Changing Business Model

The Ryanair Case

Edited by

Francesco Giaretta
Ca’Foscari University of Venice
TABLE OF CONTENTS
LIST OF FIGURES .................................................................................................................. iii
LIST OF TABLES ...................................................................................................................... v
1 INTRODUCTION ............................................................................................................... 1
2 HISTORY OF RYANAIR ................................................................................................... 3
2.1 The Origin .............................................................................................................................. 4
2.1.1 The Founder Tony Ryan ............................................................................................................. 4
2.1.2 Ryanair: the Birth of the Second Irish Airline ................................................................... 5
2.1.3 The End of Ryanair? ..................................................................................................................... 6
2.2 The Turnaround .................................................................................................................. 8
2.2.1 Southwest Airlines ........................................................................................................................ 8
2.2.2 The New Ryanair: a Low-Cost and Low-Fare Airline .................................................... 9
2.2.3 Micheal O’Leary and Stansted Airport .............................................................................. 10
2.3 The European Expansion ............................................................................................... 12
2.3.1 Getting Ready for the Expansion ......................................................................................... 12
2.3.2 Conquering Europe: from 1995 to 1999 .......................................................................... 13
2.3.3 Conquering Europe: from 2000 to 2005 .......................................................................... 15
2.3.4 Conquering Europe: from 2006 to 2013 .......................................................................... 17
3 RYANAIR’S BUSINESS MODEL .................................................................................. 19
3.1 The Business Model Canvas .......................................................................................... 19
3.2 Ryanair’s Business Model Canvas ............................................................................... 20
3.2.1 Customer Segments .................................................................................................................. 20
3.2.1.1 Business Passengers ........................................................................................................................ 20
3.2.1.2 Leisure Passengers ........................................................................................................................... 22
3.2.1.3 Ryanair’s Target Customer Segments ....................................................................................... 24
3.2.2 Value Propositions .................................................................................................................... 25
3.2.2.1 Core Air Passenger Service ............................................................................................................ 27
3.2.2.2 Ancillary Services .............................................................................................................................. 28
3.2.3 Channels ......................................................................................................................................... 30
3.2.4 Customer Relationships .......................................................................................................... 32
3.2.4.1 Marketing Approaches .................................................................................................................... 32
3.2.4.2 Ryanair’s Marketing Approach .................................................................................................... 34
3.2.5 Revenue Streams ........................................................................................................................ 36
3.2.5.1 Revenue Streams: Scheduled and Ancillary Revenues ..................................................... 36
3.2.5.2 Ryanair’s Revenue Streams ........................................................................................................... 36
3.2.5.3 Pricing Mechanisms .......................................................................................................................... 39
3.2.6 Key Resources ............................................................................................................................. 41
3.2.6.1 Physical .................................................................................................................................................. 41
3.2.6.2 Financial ................................................................................................................................................ 44
3.2.6.3 Intellectual ............................................................................................................................................ 49
3.2.6.4 Human .................................................................................................................................................... 53
3.2.7 Key Activities ............................................................................................................................... 57
3.2.7.1 The Airline Value Chain .................................................................................................................. 57
3.2.7.2 The Ryanair’s Value Chain ............................................................................................................. 59
3.2.8 Key Partnerships ........................................................................................................................ 64
3.2.8.1 Buyer-Supplier Relationships ...................................................................................................... 64
3.2.8.2 Strategic Alliances between Non-Competitors ..................................................................... 67
3.2.8.3 Strategic Alliances between Competitors ............................................................................... 67
3.2.9 Cost Structure .............................................................................................................................. 69
3.2.9.1 Ryanair’s Cost Structure ................................................................................................................. 70

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 3.2.9.2 Ryanair’s Cost Structure compared to Competitors ........................................................... 73
3.2.10 Ryanair’s Canvas in 2013 ..................................................................................................... 75
4 THE DESIGN SPACE OF THE NEW BUSINESS MODEL ........................................ 76
4.1 The Need for Transformation ...................................................................................... 76
4.2 Mapping the Environment ............................................................................................. 78
4.2.1 Market Forces .............................................................................................................................. 79
4.2.1.1 Market Segments ............................................................................................................................... 79
4.2.1.2 Needs and Preferences .................................................................................................................... 85
4.2.2 Industry Trends .......................................................................................................................... 89
4.2.2.1 The Evolution of the Airline Industry ....................................................................................... 89
4.2.2.2 Airline Business Model Convergence ........................................................................................ 90
4.2.2.3 The Industry Forces ......................................................................................................................... 92
4.2.3 Key Trends ................................................................................................................................. 103
4.2.3.1 Socio-Demographic and Cultural Trends ............................................................................. 103
4.2.3.2 Regulatory Trends .......................................................................................................................... 108
4.2.3.3 Technology Trends ........................................................................................................................ 110
4.2.4 Macro-Economic Forces ....................................................................................................... 112
4.2.4.1 Global Market Conditions ........................................................................................................... 112
4.2.4.2 Commodities and other Resources ......................................................................................... 113
5 THE NEW RYANAIR’S BUSINESS MODEL ............................................................ 115
5.1 Ryanair’s Change of Strategy ...................................................................................... 115
5.2 The New Ryanair’s Business Model Canvas ........................................................... 117
5.2.1 Customers Segments ............................................................................................................. 117
5.2.2 Value Propositions ................................................................................................................. 119
5.2.2.1 Core Air Passenger Service ......................................................................................................... 120
5.2.2.2 Ancillary Services ........................................................................................................................... 121
5.2.3 Channels ...................................................................................................................................... 122
5.2.4 Customer Relationships ....................................................................................................... 124
5.2.5 Revenue Streams ..................................................................................................................... 126
5.2.6 Key Resources .......................................................................................................................... 128
5.2.6.1 Physical ............................................................................................................................................... 128
5.2.6.2 Financial ............................................................................................................................................. 129
5.2.6.3 Intellectual ......................................................................................................................................... 129
5.2.6.4 Human Resources ........................................................................................................................... 131
5.2.7 Key Activities ............................................................................................................................ 132
5.2.8 Key Partnerships ..................................................................................................................... 134
5.2.9 Cost Structure ........................................................................................................................... 135
5.2.10 The New Ryanair’s Canvas in 2015 .............................................................................. 137
6 CONCLUSION ................................................................................................................ 138
APPENDIX ............................................................................................................................ 140
REFERENCES ....................................................................................................................... 143

