 where the cash flow balance
was at about $40million and dropped to about $20million in 2002. However, by 2004 the
cash flow position was negative to a value of about 51million due to consistent
investment in the purchase of tangible fixed assets and increased interest payment.
The operating margins for the company dropped from a high of 31% in 2003 to 23% in
2004. This shows that the company has increased its ability to increase revenues, but this
inevitably comes at a short term price of increase in operating expenses costs.
Earning before interest, tax, depreciation and amortisation (EBITDA) has been constant
at about 36% for the reported period. A measure which is peculiar to the industry and is
known as EBITDAR (this includes) aircraft rental charges, has also been constant at
about 37% for the reported period.
The number of revenue passengers flown in the period 2000-2004 quadrupled from 5.5m
to over 21m. The average passenger flown fare at 40 makes Ryanair a 1bn revenueorganisation. The average fare for Easyjet for the same period was 43 (note different
currency). This is significant against the backdrop of continued news reports that the
industry is depressed especially after the 9/11 catastrophe.
The revenue passenger miles increased 5 fold from about 2.1billion miles to about 10.4
billion miles.
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Load factor is an important statistic in airline travel and it estimates the capacity
utilisation of aircraft. In effect, how many people it carries on average. In the case of
Ryanair, the flown passenger load factor dropped from 85% in 2003 to 81% in 2004. This
compares favourably with the Easyjet load factor of 2003 of 84%. This shows a year on
year decline of about 4.7%. Equally significant is breakeven load factor which has
increased consistently from 54% in 2000 increased to 62% in 2004. This could be
attributed to the increase in operational capacity and opening of new routes. The situation
is further complicated by the 26% decline in the average fare paid by passengers. This
has dropped from 53.77 to 39.97.
The revenues of Ryanair have risen in proportion with the increase in the number of
airports served. This has grown 2 and half times from 35 airports in 2000 to 84 airports in
2002. Interestingly Easyjet serves fewer at 38 airports in 2003.
6.1 Purchases
The company plans to add another 100 aircrafts to its fleet. With an average cost of about
$50m this could affect the future profitability of the company and put pressure on its
margins due to increased interests payments as the bulk of the purchase will be financedby loans by American EXIM bank. This additional purchase meant to provide the means
to meet the expect growth in passenger numbers in the future. Passenger volume was
expected to increase to 14.5m in 2003, an increase of 30% from the 2002 figures.
6.2 New routes and airports
For the organisation to continue to grow at its current rate it will have to open up new
routes. The effect of this is depressed load factor and increased expenditure as the new
routes will have to be promoted aggressively to attract patronage. Allied to this is the
ability to find suitable airports that will support its low cost strategy.
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6.3 Labour relations
So far labour relations has been good, but the potential for a BA style walk-out is still
possible and this would put a lot of pressure on margins due to loss of revenues.
6.4 Cost of fuel
A 1% rise in fuel cost would increase the amount spent on fuel by about $1million. This
could severely affect the companys finances as fuel costs accounted for about 16.3% of
expenses in 2004. This equates to over 210million gallons i.e. over 171m in 2004. This
exposure is significant as the two alternatives open to the company will be to pass it on to
customers or absorb the cost. The former option could alienate customers the second
could squeeze margins.
6.5 Additional Financial Information
On January 1, 1999, the euro was introduced as the common currency of then eleven of
the Member States of the EU, including Ireland. The Company has adopted the euro as its
reporting currency.
Profits after tax 1998 (in thousands): 45,525
Profits after tax 2002 (in thousands): 150,375
Scheduled passenger revenues increased from 330.6 million in fiscal year 2000 to
432.9 million in fiscal year 2001 and 551.0 million in fiscal year 2002.
Ryanairs operating profit increased from 84.1 million in fiscal year 2000 to 114.0
million in 2001 and to 162.9 million in fiscal year 2002, while profit after taxation
increased from 72.5 million in fiscal year 2000 to 104.5 million in 2001 and to 150.4
million in 2002.
