Beruflich Dokumente
Kultur Dokumente
discuss the implications for the budget sector and especially for Ryanair.
structure.
improved sustainability
Chloe Butler
BUT02048210
Business Development V
Assignment 2
John Denholm
Table of Contents
i. Title Page
I. Introduction
III. Functioning
III.5 Leadership
V. Recommendations
VI. Conclusion
VII. References
VIII. Bibliography
IX. Appendices
Commission
European budget airline industry. They are one of the key players within the market,
current strategy and the management of that strategy. It identifies how the business’
operations and functions impacts on the carrier’s customer relations and leaderships
environmental analysis of the European airline industry and how this affects Ryanair.
The report is mainly a case study analysis based on Eleanor O’Higgins’ review
of Ryanair conducted in 2004. However, other secondary research has been analysed
assessed. These include those below and also the environmental analysis which
Ryanair lay claim to their market segment by stating they were ‘Europe’s first
increasing their competitive edge, the main one becoming involved in attracting
customers at both ends of their routes. Haberberg and Rieple (2001), support this by
showing that Ryanair’s key source of revenue from as far back as a decade ago has
been in enticing passengers from France, Italy and Scandinavia. This has had the
advantage of increasing their market share as well as the added bonus of creating a
‘A prescriptive corporate strategy is one where the objective has been defined
in advance and the main elements have been developed before the strategy
and whose elements are developed during the course of its life, as the strategy
As is shown above by Lynch (2000) the two recognised strategy models are
extremely different, however these are the two dominant strategy approaches as stated
either strategy. However certain aspects or functions could certainly adhere to one or
the other as these are sections that make up the carrier as a whole and for an
organisation of Ryanair’s size different parts would have different aims and objectives
For example any planning undertaken by Ryanair for new routes or planes
would follow the prescriptive model as the objective would have been defined
beforehand and elements such as finance will have had to have been agreed before
On the other hand emergent strategies may be in place for things like training
and development where elements can be discovered along the way for example if an
issue arose where staff needed more health and safety training then the training
possesses a strategy unique to their organisation, which has identified their needs and
the majority of organisations will tailor strategies to suit their business’ own
individuality.
Their main competitors are carriers including easyJet, BMI baby, FlyBe and
ThomsonFly all of who try to attract potential customers by emphasising their low
cost tickets. This makes the competition in this market segment fierce as in order to
relationship with airport operators has benefited the carrier in a time of industry
growth and aggressive pricing. The carrier continues to pay little or no costs despite
being the focus of the EU Commission in February 2004, ‘which ruled that Ryanair
had been receiving illegal state subsidies for its base airport at publicly-owned
Charleroi Airport’, O’Higgins (2004), see Appendix C for full details of the
controversial dispute.
paid a fee for every customer and therefore complied with the EU state aid rules.
O’Higgins (2004) claims that Michael O’Leary’s main argument was that the ‘state
aid rules allow the Wallonian government to stimulate traffic at an unused airport
facility in exactly the same way that every private airport reduces its charges it if
Ryanair, it also made them even more of a household name across the EU. The free
publicity was an added bonus, as well as the position Ryanair took, of being almost a
saviour of the lesser known airports, bringing them trade and tourism and then being
are kept on an even keel. If any aspect is disrupted or an issue arises then the whole
This section firstly provides a SWOT analysis of the company, giving a brief
overview of the company then looks at some of Ryanair’s most important functions or
business areas and how they might influence or affect strategic decisions
business. The vast majority of organisations all employ staff and Ryanair is no
When the carrier was established over twenty years ago they only had fifty
one members of staff on their payroll. Their staff total for last year was 2,288,
www.ryanair.com.
With this amount of staff they have to ensure that, in order to have operations
like call centres and cabin crews running smoothly, they keep their staff happy and
motivated. They do this by offering incentives and a share option scheme which
this is the core of their business. In February of last year they announced an order
placed with Boeng for 70 firm aircraft as well as 70 options, www.ryanair.com. This
means that between now and 2012 Ryanair will have 225 firm aircraft and options for
another 220, allowing them to grow to over 70 million passengers per year. Due to
this excellent deal negotiated by the carrier their growing amount of aircraft will not
add huge amounts to depreciation costs as they will be depreciated over 23 years.