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 LIST OF FIGURES

FIGURE 1. OUTLOOK OF THE HISTORY OF RYANAIR .................................................................................................................. 3
FIGURE 2. RYANAIR'S PROFIT AFTER TAXATION AND CASK, 1992-1999 ....................................................................... 10
FIGURE 3. RYANAIR'S PASSENGERS, 1985-2005 .................................................................................................................. 16
FIGURE 4. RYANAIR'S PASSENGERS, 1985-2013 .................................................................................................................. 18
FIGURE 5. BUSINESS MODEL CANVAS ...................................................................................................................................... 19
FIGURE 6. RYANAIR’S TARGET CUSTOMER SEGMENTS ........................................................................................................... 24
FIGURE 7. LEISURE PASSENGERS' ESSENTIAL AND NON-ESSENTIAL NEEDS ........................................................................ 25
FIGURE 8. POSITIONING THE VALUE PROPOSITION ................................................................................................................. 26
FIGURE 9. AVERAGE TICKET PRICE OF THE MAJOR EUROPEAN LOW-COST CARRIERS ....................................................... 27
FIGURE 10. RYANAIR'S REVENUE STREAMS, 2009-2013 ................................................................................................... 37
FIGURE 11. RYANAIR'S SCHEDULED PASSENGER REVENUES, 2006-2013 ........................................................................ 37
FIGURE 12. PASSENGERS AND AVERAGE FARE PATTERNS, 2006-2013 ............................................................................ 38
FIGURE 13. RYANAIR'S ANCILLARY REVENUES, 2009-2013 .............................................................................................. 39
FIGURE 14. OPTIMAL AND SUB-OPTIMAL BOOKING PATTERNS UP TO THE DAY OF DEPARTURE ..................................... 40
FIGURE 15. EVOLUTION OF THE FLEET BASED ON THE 2013 BOEING CONTRACT ........................................................... 42
FIGURE 16. CURRENT AND ACID-TEST RATIOS FOR SELECTED AIRLINES, 2009-2013 .................................................. 45
FIGURE 17. DEBT-TO-EQUITY RATIOS FOR SELECTED AIRLINES, 2013 ............................................................................. 47
FIGURE 18. DEBT RATIOS FOR RYANAIR, 2009-2013 ......................................................................................................... 47
FIGURE 19. CUSTOMER-BASED BRAND EQUITY PYRAMID (CBBE) ................................................................................... 51
FIGURE 20. RYANAIR'S CUSTOMER-BASED BRAND EQUITY PYRAMID (CBBE) ............................................................... 52
FIGURE 21. RYANAIR'S STAFF, 2006-2013 ........................................................................................................................... 55
FIGURE 22. THE VALUE CHAIN OF AN AIRLINE ........................................................................................................................ 57
FIGURE 23. A SCHEME OF POINT-TO-POINT AND HUB-AND SPOKE CONFIGURATIONS ...................................................... 61
FIGURE 24. FUEL COSTS/TOTAL OPERATING COSTS (%), 2009-2013 ............................................................................ 71
FIGURE 25. JET FUEL AND CRUDE OIL PRICE CORRELATION, 2007-2013 ......................................................................... 71
FIGURE 26. STAFF COST ON TOTAL OPERATING EXPENSES (%) FOR LEGACY AND LOW-COST CARRIERS ...................... 72
FIGURE 27. RYANAIR'S CASK, 2010-2013 .......................................................................................................................... 73
FIGURE 28. UNIT COSTS AND AVERAGE SECTOR LENGTH FOR SELECTED EUROPEAN LEGACY AND LOW-CARRIERS IN
2012 .................................................................................................................................................................................. 74
FIGURE 29. RYANAIR'S BUSINESS MODEL CANVAS, 2013 ................................................................................................... 75
FIGURE 30. RYANAIR'S PROFIT AFTER TAXATION, 2010-2014 ......................................................................................... 76
FIGURE 31. BUSINESS MODEL ENVIRONMENT ......................................................................................................................... 78
FIGURE 32. AMOUNT SPENT OVER 12 MONTHS ON LEISURE TRAVEL (LEFT) AND ON BUSINESS TRAVEL (RIGHT) IN
2014 .................................................................................................................................................................................. 79
FIGURE 33. HIGH-STANDARD SEGMENT CHARACTERISTICS ................................................................................................. 80
FIGURE 34. EFFICIENCY SEGMENT CHARACTERISTICS ........................................................................................................... 81
FIGURE 35. UPGRADE SEGMENT CHARACTERISTICS ............................................................................................................... 82
FIGURE 36. DEAL-SEEKING SEGMENT CHARACTERISTICS ..................................................................................................... 83
FIGURE 37. FUNCTIONAL SEGMENT CHARACTERISTICS ......................................................................................................... 84
FIGURE 38. ACCEPTABLE QUEUING TIME AT SECURITY ......................................................................................................... 85
FIGURE 39. EXAMPLE OF POSSIBLE BUNDLES BASED ON CUSTOMERS’ PREFERENCES ...................................................... 86
FIGURE 40. NUMBER OF WEBSITES COMPARED BEFORE BOOKING FLIGHTS ...................................................................... 87
FIGURE 41. NET MARGIN PROFITS OF THE WORLDWIDE AIRLINE INDUSTRY, 1975-2013 ............................................ 89
FIGURE 42. AIRLINE BUSINESS MODEL HYBRIDIZATION ........................................................................................................ 91
FIGURE 43. PORTER’S FIVE FORCES MODEL ........................................................................................................................... 92
FIGURE 44. NET ENTRY OF NEW AIRLINES, 1970-2009 ................................................................................................... 93
FIGURE 45. PERCENT OF GLOBAL FLEET ON OPERATING LEASE ................................................................................... 94
FIGURE 46. NEW PILOTS (LEFT) AND NEW TECHNICIANS (RIGHT) BY REGION, 2015-2034 ........................................ 97
FIGURE 47. HIGH-SPEED RAILWAYS IN EUROPE AT THE END OF 2013 ...................................................................... 99
FIGURE 48. GROWTH IN THE AIR TRAVEL, 2008-2014 ................................................................................................... 100
FIGURE 49. ESTIMATED POPULATION DEVELOPMENT FOR THE MAIN EUROPEAN COUNTRIES, 2013-2060 ........... 103
FIGURE 50. TOURISM: ACTUAL TREND AND FORECAST, 1980-2030 ............................................................................. 104
FIGURE 51. PERCENTAGES OF TRIPS BY PURPOSE IN EU-28, 2013 ................................................................................ 106

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FIGURE 52. OUTBOUND TRIPS IN EU-28, 2013 ................................................................................................................. 107
FIGURE 53. MOBILE INTERNET .............................................................................................................................................. 110
FIGURE 54. REAL GDP, 2001-2020 ................................................................................................................................... 112
FIGURE 55. ANNUAL GDP GROWTH (%), 2014-2034 .................................................................................................... 113
FIGURE 56. BRENT CRUDE OIL PRICE PROJECTIONS IN THE THREE CASES, 2013-2040 .............................................. 114
FIGURE 57. THE BUSINESS MODEL CANVAS: THE COST SIDE AND THE VALUE SIDE ........................................................ 116
FIGURE 58. THE NEW RYANAIR'S TARGET CUSTOMER SEGMENTS ................................................................................... 117
FIGURE 59. RE-POSITIONING THE VALUE PROPOSITIONS ................................................................................................... 120
FIGURE 60. BREAKDOWN OF CHANNELS USED TO BOOK FLIGHTS ..................................................................................... 123
FIGURE 61. RYANAIR’S TOUCHPOINTS .................................................................................................................................. 125
FIGURE 62. SCHEDULED PASSENGERS AND TOTAL OPERATING REVENUES ................................................................... 126
FIGURE 63. EFFECT OF THE NEW STRATEGY ON ANCILLARY REVENUES ......................................................................... 127
FIGURE 64. RYANAIR'S REVENUE STREAMS, 2013-2015 ................................................................................................ 127
FIGURE 65. EVOLUTION OF THE FLEET BASED ON THE 2014 BOEING CONTRACT ........................................................ 128
FIGURE 66. THE NEW RYANAIR’S CUSTOMER-BASED BRAND EQUITY PYRAMID ......................................................... 130
FIGURE 67. THE NEW RYANAIR: FOCUS ON MORE ACTIVITIES .......................................................................................... 132
FIGURE 68. RYANAIR'S CASK, 2013-2015 ....................................................................................................................... 136
FIGURE 69. THE NEW RYANAIR'S BUSINESS MODEL CANVAS, 2015 ............................................................................. 137
FIGURE 70. RYANAIR’S BUSINESS LIFE CYCLE AND BUSINESS MODEL DYNAMICS ........................................................... 138

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 LIST OF TABLES

TABLE 1. BUSINESS MODEL INNOVATION, EVOLUTION AND ADAPTATION .......................................................................... 1
TABLE 2. RYANAIR ROUTES IN 1999 ....................................................................................................................................... 14
TABLE 3. NEW BASES AND ROUTES, 2008-2013 .................................................................................................................. 18
TABLE 4. RYANAIR'S BASES OF OPERATIONS ........................................................................................................................... 28
TABLE 5. TRANSACTIONAL AND RELATIONSHIP MARKETING .............................................................................................. 33
TABLE 6. RYANAIR’S AIRPORTS AND THEIR DISTANCES FROM THE CITY CENTRE ............................................................. 43
TABLE 7. ALTMAN’S Z-SCORE INSOLVENCY INDEX FOR RYANAIR, 2013 ........................................................................... 48
TABLE 8. RYANAIR’S BOARD OF DIRECTORS COMPOSITION ................................................................................................. 54
TABLE 9. RYANAIR’S STAFF CLASSIFICATION, 2013 .............................................................................................................. 56
TABLE 10. RYANAIR’S OPERATING EXPENSES, 2009-2013 ................................................................................................ 70
TABLE 11. RYANAIR’S COMMON-SIZE OPERATING EXPENSES, 2009-2013 ...................................................................... 70
TABLE 12. TOURISM IN EUROPE: PROJECTED GROWTH RATES BY AREA, 2015-2030 ................................................ 105
TABLE 13. TOP-10 COUNTRY PAIRS OF 2013 INTRA-EU TRAFFIC ................................................................................. 107
TABLE 14. RYANAIR’S OPERATING EXPENSES, 2013-2015 ............................................................................................. 135
TABLE 15. RYANAIR’S COMMON-SIZE OPERATING EXPENSES, 2013-2015 ................................................................... 135

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1 INTRODUCTION

A business model, which describes the rationale of how an organization creates,
delivers and captures value, has to be adjusted over time to build a sustainable
competitive advantage (Forbes 2013). In fact, the business model needs to be in a
continuous flux with the management that intentionally and deliberately changes its
configuration to exploit opportunities and hinder threats.
It is possible to distinguish among three business model dynamics based on the degree
of radicalness and the planned outcome of the change, which are: Business Model
Innovation, Evolution and Adaptation.
Business Model Innovation refers to the creation of new core activities and the
reconfiguration of processes in order to disrupt market conditions, and redefine the
existing industry through radical changes that affect many areas of the model.
Instead, Business Model Evolution refers to incremental and continuous adjustments in
and between the model’s components. In this case, changes are limited to a few areas at
a time and do not alter the firm’s core standard activities and relationships.
Finally, Business Model Adaptation is the process by which the management team
changes the existing business model to fit changing market conditions through the
alteration of numerous components of the model simultaneously (Foss and Saebi 2013).

Table 1. Business Model Innovation, Evolution and Adaptation

Business Model Business Model Business Model
Innovation Evolution Adaptation

Planned outcome Disrupt market Natural, minor Align to the

conditions adjustments environment

Scope of change Wide Narrow Narrow-wide

(Areas affected)
Degree of radicalness Radical Incremental Incremental-radical

Frequency of change Infrequently Continuous, gradual Periodically

changes

Source: Foss and Saebi (2015).