7. SWOT Analysis of Ryanair in the European Airlines Industry
Internal Company Strengths
Excellent, strong brand management
24 million customers in 2004
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Strong, visionary leadership
Competitive
Low operating costs
Large and expanding fleet of aircraft Many routes now offered and expanding
Steady growth in profits over its 10 year period of existence
Internal Weaknesses
Bad reputation for poor treatment of both employees and customers
Reputation for airports being too far from destinations advertised
Customer complaints only ever handled in writing
Charging of individual passengers an additional special insurance levy(terrorism insurance levy) to keep Companys insurance costs down
External Opportunities
Airlines industry is highly competitive, subject to swift dramatic price drops on
fares
Entering in to agreement with Boeing to purchase new generation aircraft
New computers bookings technology available
Recent acquisition of Buzz airline In May 2002, a new minister was appointed to lead the Department of Transport
in Ireland following the general election. The minister completed a review of
Irelands airport facilities and requested proposals from interested parties for the
internet-based reservation system, to the point that they may no longer be
adequate to support Ryanairs operations. This would require Ryanair to make
significant additional expenditures
Ryanair is heavily dependent upon its UK-Ireland routes Ryanairs business
would be adversely affected by any circumstance causing a reduction in general
demand for air transportation services in Ireland or the UK
The company is dependent on third parties (e.g. contracts with heavy maintenance
providers)
Development of new terminals and piers at Dublin Airport
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External Threats
Due to the 9/11 terrorist attacks, the cost to all commercial airlines of insurance
coverage for certain third party liabilities arising from acts of war or terrorism
has increased dramatically
Growth is dependent upon the companys ability to acquire new aircraft as needed
Average age of Ryanairs aircraft is 21 years (newer models needed for safety
reasons)
Growth is dependent on access to airports, and charges for airport access are
subject to increase - Ryanairs future growth is thus also dependent on its ability
to access suitable airports located in its targeted geographic markets at costs that
are consistent with Ryanairs low-fares strategy
Ability to obtain financing for new aircraft on advantageous terms is very
important
Financing of the new and existing aircraft will significantly increase the total
amount of outstanding debt
The companys rapid growth may expose it to risks the expansion of Ryanairs
fleet and operations could strain existing management resources and related
operational, financial, management information and information technology
systems and controls, including its handled in writing only policy (poor CRM
image)
New routes and expanded operations may have an adverse financial impact (new
routes with half empty planes, requiring big advertising spend etc could cause
temporary drop in financial performance)
Labour relations could expose the company to risk with company profits
increasing as they have, maintaining base-line salaries may be difficult
employee action has already taken place (pilots and ground staff) The companys success is very much dependent upon key personnel especially
senior management like OLeary
Changes in fuel costs pose a dramatic risk even changes such as a rise of 1 cent
per litre could cost the company over a million dollars a year
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APPENDIX I Financial InformationRyanair Holdings plc and
Subsidiaries
Consolidated Profit and Loss Accounts in
accordance with US GAAP (unaudited)
Quarter
Quarter
Nine
months
Nine
months ended ended ended ended
Dec 31, Dec 31, Dec 31, Dec 31,
2001 2000 2001 2000
'000 '000 '000 '000Scheduled revenues 117,142 100,256 423,634 338,130Ancillary revenues 18,407 14,648 56,142 42,693
Total operating revenues -continuing operations 135,549 114,904 479,776 380,823Operating expenses Staff costs 18,773 14,997 56,744 45,190
Depreciation and amortisation 14,541 15,378 44,691 41,686Other operating expenses
Fuel &Oil
25,222 16,524 79,466 46,792
Maintenance, materials andrepairs
5,439 4,588 19,548 15,346
Marketing and distribution costs 1,115 2,472 10,525 18,153
Aircraft rentals 101 2,192 3,980 7,270
Route charges 11,092 8,770 35,548 27,252
Airport and Handlingcharges
20,343 16,829 65,190 50,491
Other 10,559 11,196 34,256 30,598
Total operating expenses 107,185 92,946 349,948 282,778Operating profit - continuing
operations 28,364 21,958 129,828 98,045
Other income/(expenses) Interest receivable and similar income 8,205 5,255 20,828 13,647Interest payable and similarcharges
(4,625) (3,154) (13,776) (7,535)
Foreign exchange (losses)/gains 1,228 2,803 (1,353) 3,988Gains on disposal of fixed assets 1 53 527 53
Total other income/(expenses) 4,809 4,957 6,226 10,153
Profit on ordinary
activities
before taxation 33,173 26,915 136,054 108,198Tax on profit on ordinaryactivities
(4,131) (3,650) (18,562) (19,641)