Ryanair has always owned instead of leasing its aircraft but they plan to have a
third of their fleet leased in the long term. O’Higgins (2004) argues that ‘owning
rather than leasing allows maintenance costs to be capitalised on the balance sheet
scheduled to make a flight for technical problems, for example, then this will impact
on all of Ryanair’s operations and functions and also cause disharmony amongst their
Haberberg and Rieple (2001) have summarised this in the table found in Appendix B.
This shows that passengers are willing to dispense with the usual levels of
airline service and considering it has been seven years since the mentioned Mintel
report, the industry has shown it is viable, has staying power and it can be said, has
www.ryanair.com, but has developed its current no frills policy in order to keep costs
have claimed that the destinations offered by Ryanair are misleading as they fly to the
regional airports near to the destination city advertised which can sometimes be miles
away.
Ryanair for attaching ‘Lyon’ to its advertisements for offers on flights to St Etienne’.
underneath St Etienne, however this still caused one passenger to turn up at Lyon
airport only to find that her Ryanair flight left from St Etienne some 75 kilometres
away.
Ryanair choose to fly to the regional airports rather than the larger national
airports due to the favourable cost terms they receive although they argue it is this fact
which helps to keep their fares low and also has the added bonus of being less
Ryanair were also targeted in 2004 for charging one passenger for the use of a
wheelchair. Although they argued strenuously that it was the airport’s responsibility
to provide help for disabled passengers they still lost the court case brought against
them and had to pay €2,400 in compensation. This situation worsened when Ryanair
retaliated by levying 70c on all flights leaving from the four airports who do not
Things were brought to a head however later in the year when Ryanair made a
group of blind and partially sighted passengers disembark their flight stating that they
Although Ryanair insisted their disability policy exists for safety reasons,
Watchdog reported at the time that no other British airline has a maximum amount of
All this bad publicity has not helped Ryanair’s brand name but it does not
seem to have affected sales figures as ultimately customers are looking for the
Although Ryanair should remember that whilst their no frills, low budget
policy has made them highly successful, they also need to keep the majority of their
customers satisfied otherwise they could be setting themselves up for a large fall from
grace.
III.4 Financial Structure
Since restyling the business into a budget airline, Ryanair have consistently
Bonderman ‘pointed out what an awful year it had been for the airline industry, what
with war in Iraq, and an outbreak of SARS’. Despite this Ryanair announced
2003
However in 2004 they received a sharp shock when after announcing a shock
profits warning and they became the second worst performer in the FTSE Eurotop
300 index up to the end of April. On top of this O’Higgins’ (2004) states that
‘O’Leary predicted that the company’s 2004 profits would decline by 10 per cent’
Appendix C, the main point being a rise in net profit last year of 18 per cent.
III.5 Leadership
Ryanair’s fight for survival in the early 1990’s saw them bring in a new
restyle into a no frills airline has made him a very wealthy man, having sold shares off
every year since the company was floated has earned him in the region of €200m but
still left him with a 5.4per cent stake, making him the largest shareholder, O’Higgins
(2004).
Despite the airlines huge success with Michael O’leary at the helm, he himself
has come under scrutiny, resulting in both praise and criticism for both himself as a
leader and his management style. O’Higgins (2004) argues that it is his publicity
seeking antics which have earned him a high profile but also his outspokenness which
much so that the EU Commissioner for Belgium has described the airline chief in the
Irish Times as ‘irritating’ and ‘arrogant’, Creaton (2004). O’Higgins (2004) supports
She also discusses that ‘present and former staff have praised O’Leary’s
leadership style, and in an interview with the Financial Times Magazine Tim Jeans
argues that ‘Michael’s genius is his ability to motivate and energise people’ and goes
on to state that the airline is ‘without peer’, Bowley (2003). This last statement is
debatable however as it is O’Leary who is consistently hitting the headlines and not
the rest of the management team or staff. O’Higgins also supports this point, stating
noted that O’Leary himself disagrees with this last part declaring ‘I am not Herb
Kelleher (the legendary founder of the original budget airline, Southwest Airlines in
below.