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The scope of the thesis is to examine how the airline Ryanair had been able to create
and sustain its competitive advantage over the last three decades through continuous
adjustments of its business model that comprised Innovation, Evolution and Adaptation.
First, we will describe the history of the Irish carrier focusing on how it disrupted the
European industry in the 1990s being the pioneer of the low-cost business model in the
continent (Business Model Innovation) and how it became a market leader in the 2000s
though the expansion in Europe. Then, we will analyse in detail its business model
configuration in 2013 that was the result of the implementation of continuous and
gradual adjustments to the model initially adopted in the 1990s (Business Model
Evolution). We will utilize the Business Model Canvas framework to define the way the
airline was creating and delivering value.
Finally, we will focus on how Ryanair’s management team redesigned the company’s
business model between 2013 and 2015 to respond to the changing environmental
conditions that we will identify mapping the main trends of that period (Business Model
Adaptation).
The analysis is exclusively based on secondary literature and publicly available
information from some sources as the company’s annual and quarterly reports, various
database, theoretical literature and insights of the main consulting firms such as
McKinsey&Company, Deloitte and PriceWaterhouseCoopers.
Both qualitative and quantitative data will be utilized.

2
2 HISTORY OF RYANAIR

In this section we will describe the history of Ryanair from its foundation to 2013,
subdividing it in three main phases: its origin, the turnaround and the European
expansion.

Figure 1. Outlook of the History of Ryanair

Phase 1: The Origin

Ryanair:
The Founder Tony
the Birth of the The End of Ryanair?
Ryan
Second Irish Airline

Phase 2: The Turnaround

The New Ryanair:

Micheal O’Leary and
Southwest Airlines a low-cost and low-
Stansted Airport
fare airline

Phase 3: The European Expansion

Conquering Conquering Conquering

Getting Ready Europe:
Europe: Europe:
for the From 2006 to
From 1995 to From 2000 to
Expansion 2013
1999 2005

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2.1 The Origin

We will focus on the figure of Ryanair’s founder Tony Ryan, on the first years of the
airline’s operations and on the difficulties that endangered its survival in the beginning
of the 1990s to describe the first phase.

2.1.1 The Founder Tony Ryan

Tony Ryan had been a key figure for Ryanair. He was born in Ireland in 1936 and since
its childhood it was easy to forecast he would have become a successful man. Ryan
entered into the airline industry in mid-1960s when he worked first as Aer Lingus
Station manager, and then as leasing manager.
Few years later, in 1975, Tony founded the Guinness Peat Aviation (GPA) with the aid
of Aer Lingus and a financial service company named Guinness Peat Group: the new
company acted as an arranger for airlines that had a surplus or that needed aircrafts
through leasing arrangements, an innovative concept at that time (Creaton 2007).
The leasing company grew rapidly becoming the world’s second biggest one in 1991
with a fleet of about 300 planes, more than those owned by Lufthansa, British Airways
and Air France, being able to negotiate discounts of up to 25 percent off the list price
with Airbus and Boeing and to realize millions of dollars in profits (Creaton 2007).
GPA gave Ryan the opportunity to gain the financial strength and to build industry
expertise that became essential for the foundation of Ryanair.
Besides becoming the wealthiest entrepreneur in Ireland, Ryan built the required
competences for the foundation of his own airline since in those years he was used to
travel around the world and network with the key figures within the airline industry. He
gathered in-depth knowledge and he identified talented people that would have become
part of his team during the effort of making Ryanair a successful carrier.
Tony Ryan made his first attempt to enter in the passenger airline business in 1980 with
the goal of threating Aer Lingus dominant position in the routes from Ireland to UK.
The carrier named Irelandia should have provided ‘cheap, no-frills and efficient
service’, but the Irish government rejected Ryan’s proposal (Ruddock 2007).
Despite that, Tony did not give up and acted as the financial backer of a new airline
named Ryanair five years later. His three sons - Cathal, Declan and Shane – became the

4
main shareholders of the new carrier, while he decided to not be directly involved in the
ownership due to his role in the GPA board, that included Aer Lingus representatives
(Creaton 2007).
Tony Ryan believed on Ryanair’s potential since the beginning and he contributed to its
growth with the enthusiasm and passion that always distinguished his life.

2.1.2 Ryanair: the Birth of the Second Irish Airline

Ryanair was founded on 28 November 1985. The new airline with headquarter in
Dublin was planned to be a cheap and no-frills carrier, and launched its first flight in
July 1985 providing service from Waterford, 90 miles far from Dublin, to London
Gatwick (Ryanair 2015b).
The company initially used a 15-seater Bandeirante aircraft that allowed carrying just
seventy-six passengers on a good day, even if it started soon operating bigger planes as
the new BAC 1-11 aircrafts.
Ryanair aimed to open new routes between Ireland and UK in 1986, but obtaining the
rights from the Irish Department of Transport was not an easy task. In fact, Aer Lingus
was the state-owned airline and the government had always protected it from any new
entrant that could have threatened its dominant position. However, the Department
granted Tony Ryan’s request to fly from Dublin to London, route that was flown
approximately by 800,000 passengers. Ryanair flew the sector for the first time on 23
May 1986 offering a £99 fare that was less than half the price charged by Aer Lingus,
even if it took an hour and a half to fly to Luton compared to the fifty-minute journey of
the competitor (Creaton 2007).
In 1987, the new carrier increased its network with new routes from Dublin to
Liverpool, Glasgow, Cardiff and Manchester and from Luton to Cork, Shannon,
Galway, Waterford and Knock, and it sustained its growth by leasing jets and pilots
from the Romanian state airline Tarom. In 1988, it introduced a business class service
and a Frequent Flier programme that withdrew the following year since they were not
delivering the expected results, and they were not coherent with the low-cost model
targeted. In 1990, the company registered its record in terms of passengers carried equal
to 745,000, but it had accumulated £20 million in losses since 1985 (Ryanair 2015b).

5
2.1.3 The End of Ryanair?

Ryanair had only enough cash to stay in business for about two months in 1991: its
future was threatened. The business had never been able to have a positive bottom line
for few reasons that we will describe below, with Tony Ryan that periodically
refinanced the airline making use of his personal resources (Ruddock 2007).
The first reason of the failure was that there was inconsistency between strategy
formulation and implementation, in fact the airline failed to implement correctly the
cost leadership approach since it did not focus on cost control. It was offering business-
class service, frequent fliers programme, and Tony Ryan was retaining top designers
and investing money on an expensive in-flight magazine. Moreover, crew was used to
serve drinks and sell duty-free during the flight, and the company was operating without
the required financial information needed to make intelligent decisions with the
consequence that airline’s costs were larger than the revenues, making the company
unprofitable (Creaton 2007).
Second, the negative results were also related to the difficulties to obtain permissions
from the regulatory authorities to operate some routes. For instance, Ryanair had to
abandon its plan to fly between Shannon and Luton in 1986, and it did not receive the
approval from the British authorities for flying directly from Cork to Luton being forced
to fly first from Cork to Dublin and then from Dublin to Luton. This manoeuvre was
known as “touch and go” and was making the route no lucrative (Creaton 2007).
Third, the competitors’ retaliation contributed to its failure. For instance, Aer Lingus’
competitive response was remarkable in the Dublin-Manchester route in 1988, when it
matched Ryanair’s fare as soon as the new airline launched its service on 1 March for
£78. And the following year, Aer Lingus almost forced Ryanair to leave Stansted by
dropping fares, increasing flight frequency and rescheduling flights to leave shortly
before the new entrant (HBS 2007b).
Tony Ryan saved Ryanair many times from 1985 to 1991 as stated above, injecting
capital to cover losses, but the airline could no longer count on his support from 1992
since its fortune was dissipated after the flotation of GPA.
In 1991, Ryan aimed to bring the Guinness Peat Aviation to the stock markets in order
to raise money for the company and its shareholders, projecting to raise overall $1
billion. The flotation was supposed to be the biggest one in the history of the Irish Stock

6
Exchange, but something went wrong: investors subscribed for less than 50 percent of
the 85 million shares offered on 18 June 1992, making the IPO a failure.
Bad timing and political events were the main causes of the disappointing result: in fact,
GPA ordered a large number of aircrafts in 1990 since demand from airlines was rising,
but the demand dropped as soon as Saddam Hussein invaded Kuwait and Gulf War
started, making GPA orders a bad choice at investors’ eyes. As consequence, Ryan
suffered an incredible reversal of fortune being worth $300 million before the IPO, and
having debts of about $37 million just after it (Creaton 2007).
Ryanair lost its main financial source: it had to become profitable or it would have gone
bankrupt since nobody would have saved it anymore.

7
2.2 The Turnaround
Ryanair was on the verge of bankruptcy in 1991, therefore the airline’s management
team identified several options for the business by that time.
Some members of the Board suggested the Ryan family to shut it down, while others
believed that the company should have refined its formula. One possibility was to make
Ryanair a feeder airline for U.S. carriers, another one was to add a high-fare business-
class service and the last possible strategy was to cut frills and fares dramatically,
mimicking the success of the U.S. carrier Southwest Airlines.
Finally, the Board decided to make Ryanair the “Southwest Airlines of Europe” with
the decision that proved to be correct since Ryanair returned to profitability in 1992
(HBS 2007b).