Net Income 29,042 23,265 117,492 88,557
Net Income per ADS * -Basic(Eurocent)
20.04
16.58 81.10 63.16
-Diluted(Euro cent) 19.7 16.37 79.98 62.4
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6 0
Weighted Average number of
shares*
-Basic 724,613 701,570 724,356 701,072
-Diluted 734,989 710,557 734,510 709,539*The Company implemented a 2:1 share split on December 7th, 2001. Share capital and earnings per
share figures have been restated to give effect to the share split. (each ADS represents 5 ordinary shares)
Ryanair Holdings plc and Subsidiaries
Summary of significant differences between UK, Irish and US generally
accepted accounting principles (unaudited)
(A) Net income under US GAAP
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Ryanair Holdings plc and Subsidiaries
Summary of significant differences between UK, Irish and US generally
accepted accounting principles (unaudited)
(C) Shareholders' funds - equity Dec 31, Dec 31,
2001 2000
'000 '000
Shareholders' equity as reported in the consolidated balance sheets (UK and Irish GAAP) 787,131 526,904
Adjustments: Pension 1,918 1,121
Unrealised gains on forward exchange contracts 4,189 1,051
Employment grants (585) (1,033)
Basis of accounting for August 1996 transactions - (1,097)
Darley Investments Limited (349) (437)
Investments - 593Unrealised gains on derivative financial instruments 1,832 -
Tax effect of adjustments (655) 243
Shareholders' equity as adjusted to accord with US GAAP 793,481 527,345
Opening shareholders' equity under US GAAP 674,386 439,340Comprehensive Income adjustments Investments (588) (1,395)
Unrealised gains on derivative financial instruments 1,832 -
1,244 (1,395)
Net income in accordance with US GAAP 117,492 88,557
Stock issued for cash
359
843
Closing shareholders' equity under US GAAP 793,481 527,345
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BIBLIOGRAPHY
Banfe, Charles F., 2001 Airline Management, 2nd edition; Prentice Hall
Calder, Simon, 2003 No frills, the truth behind the low-cost revolution In the skies; 1st
edition, Virgin books Ltd.
Creaton, 2004:3 Ryanair: How a small Irish Airline Conquered Europe, Aurum, London
Donne, Michael 2000, Low cost airlines publicised by Travel and Tourism Intelligence;
UK
Johnson, Gerry and Scholes, Kevan 1999, Exploring Corporate Strategy (Text & Cases),
6th edition, Prentice Hall Europe
www.ryanair.com/investor/results/pressrelease31mar.htmlwww.ryanair.com/download/DCRyantextCLN.PDF(Security and exchange commission Washington D.C. 20549)
www.ryanair.com/pax/charter_policy.htmlwww.luchzak.be/article-topic-21.htmlwww.ryanair.com/press/2004/sep/cst-en-140904.htmlwww.ryanair.com/weeklynews5.html
The Economist issue 26 May 2001
25
http://www.ryanair.com/investor/results/pressrelease31mar.htmlhttp://www.ryanair.com/download/DCRyantextCLN.PDFhttp://www.ryanair.com/pax/charter_policy.htmlhttp://www.luchzak.be/article-topic-21.htmlhttp://www.ryanair.com/press/2004/sep/cst-en-140904.htmlhttp://www.ryanair.com/weeklynews5.htmlhttp://www.ryanair.com/investor/results/pressrelease31mar.htmlhttp://www.ryanair.com/download/DCRyantextCLN.PDFhttp://www.ryanair.com/pax/charter_policy.htmlhttp://www.luchzak.be/article-topic-21.htmlhttp://www.ryanair.com/press/2004/sep/cst-en-140904.htmlhttp://www.ryanair.com/weeklynews5.html -
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TASK
Provide an update of the above case study in 2,000 to 2500 words. This should not be
simply and update using www and other secondary sources, although it is expected
that you do this and, most importantly, that you acknowledge the sources in your
bibliography otherwise you might be accused of plagiarism. This part of the task
should take up approximately two thirds of your answer.
The remaining one third is where you will be able to gain good marks. Here I want
you to do strategic commentary upon Ryan Air. How you do this is up to you. You
can take a strategic marketing view and perhaps see how Ryan Air conforms to
rules put out by appropriate theorists. Dont forget that the boss of Ryan Air is a
bit of a maverick, so he doesnt like to think that he conforms to rules, so some kind
of commentary upon how an apparently unscientific approach to business is
successful in this competitive age will be interesting. Your commentary need not be
solely restricted to Strategic Marketing, although this is the title of this subject; you
can also comment on financial, HRM, etc. issues as you feel is appropriate, because
at the end of the day these all affect strategic marketing. Again, I would emphasisethat this final one third of strategic discussion and commentary will score most of
the marks the first two thirds is the easy stuff. Just think of it, about 750 words
(i.e. about three sides of A4) for most of your coursework marks. But take it
seriously as this is the hard part and please ensure that you start this work well in
advance of the hand-in date: I guarantee that this cannot be polished off quickly in a
couple of days!
It is doubly important that you do well in this work as I shall be using some of your
responses along with this case study in my upcoming marketing strategy text!
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