When O’Leary took over at Ryanair his vision was very clear, to model the
carrier on Southwest airlines and create Europe’s first no frills carrier. As far as
external communication is concerned it is well recognised that Ryanair was one of, if
not the first, budget airline in Europe. Internally, Tim Jeans revealed ‘there is an
incredible energy in that place. People work very hard and get a lot out of it’, Bowley
(2003).
Certainly the vision has turned into a reality as Ryanair has grown and the
‘public’s insatiable appetite for bargain getaways has continued to deliver record
leadership style does not fit rigidly into a type. The below diagram, adapted from
Cook et al (1977) shows the types of leaders Finlay (2000) believes to be the more
dominant styles.
LOW HIGH
PEOPLE
RELATED LOW Laissez-Faire Autocratic
ORIENTATION
HIGH Human Relations Enrolling
The majority of O’Leary’s leadership style sits within the enrolling section.
Ryanair is highly task orientated, concentrating on tasks such as cost cutting, aircraft
acquisition and route development. They are also highly people orientated, both with
varies slightly from this model. If Tim Jeans is to be believed in his interview,
Bowley (2003), then he should be almost revered. On the other hand he manages to
aggravate important people who could have the ability to affect Ryanair’s profits
negatively.
To add to this it has been discussed whether Ryanair should replace O’Leary
as their CEO, McManus (2003). As Ryanair were recently pulled back from the brink
of a shock profits warning perhaps it would be fair to give O’Leary the benefit of the
doubt and concede that, for now, his leadership style seems to be working. However
Ryanair should be wary of the fact that he does not seem to enjoy smooth sailing.
O’Higgins (2004) states that when the shock profit warning was announced O’Leary
was ‘irrepressible’ and declared ‘this is the most fun you can have without taking your
clothes off. It is much more fun when the world is falling apart then when things are
While this may just be a glib statement to rebuff negative press, it could be a
characteristic of the man himself, in which case could well be interpreted into his
Dennis Foster (2006) stated in his lecture on Managing Strategic Change that
change is a ‘people based process’. This means that both staff and customers will
have implications on Ryanair’s strategic positioning and any changes they make to it.
atmosphere and relationship between O’Leary and his employees. This will not
running smoothly, however the carrier should be aware of factors such as health and
safety, equal opportunities and trade unions to ensure they are a fair employer and do
Customer relationships are also generally good, with the company aiming to
grow to 70 million passengers per year in a few years time, they should seek to
nurture existing customers and their relationship with Ryanair flights in order not to
let their position slip. Cavendish (2006) argues that ‘Ryanair’s revenues last year
apparently included almost two million flights that were booked by passengers who
never showed up’. While this is good for Ryanair from a financial point of view, it
does not reflect will on them from a customer relations aspect and could affect their
Ryanair’s recent trouble profit wise certainly would have had implications on
their strategic positioning as they would have had to re-evaluate their strategy and
fiscal management. This was obviously done well as a year on from their shock profit
warning and they had turned it around. However they should be wary of something
similar happening again and make allowances in their strategy to intercept this and
Ryanair are well positioned strategy wise at the moment. They are currently
Europe’s biggest no frills, budget airline with big plans for expansion. They need to
stay aware of any changes that may affect them and possibly give them cause to
redirect their strategy and this can be achieved by keeping a close eye on their
business environment.
However, as long as the market demand stays high and they continue to keep
their costs and therefore their ticket prices low, then with their current strategy,
business outlook and leader there is no reason for them not to flourish.
IV. Environmental analysis
When the airlines were first deregulated it was believed they faced various
strategic pressures as stated by Lynch (2000). These included airline closures, major
However, although these aspects may have affected long standing airlines
such as British Airways, it also created a gap in the market which Ryanair took full
advantage of. Wheelen and Hinger (1993) support this by discussing how many
airlines abandoned the smaller communities to focus on the larger markets which in
turn opened opportunities for new commuters, these mainly being budget customers.
O’Higgins (2004) agrees and states that Ryanair’s ‘fight to survive in the early
1990’s saw the airline restyle itself to become Europe’s first low fares, no frills
carrier, built on the model of Southwest Airlines, the highly successful Texas based
operator’.