2.2.1 Southwest Airlines

Kerb Kelleher founded Southwest Airlines in 1967, the first low-cost carrier in the
history. His idea was that the carrier had to get the passengers to their destination when
they wanted to get there, on time, at the lowest possible fares, and that it had to make
sure they had a good time doing that (Creaton 2007).
SA started its service between Dallas, Houston and San Antonio on 18 June 1971,
charging about $20 and making flying as cheap as taking the bus (Southwest Airline
2016). The airline grew rapidly recording large profits and the innovative business
model, which main characteristics are described below, proved to be successful.
It was offering fares considerably lower than its competitors: when opening a new route,
ticket prices were typically set about one-third or half the price charged by existing
airlines for the same itineraries. That was possible since SA had an ultra low cost
structure achieved through four main strategies.
First, Southwest airlines provided a single-class service in which seats were not
assigned, meals and any other in-flight service were not offered. The crew was just
providing peanuts and drinks during the flight.
Second, SA used a point-to-point system instead of the traditional hub-and-spoke
network: passengers travelled directly to their final destination and they did not have the
chance to book connections. Kelleher believed that the P-P system was more cost-
effective since it allowed maximizing the utilization of the aircrafts, reducing the time

8
spent by the planes on the tarmac. SA pioneered the twenty-five minute turn-around that
refers to the time passengers and their luggage are unloaded and loaded, and the plane is
ready to be pushed back from the gate to the runway ready for departure (Creaton 2007).
Third, the airline used secondary airports since they were charging lower fees and they
were less congested, guaranteeing lower turn-around time.
Fourth, it used a single type of aircraft, the Boeing 737, in order to reduce the cost
associated with personnel training, maintenance, purchase and storage of spare parts,
and in the same time to provide the airline greater flexibility in the scheduling of crews.
Moreover, purchasing from a single manufacturer guaranteed substantial discounts.
The company became one of the major U.S. airlines in the 1980s and its founder
Kelleher became a role model for many European managers, as for Micheal O’Leary.

2.2.2 The New Ryanair: a Low-Cost and Low-Fare Airline

Tony Ryan had closely monitored the success of Southwest Airlines and he thought that
Ryanair should have imitated the American low-cost pioneer’s business model. For this
reason, his assistant Micheal O’Leary went to U.S. and met Kerb Kelleher in 1991 to
understand the operational aspects that made the carrier so successful.
O’Leary started the restructuration of Ryanair following Southwest Airlines’ low-fares
formula as soon as he returned from Texas with a clear blueprint for an efficient airline.
He was convinced that was the right strategy to adopt since if Ryanair could not have
out-serviced Aer Lingus with better business class and better service, it could have
certainly offered better fares.
Consequently, Ryanair changed radically its business model and began to offer fares
50% lower than competitors launching promotions on new routes. Moreover, it engaged
in more sophisticated forms of “yield management” adjusting prices to make each
flight more profitable and to attract new customers (Creaton 2007), and trimmed
consistently its cost structure cancelling loss-making routes and minimizing personnel
costs (HBS 2007c). Staff numbers were kept to the minimum with just two flight
attendants serving passengers on each aircraft and labor contracts were renegotiated.
Employees were remunerated based on their productivity with flight attendants paid
based on the number of hours flown and as a function of their duty-free sales, and with
pilots earning a fixed salary and a payment per sectors flown.

9
O’Leary became legendary for his extreme cost-cutting measures, for instance he
banned the use of cover sheets when sending a fax and he told crew to buy their own
pens or steal them from hotels in order to save money.
Ryanair reduced also its focus on customer service in order to reduce costs: the
company no longer distributed meal vouchers to travelers whose flights were delayed
since these forms of compensation were expensive and might not always be necessary
(HBS 2007c). The new business model and the related restructuration had positive
effects on the airline that returned to profitability immediately by 1992 and remained
profitable in the following years. The turnaround took place.
The graph below shows how profits increased and costs, measured by CASK, decreased
after the strategic renewal.

Figure 2. Ryanair's profit after taxation and CASK, 1992-1999

Profit after taxation CASK

50 0,09
45 0,08
40 0,07
35

CASK (£)
0,06
Million (£)

30
0,05
25
0,04
20
15 0,03
10 0,02
5 0,01
0 0
1992 1993 1994- 1996 1997 1998 1999
1995

Source: Compiled by the author using data from HBS (2007c).

2.2.3 Micheal O’Leary and Stansted Airport

The successful innovative business model was undoubtedly the main driver of the
financial recovery of the company, but other two elements had been essential to realize
the turnaround: Micheal O’Leary and Stansted Airport.
Michael O’Leary was born 20 March 1961 in County Cork, Ireland, and became Tony
Ryan’s personal assistant in 1988 after working as accountant at KPMG for six years
(Ruddock 2007).

10
Initially, O’Leary was adverse to the airline since he thought it would have never
achieved positive results, therefore he suggested Ryan to shut the business down to
avoid further losses in 1990. On the contrary, he put all the efforts to make the carrier
profitable after he became Deputy Chief Executive in 1991 and Chief Executive Officer
in 1993.
He became obsessed with Ryanair working from early hours in the morning till night
every day, so that running the airline was ‘the most fun he could have without taking his
clothes off’ (Creaton 2007, p281). O’Leary took Herb Kelleher as a role model, even if
his management style was much more aggressive: in fact, he loved to tell people “where
to get off” using the most colorful language and he had bad relationships with
politicians that was used to brand as “loonies” or “communists”.
The second factor that made the turnaround possible was Stansted Airport.
The airfield was a United States air force base created in 1942 and redesigned as
London third airport in 1979. Ryanair started to operate some flights there from 1989,
but Aer Lingus immediately tried to force it out. Therefore, Tony Ryan required the
government to have the exclusive right to fly into the Essex airport since that was the
only way to survive. The Minister of Transport granted the request and confined Aer
Lingus into Gatwick and Heathrow in 1989 (HBS 2007b).
In this way, Stansted became Ryanair’s base from which to build its European
expansion.

11
2.3 The European Expansion
The European airline industry was highly regulated until 1987 and was characterized by
artificially restricted capacity on the majority of routes, high entry barriers for non-flag
carrier airlines and controlled fares. Many bilateral air service agreements existed
between countries, while at a domestic level each nation had specific rules that varied in
the degree to which competition was permitted. However, Europe started a process of
deregulation after 1987 in order to create a single European market for aviation through
three packages (Gleich et al 2010, p193).
The first and the second liberalization packages were respectively implemented in 1988
and in 1990: they had almost insignificant effects, even if they introduced new
competition policies, and partial capacity and tariff relaxation. On the contrary, the third
package introduced on 1 January 1993 successfully created the single European market
by removing restrictions on entry, capacity, frequency and pricing.
The liberalization gave Ryanair the opportunity to expand its routes over Europe that
was a market with more than 300 million people in 1995, and much larger considering
those price-sensitive passengers that were using road, rail and ferry links, and people
that would have considered travelling if the fares were cheaper (Creaton 2007, p103).
Therefore, the expansion into continental Europe became Ryanair’s top priority in the
mid 1990s with the company that aimed to open a series of routes from Dublin and
Stansted to the main European cities.

2.3.1 Getting Ready for the Expansion

The Ryan family needed to bring new investment and to share the cost of the airline’s
expansion, so Tony Ryan discussed selling 25 per cent of Ryanair to British Airways in
1995 in his first attempt to raise money, but the deal fell through since BA wanted to
take full control of the airline.
The following year, Ryan identified David Bonderman as a potential partner: he was
one of the founders of a private investment firm, the Texas Pacific Group, specialized in
looking for high-yielding investments.
The two businessmen arranged a deal in August 1996 through which the Ryan family,
O’Leary and Bonderman established a new company, Ryanair Holdings, which bought
the airline from the family for £56,7 million. After a complex series of transactions, the

12
Ryan family gained about £50 million in cash raising the capital it was looking for
(Creaton 2007, p117).
One year after, the airline had the chance to speed up its expansion through a flotation
that brought the airline to trade on the international stock markets, raising more money.
Ryanair decided to come to the market selling 54 million of shares, expecting to raise
between £100 and £120 million given the estimated company value of about £300
million. Ryan hired Morgan Stanley to manage the share issue and decided to list the
shares in the Dublin and New York stock markets. Ryanair’s shares rocketed as soon as
the Dublin market opened on 29 May 1997, and the value of the company inflated from
the expected £300 million to £500 million with the Ryan family’s shareholding worth
$164 million (Creaton 2007, p133).
At that point, Ryanair had the capital required to sustain its expansion.

2.3.2 Conquering Europe: from 1995 to 1999

Ryanair started the European expansion plan in 1995 investing the resources that Tony
Ryan was raising to hire new staff, to increase the fleet size and to make deals with new
airports around Europe.
The airline hired 108 pilots and cabin crew to bring the total staff to 605 in 1996 and it
started the negotiation with the US Boeing group and the European Airbus about the
purchasing of new aircrafts in 1997. Tony Ryan, that was highly experienced in the
field thanks to his experience with GPA, set up an auction between the two
manufacturers for an order of twenty-five Boeing 737-800 or Airbus A320 planes worth
about £800 million, playing Boeing and Airbus one off against each other (Creaton
2007). Afterwards, Ryanair signed the contract with Boeing in March 1998 since it
offered a 30 per cent discount and better payment solutions through the US official
export credit agency.
In the same time, O’Leary looked for new airports around Europe identifying some
secondary airfields that were close to the most important cities and that were offering
cheap fees. In 1997, Ryanair started to flight from Beauvais, 60km north of Paris, and
from Charleroi, 46km south of Brussels, while Stansted became the center of its
European operations serving various continental bases among Italy, Germany, Norway
and Sweden in 1999, as it is shown in table 2.

13
Table 2. Ryanair routes in 1999

Date Trips Date Trips

Route served Route served
started per day started per day

Between Dublin Between London

and: Stansted and:
Jan-86 5 Knock May-91 2
London Luton May-88 4 Cork Oct-91 4
Liverpool Nov-88 12 Glasgow Prest. May-97 6
London Stansted Nov-93 4 Stockholm Ska. Jun-97 3
Birmingham May-94 2 Kerry Jun-97 1
Manchester May-94 3 Oslo Torp Jun-97 2
Glasgow Prestwick Nov-94 4 Venice Treviso May-98 2
London Gatwick May-96 3 Lyon St. Etienne May-98 1
Leeds/Bradford May-96 1 Malmo Krist. May-98 1
Bournemouth May-96 1 Pisa Jun-98 2
Cardiff May-97 3 Rimini Jun-98 1
Bristol May-97 4 Toulouse Jun-98 2
Paris (Beauvais) May-97 4 Frankfurt Hahn Apr-99 2
Brussels (Charleroi) Nov-97 1 Biarritz Apr-99 1
Teesside Brittany Dinard Apr-99 1
Genoa May-99 2
Turin Jul-99 2
Between Paris Ancona Jul-99 1
(Beauvais) and: Nov-98 2 City of Derry Jul-99 2
Glasgow Prestwick

Source: Harvard Business School (2007c).

During the expansion, Ryanair faced increasing competition across Europe from
numerous new low-fare airlines that were spreading due to the liberalization of the
market. EasyJet was one of them: the tycoon Stelios Haji-Ioannou founded it in 1995,
taking the successful American low-cost operator ValuJet as model. The airline started
competing directly with Ryanair around Europe offering low-fares and putting on
flights from UK to Germany, Italy and other cities in the south of France and Sweden.
Debonair, the British Airways’ no-frills subsidiary named Go, Virgin Express and Buzz
were other low-fares airlines that tried to hinder Ryanair’s expansion that despite
everything was advancing inexorably, in fact the carrier had increased the number of
passengers carried from 2.260.000 in 1995 to 5.358.000 in 1999, and its profits had
grown by about 33 per a year since 1995 (Ryanair 2015b).

14
2.3.3 Conquering Europe: from 2000 to 2005

Ryanair’s management wanted to boost the business further in the new millennium
through some adaptations to the existing business model, even if the performance of the
company had already been exceptional since 1991.
The Board of Directors thought that the realization of additional cost savings, the
acquisition of new planes, the opening of new bases and new routes were necessary to
sustain the desired extraordinary growth.
The first action taken to reduce further the cost structure was the restructuration of the
company’s distribution system. In 1996, Ryanair sold about 25 per cent of its tickets
directly through the airline’s call centers and the remaining 75 per cent by travel agents
that were costly. In fact, Ryanair had to pay a fee for participating in those Global
Distribution Systems as the British Airways Booking System or Galileo, and in addition
it had to pay a 9 per cent commission to travel agents for every ticket sold (Creaton
2007, p124).
The high charges were irritating Micheal O’Leary that decided to change the airline’s
reservation structure to save money. First, he tried to encourage passengers to book their
seats directly through the airline’s call centers, then he purchased the US Open Skies
system in 1999 that included an online booking facility that gave Ryanair’s customers
the opportunity to buy tickets by logging onto Ryanair.com website.
The carrier was so enthusiast about the number of bookings coming in over the Internet
that it formally launched its website in March 2000 from which it started to sell
ancillary services as well as flight tickets. The site took over 50,000 bookings a week
within three months and allowed Ryanair to stop relying on travel agencies(Ryanair
2015b). However, it was not enough for Micheal O’Leary that adopted supplementary
extreme actions to trim the cost structure. He started to charge crew £175 a year and
deducted a monthly sum from pilots’ salary for their uniforms. Moreover, the airline
forbade its staff to enjoy free tea, coffee or water on board its flights suggesting them to
bring their own drinks and snacks, and banned its personnel from charging mobile
phones at the airline’s expense since this would have led to cost savings of £1.4 pence
per charge (Clark 2005). In this way, Ryanair became the carrier with the lowest cost
structure in the industry, even 70% leaner than the other dominant low-cost airline
easyJet.

15
Regarding the acquisition of new aircrafts, Ryanair placed orders for a total of 320 new
Boeing 737-800 through the 2002, 2003 and 2005 Boeing contracts, while it chose the
Belgium’s Charleroi airport as its first European base in March 2001. Some months
later Frankfurt Hahn became the airline’s second base: Ryanair signed a twenty-year
deal with the airport and started operating over thirty flights a day to Italy, Britain,
France, Ireland and Norway offering fares 80% lower than the ones charged by
Lufthansa (Creaton 2007, p208).
The growth of Ryanair slowed down after the terroristic attacks of the 11 September
2001, but the path to become the biggest airline over Europe continued in 2003 when
the airline exploited the crisis of Buzz, and acquired the ailing carrier for €46.7 million
(Ruddock 2007, p328). In this way, it secured its valuable slots in Stansted increasing
its airport’s capacity to 60 per cent and obtaining Buzz’s UK operating certificate to set
up routes from the airport to non-European Union countries. It was crucial for the
expansion of its network that continued in 2005 when Ryanair attacked easyJet by
promoting new routes offering 250,000 seats at fares starting at £1 (Creaton 2007).
Ryanair achieved a twenty per cent market share in Europe at the end of 2005, and
registered a profit margin higher than all of its competitors that were Air Berlin,
Germanwings, bmibaby, Hapag-Lloyd Express and easyJet.
The airline also recorded exponential growth in terms of passengers carried in the
period from 2000 to 2005, as shown in figure 3.

Figure 3. Ryanair's passengers, 1985-2005

40.000.000
35.000.000
30.000.000
25.000.000

20.000.000

15.000.000
10.000.000
5.000.000

-
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Year

Source: Compiled by the author using data from Ryanair (2015b)

16
2.3.4 Conquering Europe: from 2006 to 2013

Tony Ryan and Micheal O’Leary believed that was the time for Ryanair to take actions
to push the expansion further.
Therefore, they planned to acquire the entire share capital of Aer Lingus in 2006 in
order to create one strong Irish airline group able to compete with large carriers as
Lufthansa, Air France/KLM and British Airways/Iberia (Ryanair 2007, p4). The new
national airline would have been able to negotiate better rates at airports and offer more
than 500 routes around Europe. Specifically, it would have accounted for 78 per cent of
all flights between Ireland and the UK, 77 per cent of air traffic on routes from Ireland
to France, 81 per cent between Ireland and Spain, and 82 per cent of flights between
Ireland and Germany (Creaton 2007, p259). However, the European competition
authorities prohibited Ryanair’s takeover of Aer Lingus in June 2007 and the
acquisition did not take place.
The company made a second attempt on the 1 December 2008 being able to acquire just
29,8% of Aer Lingus shares at a total cost of €407.2 million, percentage that did not
allowed to have significant influence on the company’s choices. In fact, Ryanair did not
have any representation on the Aer Lingus’ Board of Directors and did not participate in
its policy-making decisions.
The airline did a third offer on 19 June 2012, but the European commission banned it
once again so it had to give up (Ryanair 2012, p.36).
Even if the acquisition of Aer Lingus did not take place, Ryanair became the low-cost
market leader in Europe in 2013 through a massive expansion of its fleet and network,
The airline placed an order with Boeing for seventy 737-800 planes valued at $4 billion
in spring 2007, and it opened 36 new bases and more than 1500 new routes in the period
from 2008 to 2013 (Ryanair 2015b).

17
Table 3. New bases and routes, 2008-2013
New New
Year Cities
routes bases

2008 201 3 Bournemouth, Birmingham and Belfast

2009 223 4 Alghero, Bologna, Cagliari and Edinburgh
2010 284 8 Bari, Brindisi, Faro, Leeds, Oslo, Pescara, Porto and Trapani
2011 328 8 Barcelona, Gran Canaria, Kaunas, Lanzarote, Malta, Seville,
Tenerife and Valencia
2012 330 6 Baden, Billund, Budapest, Paphos, Palma de Mallorca and
Wroclaw
2013 217 7 Chaina, Einhoven, Fez, Krakow, Maastricht, Marrakech and
Zadar

Source: Compiled by the author using data from Ryanair (2015b).

The extensive choice of routes and the low-fares generated a massive growth in terms of
passengers carried that were 81 million in 2013, registering a 135% increase compared
to 2005.

Figure 4. Ryanair's passengers, 1985-2013

90.000.000

80.000.000

70.000.000

60.000.000

50.000.000

40.000.000

30.000.000

20.000.000

10.000.000

-
1985 1989 1993 1997 2001 2005 2009 2013
Year

Source: Compiled by the author using data from Ryanair (2012; 2013a; 2015b).

18
3 RYANAIR’S BUSINESS MODEL

3.1 The Business Model Canvas

Defining the business model of an organization is not an easy task as Micheal Lewis
stated when he referred to the expression business model as “a term of art” since like
art itself, it’s one of those things many people feel they can recognize when they see it
but can’t quite define (Ovans 2015).
However, Osterwalder built a comprehensive template known as Business Model
Canvas composed by nine building blocks to make the description of the way an
organization creates and deliver value easier. The model traces the key resources, the
key activities of the value chain, the value propositions, the customer relationships, the
channels, the customer segments, the cost structures, and the revenue streams showing
the logic of how a company intends to make money (Osterwalder and Pigneur 2010).
The nine building blocks of the Business Model Canvas are represented in the figure
below.