Haberberg and Rieple (2001) also determine that part of Ryanair’s success
was being ‘established at a time not only of a period of prolonged growth in its home
market but also when discontent with high fares and limited or non-existent
competition was increasing’. They also attribute some of Ryanair’s growth and profits
to the Irish economy. As Ryanair is an Irish airline they took advantage of being
based in Europe’s fastest growing economy at that time. Haberberg and Rieple (2001)
argue that this benefited Ryanair as the ‘airline industry has traditionally been
Political
Economical
Social
Technological
This analysis was based on Haberberg and Rieple’s (2001) view of this process
Davey (2006) declared at the start of this year that ‘figures released yesterday
aim to keep fares low, mainly by not introducing fuel surcharges. Actions like this,
customers.
Part of Ryanair’s success is made possible by the fact they are such a lean
company, both in the way they operate and the services they offer. O’Higgins (2004)
claims that when the carrier dropped their cargo services, although they were going to
be losing €500,000 of revenue a year, they decreased the turnaround time of their
Innovativeness like this has ensured Ryanair’s sustainability and will carry
them forward into the future. To recommend any major changes would be to predict
how the airline industry will change which ultimately cannot be foreseen. However it
has been concluded that the budget airline will continue enjoying its boom, with many
passengers now enjoying the short breaks away at a low price. Also the advent of new
If there was to be a drop in demand Ryanair would certainly suffer and subtle
shifts in their strategy could be appropriate. For example offering drinks vouchers
onboard for the customer’s next Ryanair flight might entice more people back, or
making alliances with hotel groups in order to offer a complete package, rather than
their industry, such as online check in; this could save them out sourcing check in
staff at their airports which would enable them to cut their costs down.
VI. Conclusion
On the whole Ryanair seem to be following a strategy which works for them.
They are obviously aware of their business environment and understand the
importance of monitoring it as they took advantage of the opening in the market when
and evolving and therefore maintaining a close eye on it and being ready to adapt to
succinctly by stating ‘at 16 times forward earnings, the share price does not look too
demanding given that this is a genuine growth story. It will take some time before the
www.bbc.co.uk
Bowley, Graham, ‘How low can you go?’ Financial Times Magazine, no. 9, 21 June
2003
Cavendish, Camilla, ‘A policy that pretends we can all fly on the cheap is a policy
Creaton, Siobhan, ‘Turbulent times for Ryanair’s high-flier’, Irish Times, 31 January
2004
Davey, Jenny, ‘Ryanair has earned its wings – investors should set autopilot’, The
Lynch, Richard (2000), Corporate Strategy 2nd Ed. Pearson Education Ltd, ISBN 0-
273-64303-7
McManus, John, ‘Maybe it’s time for Ryanair to jettison O’Leary’, Irish Times, 11
August 2003
www.ryanair.com
http://web.tic.ac.uk/staff/fosterd
Wheelen, Thomas L & Hinger, David, J (1993), Cases in Strategic Management 4th
Mintzberg et al (2003), The Strategy Process, Concepts, Contexts and Cases. Pearson
ISBN 0-07-709451-4
Thompson, John L (1990), Strategic Management, Awareness & Change. Chapman &
Political
Economic
income has been steadily increasing for the past three decades.
Social
other cases they are expressed through voting, lobbying and other political
Technological
and Rieple (2001), (source: No frills/low cost airlines, Mintel (February 1999))
preventing airports from offering differential deals to different airline operators, and
France, Virgin Express and easyJet, Ryanair’s deals with regional airports had caught
was launched in late 2002 as to whether Ryanair had been in receipt of illegal state
subsidies since its year 2000 establishment of a base at Charleroi. Apparently, the EU
Commission had been shocked by alleged offers of a 50 per cent landing fee discount
to €1 per landing passenger and an even larger handling fee discount to €1 instead of
€8 to €13 charged to other airlines, pushing the fee below cost. The airport also
This was on top of initial incentives of €1.92m for opening new routes, €768,000 in
reimbursements for pilot training and €250,000 for hotel accommodation costs.
XI.4 Appendix D – Financial Information
Fuel costs rose by 108% meaning total costs up 8% (fell by 7% without fuel
costs)
Profit after tax increased by 20% - strong growth in passenger volumes and
level of activity, and the increased costs, primarily fuel, aircraft rentals, route
charges and airport and handling costs associated with the growth of the
airline.