Figure 5. Business Model Canvas

Source: Osterwalder and Pigneur (2010).

19
3.2 Ryanair’s Business Model Canvas
Following, we will analyse the business model that Ryanair was operating in 2013 and
that was the result of an evolution process started in the 1990s, describing each of the
nine building blocks.

3.2.1 Customer Segments

The Customer Segment building block defines the different market segments an
organization aims to reach and serve, where a market segment is a group of customers
that share one or more characteristics (Osterwalder and Pigneur 2010).
The airline passenger market can be divided into three segments based on the length of
the flight which is labelled as short-haul if it lasts from 0 to 3 hours, medium-haul from
3 to 6 hours and long-haul from 6 to 12 hours. Ryanair was just operating short-haul
routes that lasted on average less than two hours, for this reason it targeted only short-
haul passengers.
A further segmentation of the market is possible using the purpose of the passenger’s
journey that leads to a relevant division between Business and Leisure passengers
(Shaw 2007, p24). The two groups have different requirements regarding nine factors.

3.2.1.1 Business Passengers

Business travellers travel for work and business purposes and they are extremely busy
individuals for whom time is really precious.
Regarding their requirements:

Price. Business travellers are not price-sensitive since ticket cost is in most
cases refunded by the company or at least it is tax deductible. Moreover, they
are relatively wealthy people with high average income levels.

In-flights Services. Business passengers demand a good quality level in terms

of in-flight experience even on short-haul routes in which the flight time is
short. They require seating comfort, separate business class cabins where they

20
 can prepare their business meetings more comfortably, and meals and drink
appropriate at the time of the day.

Airport Services. Business travellers require separate check-in desk, on-line

check-in facilities, and expedited security and passport checks in order to
reduce the time spent at the airport. Moreover, they demand comfortable
lounges where they can relax prior to a flight.

Airport Location and Access. Airport location is a significant prerequisite for

business passengers that prefer primary airports to secondary ones since they
are more accessible, reducing the time needed to reach them.

Frequency and timings. Businessmen look for airlines offering high

frequency flights concentrated in the early morning and evening periods, out
of the business hours, during all the days of the week for flying out for the
meetings and coming back to their offices or homes as soon as possible.

Punctuality of flights. Punctuality of flights is a crucial factor for business

passengers since delays would mean missing their appointments and waste
their limited time.

Seat Accessibility. Seat accessibility refers to the probability of a passenger

being able to book a seat in a flight shortly before it is due to depart, and it is
a main requirement for business passengers since they often need to travel in
a response to sudden crisis with the “next flight out” (Shaw 2007, p.29).
Therefore, they demand high seat accessibility.

Frequent Flyer Benefits. Business travellers usually value Frequent Flyer

Programs, even if they do not consider them as a crucial factor in the short-
haul routes.

Safety. Safety is one of the main requests.

Business travellers can be further divided in two categories among which most of the
requirements remain identical with an exception regarding the price-sensitiveness.
Corporate travellers compose the first sub-segment, and they are those who travel for a

21
company and that are fully refunded for the travel expenses, so they are not price-
sensitive. Independent business travellers constitute the second sub-segment and they
are those who are self-employed or who work for small companies that have to pay for
their flight tickets which are no refundable but just tax-deductible. This makes them
more price-sensitive and more prepared to make sacrifices in terms of product frills as
seating comfort, free drinks or in-flight meals in order to pay a lower price (Shaw 2007,
p32).

3.2.1.2 Leisure Passengers

Leisure travellers travel for pleasure and not for business purposes, and regarding their
requirements:

Price. Leisure travellers are very price-sensitive since they spend their own
money when they purchase the flight ticket; consequently their dominant
requirement is cheap tickets.

In-flights Services. Leisure passengers are willing to sacrifice in-flight

services as seating comfort, meals, drinks and entertainment in order to pay
lower fares.

Airport Services. Leisure travellers accept also a lower level in term of airport
services since in this way they can buy flight tickets at a lower price. They
accept longer minimum check-in times and they do not require lounges.

Airport Location and Access. Airport location is a less significant prerequisite

for leisure passengers. In fact, they are less time-sensitive and they care less
about spending time in buses or trains that connect the secondary airports to
their final destinations. Moreover, the benefits in term of lower fares offered
by airlines operating in secondary airports are higher than the non-monetary
costs associated with the waste of time for this passenger segment.

Frequency and timings. Leisure travellers do not generally require high

frequency of flights and regarding the timing, they do not have particular
preferences for early morning and evening flights. However, their demand is
characterized by evident seasonal peaking with airlines that generally have to

22
 provide highest frequency of service during the period from March to
November; this leads to some problems in term of underutilization of the
resources during the off-peak periods.

Punctuality of flights. Reasonable standards of punctuality performance are

essential also for this passenger segment.

Seat Accessibility. Leisure passengers do not require last minute availability

of seats since they are inclined to plan their holidays well in advance and
consequently to book their flights soon. The positive consequence for airlines
is that they can operate at a very high load factor, often in excess of 90 per
cent.

Frequent Flyer Benefits. Leisure travellers do not require frequent flier

programs.

Safety. Safety is a product feature considered fundamental also for leisure

travellers.

As the business travellers, leisure passengers can be divided in two sub-segments: the
holiday and the VFR travellers. Regarding the first category, in many occasions family
groups travel for pleasure and the fact that more cash is needed for paying multiple
tickets makes this segment even more price-sensitive. Moreover, families look for the
lowest fares since they prefer to spend more money on a good quality hotel and meals
rather than on the flight tickets (Shaw 2007).
Visiting-Friends-and-Relatives (VFR) travellers compose the second sub-segment,
where VFR travel implicates a visit whereby either the purpose of the trip or the type of
accommodation involves visiting friends and/or relatives (Backer 2007, p.369)

23
3.2.1.3 Ryanair’s Target Customer Segments

Most of the Ryanair’s passengers were VFR travellers in the first years of its history:
thousands of young people, forced to leave Ireland to get work in UK in the 1980s and
early 1990s, were used to fly back home with Ryanair’s cheap flights. They were
known as the “Ryanair Generation” (Creaton 2007, p270).
After 1995, Ryanair broadened its target also to Holiday travellers offering cheap flights
across many European destinations, while business travellers had always constituted a
minimal percentage of the passengers carried by the airline.
Therefore, we can state that Ryanair was targeting mainly Leisure travellers in 2013.

Figure 6. Ryanair’s target customer segments

Industry Length of the Purpose of the Customer type

flight journey

VFR
Leisure
Holiday

Short-haul
Independent
Cargo
Business
Corporate

VFR
Leisure
Holiday
Passenger
Medium-haul
Airlines
Independent
Business
Corporate

VFR
Leisure
Holiday

Long-haul
Independent
Business
Corporate

24
3.2.2 Value Propositions

The Value Proposition building block describes the bundle of products and services that
create value for the target customer segments (Osterwalder and Pigneur 2010).
Michael Treacey and Fred Wiersema identified three potential types of value
propositions. First, companies can offer low price value propositions when they focus
on efficiency in order to realize cost savings, and they deliver to customers “the lowest
price”. Second, organizations can offer product innovation value propositions providing
the best products in terms of quality, and finally firms can deliver customized solution
propositions when they adapt their products and services to the customers’ specific
needs (Buttle and Maklan 2015, p159).
Ryanair was offering a low price value proposition since it aimed to satisfy its target
customer segment’s main requirement that was low ticket-price.
Therefore, Ryanair unbundled the core air passenger service from the ancillary ones,
giving its passengers the flexibility to pay for only what they wanted and it lowered its
cost structure in order to able to sell at the lowest price possible.
In addition, the airline was committed to minimize the risk of incidents and to achieve
high punctuality since these were the other two essential needs that leisure travellers had.

Figure 7. Leisure passengers' essential and non-essential needs

FFP Airport
location

Airport Frequency
services

In-flight Seat
services accessibility

Punctuality

Safety Price
Non-essential needs

Essential needs

25
It is possible to plot the value proposition on a graph using two variables: the price and
the customer-perceived benefits that are the gross benefits offered by the airline as
safety, scheduled convenience, on-time performance, airport and in-flight services less
non-monetary costs as queues at various points in the service delivery system, crowded
airports and location of the airfields (Holloway 2008, p10).

Figure 8. Positioning the value proposition

More

Low-cost carriers Legacy carriers

Maximum acceptable price

Customer-perceived benefits

APV
curve
Ryanair

Minimum acceptable service

Higher
Price point

Source: Adapted from Holloway (2008).

The Ryanair’s value proposition could be positioned on the bottom left of the graph
since both the price and the customer-perceived benefits were very low. In fact,
passengers’ feeling was that the airline was offering a very low level of service in 2013,
even if the carrier had good safety records and on-time performance.
In the graph we drew a theoretical Acceptable Perceived Value curve (APV curve),
where just the service-price offers located anywhere on or above it were acceptable to
the customers. We have positioned Ryanair’s value proposition above it since we think
that the additional services included in 2012, as the opportunity of carrying additional

26
baggage and reserving seats, increased the benefits perceived. However, they were still
low due to intrinsic characteristics of the Ryanair’s low-cost model.
Next, we will describe the two elements of the airline’s value proposition: the core air
passenger service and the ancillary services.

3.2.2.1 Core Air Passenger Service

Ryanair offered frequent point-to-point flights on short-haul routes with average length
of 750 miles to secondary or regional airports, and it had the lowest average fare among
all the airlines in the European market equal to €58,45 in 2013 (WhichArline 2013).
The chart below shows the average ticket price based on one-way flight, including the
ancillary services bought but not fees for the major European low-cost carriers.

Figure 9. Average ticket price of the major European low-cost carriers

170

147,49
150
133,7
130
111,18
€

110
95,01
89,84
90 80
72,97
70 60,74 63,19
58,45
50
Vueling

Germanwings

Monarch
easyJet

Air One

flybe
Ryanair

Wizz air

Norwegian
Pegasus

Source: Data from WhichAirline (2013).

Regarding the routes, Ryanair was offering over 1600 scheduled flights per day
operating among its 57 bases of operations and serving approximately 180 airports
throughout Europe and Morocco on July 2013 (Ryanair 2013a).

27
Table 4. Ryanair's bases of operations
Ryanair’s bases

Alghero Chania Leeds Pisa

Alicante Cagliari Liverpool Porto
Baden-Baden Cork London-Luton Seville
Barcelona-Girona Dublin London-Stansted Shannon
Barcelona-El Prat Dusseldorf Maastricht Trapani
Bari Edinburgh Madrid Valencia
Billund Eindhoven Malaga Wroclaw
Bologna Faro Malta Zadar
Bournemouth Fez Manchester Tenerife
Birmingham Frankfurt-Hahn Marrakech Stockholm-Skavsta
Bremen Glasgow-Prestwick Milan-Bergamo Oslo-Rygge
Brindisi Gran Canaria Nottingham Rome-Ciampino
Bristol Kaunas Palma Mallorca
Brussels-Charleroi Krakow Paphos
Budapest Lanzarote Pescara

Source: Ryanair (2013a, p62).

3.2.2.2 Ancillary Services

Ryanair offered various ancillary services connected with its core air passenger product
expanding its proposition beyond the traditional air transportation. Ryanair’s ancillary
services could be subdivided among three categories: non-flight scheduled, in-flight and
internet-related services.

Non-flight scheduled services. Ryanair’s passengers could choose to carry

extra baggage or to have extra legroom seats paying additional charges.
Moreover, the airline offered hotels and accommodations through a
partnership with Hotelscombined PTY, car rentals through Hertz, and it was
selling rail and bus tickets on board of its aircrafts or through its website.
Travel insurance, tickets for tourism attractions, Ryanair-branded credit and
prepaid cards, credit for smartphone devices and gift vouchers were also
included in the airline’s value proposition (Ryanair 2013a, p67).

28
 In-flight services. Ryanair was offering beverages, food and merchandise
during the flights to the passengers that wanted to pay for them.

Internet-related services. Internet-related services were not offered to the

travellers but to companies that wanted to advertise their products on the
airline’s website, of course paying a fee.

29
3.2.3 Channels

The Channels building block describes how a company communicates with and reaches
its customer segments to deliver the Value Propositions (Osterwalder and Pigneur 2010).
Following, we will describe which distribution and communication channels Ryanair
was adopting in 2013, as main interface with its clients.
A general organization can choose between reaching its customers through direct
channels, through indirect channels or through a mix of both (Osterwalder and Pigneur
2010).
Direct channels usually comprise in-house sales force and web sales, and they allow the
firm having direct contact with the final customers without any intermediaries being
involved. This leads to numerous advantages as higher margins, since no mark-ups or
commissions have to be paid to channel mediators, and more control of the marketing
activities, besides a deeper knowledge of the consumers. However, direct selling has
some disadvantages, as the fact that it requires significant capital expenditure to set up
the system in the beginning.
Regarding indirect channels, they include wholesalers, partner stores or partner-owned
websites that are intermediaries that perform most or all distribution functions. The
organization that sells its products indirectly has to set up relationships with third-party
sellers with the advantage that they have access to a broader number of customers.
However, indirect selling is costly since the company has to pay fees and commissions
to the third parties.
In the airline industry, direct channels had become more and more utilized in the 2000s,
especially by low-carriers that relied on their own call centres and websites to sell
tickets. Instead, traditional airlines were still making large use of the Global
Distribution Systems (GDS), which were enormous fares databases accessible to travel
agents that acted as third-party distributors (Shaw 2007). This indirect channel was
disadvantageous since airlines had to pay the fees charged by the GDS and by the travel
agents for each transaction, with the result that selling tickets indirectly could be twenty
times more expensive compared to do it through direct channels (Ng 2015).
For this reason, Ryanair were relying almost entirely on direct distribution channels and
not on GDS in 2013, with over 99% of its scheduled passenger revenues generated via

30
its website Ryanair.com. The company achieved that percentage by requiring and
encouraging its passengers to purchase directly from its website since 2000.
About communication channels, the airline advertised its cheap flights and the wide
variety of destinations sending people registered in its database email concerning
promotions and distributing promotional material. Moreover, the carrier publicized
through newspapers or press conferences, and realized advertising campaigns with
travel-related organizations (Ryanair 2013a, p64).
However, the airline relied mainly on earned media to increase the awareness of its
offers among customers and emphasize its low fares with publicity gained through the
multiple gimmicks realized by the CEO O’Leary and through controversial advertising.
For instance, in May 2000 the carrier marketed its service through an advertisement in
the newspapers in which Pope John Paul II was whispering “Psst! Only Ryanair.com
guarantee the lowest fares on the Internet”, stating that the pope was revealing the
Fourth secret of Fatima (Creaton 2007). In this way, it made fun of the Church and
offended many catholic people.
Another time, the airline created an image of the Iraqi leader Saddam Hussein, that had
just been captured by the US military force, saying: “Need a quick gateway? Only
Ryanair has the cheapest fares!” (Creaton 2007).

31
3.2.4 Customer Relationships

This Building Block describes the types of relationship a company establishes with
specific customer segments, and the way the relationships are managed in order to
retain existing customers and acquire new ones (Osterwalder and Pigneur 2010).

3.2.4.1 Marketing Approaches

Organizations can choose between two different marketing approaches in order to
manage the relationships with their customers.
The first approach is known as Transactional Marketing and it is implemented by
product and production-oriented businesses that prefer to invest more on the quality of
their products or on resources that lead to operational excellence, rather than on
Customer Relationship Management.
These organizations focus on customer acquisition and on completing as many discrete
transactions as possible rather than on customer retention, and they usually provide low
customer service and have low commitment to customers; in fact, once the transaction
is over they stop paying attention to them. Moreover, they segment the market using
basic segmentation criteria aggregating customers as much as possible, not being
concerned to satisfy their specific needs (Schiffman et al 2014).
These businesses are not interested in the development of long-term relationships, they
tend to use one-way forms of communication, and a low number and poor touchpoints
that are the points in which customers come into virtual or concrete contact with the
company’s products, services, places, people or processes (Buttle and Maklan 2015,
p195). The result is that the relationships tend to be highly impersonal with consumers
used to access information, to perform routine tasks and to purchase through web self-
services over the Internet without any intimate interaction with the company.
Instead, the second approach is known as Relationship Marketing and it is adopted by
customer and market-oriented companies that are inclined to put their customers first.
In this case, the organizations try to achieve high rates of customer retention providing
high quality customer service by using real representatives that interact directly with
clients to help them during the sales process or after the purchase is done.

32
In addition, companies that execute Relationship marketing are very interested in
understanding and satisfying customers’ specific needs, thus they use refined
segmentation criteria and sophisticated forms of marketing automation that recognize
individual customers’ characteristics and automatically generate customized offers
(Blythe 2012, p29). In this way, consumers perceive the deals as tailored for them and
they are satisfied.
Contrarily to transactional marketing, relationship marketing uses two-way marketing
communications and a higher number of touchpoints during the whole customer journey.
Its final goal is building strong long-term relationships.

Table 5. Transactional and Relationship Marketing

TRANSACTIONAL RELATIONSHIP
MARKETING MARKETING

Type of organization Product and production- Customer and market-oriented

oriented
Marketing focus Focus on customer Focus on customer retention
acquisition
Time orientation Short-term Long-term
Customer Service priority Low High
Commitment to customers Low High
Touchpoints Low Number/Poor High number/Superior
Type of relationship Impersonal and indirect Personal and direct

Source: Adapted from Schiffman et al. (2014, p23).

33
3.2.4.2 Ryanair’s Marketing Approach

Ryanair was implementing a transactional approach offering very poor customer service,
ignoring specific customers’ requests, and maintaining a low and impersonal contact
with its customers.
Customer service was not a priority and Ryanair saw people that complained as a
nuisance to be got rid as quickly as possible, with the Ceo O’Leary that was justifying
that policy saying passengers that were paying so little did not have the right to protest.
The airline was not taking any responsibility in case of delayed or cancelled flights,
therefore it was not offering neither refunds nor hotel or accommodations where
passengers could spend the night after the cancellations.
These are some answers that Ryanair’s customers received by O’Leary in the past years
that give an idea regarding the level of the airline’s customer service:

“No Refund. Don’t you understand? You are not getting a refund so f**k off.”
“If a plane is cancelled will we put you up in a hotel overnight? Absolutely not.”
If a plane is delayed, will we give you a voucher for a restaurant? Absolutely not.”
“Look, you got a cheap ticket, we are not going to put you up in a hotel.”’
(Creaton 2007)

In addition, Ryanair was not caring about its customers’ specific needs since it was not
listening to them, loosing the opportunity to understand how to improve its value
proposition. For instance, the airline was not properly using the results of the surveys in
which customers expressed their preferences in terms of the features they wanted.
Moreover, Ryanair was not exploiting all the data available regarding its existing
passengers that could have been used to generate personalized communications and
offers.
Regarding the touchpoints, the airline had poor ones, relying mainly on its website and
on automated technologies for its customer service.
Customers could access information and perform routine tasks 24-hour-a-day such as
looking up relevant information and buying the tickets through the Ryanair.com website
that was outdated and difficult to navigate. In fact, the booking process was full of
advertisements requiring a minimum of 17 clicks to book a flight, making customer
experience very stressful (Hobson 2015).

34
Customer service touchpoints were not better since the airline communicated with its
customers via mail, SMS, the Web, automated telephony systems and just in part with
call-centres to solve customers’ issues, ignoring the potentiality of social media such as
Twitter and Facebook that were being used successfully by other airlines to build
stronger relationships with their passengers.
In conclusion, we can state that Ryanair established impersonal, poor and short-term
relationships with its customers, preferring to achieve cost savings rather than building
more intimate relations through the exploitation of the new technologies and the social
media functionalities.

35



3.2.5 Revenue Streams

The revenue stream building block represents the cash a company generates from each
customer segment (Osterwalder and Pigneur 2010). Following, we will describe
Ryanair’s revenue streams and the pricing mechanisms adopted.

3.2.5.1 Revenue Streams: Scheduled and Ancillary Revenues

Low-cost airlines sold just the core air passenger service offering the other attributes
that were traditionally included within the ticket price for sale “à la carte”. Moreover,
they expanded their offer beyond the traditional air transport product adding and
charging for new services as travel insurance, airport parking, car hire, bus and train
tickets, as we have already stated (Holloway 2008).
Therefore, LCCs adopted a fully unbundled pricing structure with the consequence that
operating revenues could be distinguished between scheduled revenues and ancillary
revenues. Scheduled revenues were those generated by selling passenger airfares, while
ancillary revenues were those deriving from the sale of preferred treatments such as
priority boarding, checked baggage, seat allocation, in-flight meals and other secondary
services. Low-cost carriers basically transformed their websites and their aircraft cabins
to point-of-sale merchandising in order to increase ancillary revenues.

3.2.5.2 Ryanair’s Revenue Streams

Approximately twenty percent of Ryanair’s revenues were generated by ancillary

services in 2013, as shown in figure 11. Scheduled revenues and ancillary revenues
were respectively equal to 78,21% and 21,79% of the total operating revenues (Ryanair
2013a).

36



Figure 10. Ryanair's revenue streams, 2009-2013

Scheduled revenues Ancillary revenues

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mar 31,2009 Mar 31, 2010 Mar 31,2011 Mar 31,2012 Mar 31,2013
Year ended

Source: Compiled by the author using data from Ryanair (2009; 2010; 2011; 2012; 2013a).

Focusing on the airline’s scheduled revenues from 2006 to 2013, it is possible to
observe that they registered a steady growth with exception for the period from 2008 to
2010.

Figure 11. Ryanair's scheduled passenger revenues, 2006-2013

4.000

3.500

3.000
Million (€)

2.500

2.000

1.500

1.000
Mar Mar Mar Mar Mar 31, Mar Mar Mar
31,2006 31,2007 31,2008 31,2009 2010 31,2011 31,2012 31,2013
Year ended

Source: Compiled by the author using data from Ryanair (2006; 2007; 2008; 2009; 2010; 2011; 2012;
2013a).

37



The two drivers of scheduled passenger revenues were the number of passengers and
the average fare; plotting the behavior of the two factors, it emerges that the lack of
growth in revenues for the 2008-2010 period was due to the reduction of the average
fare. After 2010, traffic revenues had grown consistently due to the combined effect of
increased passenger volumes and higher average ticket price.

Figure 12. Passengers and average fare patterns, 2006-2013

Passengers Average Fare (Euro)

85.000.000 60
80.000.000
50
75.000.000

Average Fare (€)

70.000.000 40
Passengers

65.000.000
30
60.000.000
55.000.000 20
50.000.000
10
45.000.000
40.000.000 0
2006 2007 2008
2009 2010 2011 2012 2013
Source: Compiled by the author using data from Fiscal year
Ryanair (2006; 2007; 2008; 2009; 2010; 2011; 2012;
2013a).

Regarding Ryanair’s ancillary revenues, they can be analyzed dividing them in three
sub-streams:

Revenues from non-flight scheduled operations. They derive from excess

baggage charges, priority boarding, reserved seating, travel insurance, car
rentals and sales of rail and bus tickets.

Revenues from in-flight sales. They comprise sales of beverages, food and
merchandising during the flight.

Revenues from internet-related services. They consist of commissions

received from products sold on Ryanair.com and online advertising.

38



Ancillary revenues had performed constant and remarkable growth from 2009 to 2013
with revenues from non-flight scheduled operations, that accounted for 74,82% of the
total ancillary revenues in 2013, representing the main stream of secondary incomes for
the company (Ryanair 2013a).
Revenues from in-flight sales registered low annual growth rate during the period
analyzed, while internet-income revenues were becoming a more important stream year
over year, as it possible to observe in figure 13.

Figure 13. Ryanair's ancillary revenues, 2009-2013

Non-flight scheduled In-flight Internet income

900
800
700
600
Million (€)

500
400
300
200
100
-
Mar 31,2009 Mar 31, 2010 Mar 31,2011 Mar 31,2012 Mar 31,2013
Year ended

Source: Compiled by the author using data from Ryanair (2009; 2010; 2011; 2012; 2013a).

3.2.5.3 Pricing Mechanisms

Each revenue stream had a different price mechanism: dynamic pricing for traffic
revenues and fixed menu pricing for most of the ancillary revenues.
Ryanair was adopting a set of techniques known as Yield Management to apply pricing
and inventory controls to the sale of its aircraft seats.
This dynamic pricing mechanism is used when demand is uncertain, capacity hardly
modifiable and when the product has a perishable nature, as the case of the airline, and
its main goal is the maximization of the operating revenues (Cento 2009).
Ryanair produced a wide range of fares for the same flight even if it had just one cabin
class, in fact the price of the tickets were changing based on the time separating the

39



purchase from the departure and on the demand: fares grew over time and increased as a
flight filled up. Ryanair was using a standard approach when setting fares through the
aid of software that provided templates, which identified the optimal booking pattern for
the maximization of the revenues in terms of ideal number of seats that had to be sold at
a certain number of days from the departure. Subsequently, analysts compared the
actual load factor of a flight with the booking forecast provided by the system, operating
discretional interventions when required. When the actual load factor was lower than
the optimal booking pattern, the yield analyst could decide to stimulate demand by
making more seats available at a cheaper price in order to avoid the risk of departing
with empty seats. On the contrary, if the actual load factor was higher he could increase
the price to avoid the flight to fill up too early (Piga et al. 2012).

Figure 14. Optimal and sub-optimal booking patterns up to the day of departure
Fare
Low

Flight filled
Aircraft Capacity up too early
High
100%
90%
80%
Optimal
70% booking
Number of seats sold

Departure
pattern with empty
60%
Load factor

seats
low too

50%
ice
Pr

40%
o
30% to
r ice and
P h
20% hig eats
s ted
s
wa
10%

50 40 30 20 10 0

Days to departure

Source: Adapted from Cento (2009, p37).

Regarding the sales of ancillary services, the airline was selling most of them at
predefined prices. For instance, additional baggage charges, bus tickets, travel insurance,
beverages, food and merchandise were sold at fixed prices.

40



3.2.6 Key Resources

The Key Resources building block describes the most important assets required to make
a business model work. We will analyse Ryanair’s key resources sub-dividing them
among four categories: physical, financial, intellectual and human (Osterwalder and
Pigneur 2010).

3.2.6.1 Physical

The main physical resources that allowed Ryanair operating its business were its fleet,
the jet fuel and the airports.

Fleet
At March 31, 2013 Ryanair had a fleet of 305 Boeing 737-800s Next Generation, 59 of
them not owned and financed through operating lease arrangements in order to provide
flexibility. The airline was planning to sustain its expansion through the acquisition of
new Boeing 737-800s NG in the next years, projecting to have a fleet size of 410
aircrafts in 2019 (Ryanair 2013b).
The Boeing 737-800 Next generation is a short-to-medium range aircraft that can carry
189 passengers and that replaced the older Boeing 737-200A. This model delivered
superior fuel efficiency and reliability compared with the previous one, and the new
design and engines reduced the rate of fuel burn, besides allowing achieving 22%
greater aerodynamic efficiency and 9-14% reduction in carbon emissions (Boeing
2015c). It represented an essential resource for realizing further cost savings that was
the main goal of the airline.
The projected evolution of the Ryanair’s fleet for the period 2013-2019 is represented in
figure 15, in which net operating fleet refers to the opening fleet minus the planned
returns or disposals during the year.

41



Figure 15. Evolution of the fleet based on the 2013 Boeing contract

Net Operating fleet Aircraft delivered

29
50 381
50
11 35 336
11
294 293 304
290 287

Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
2013 2014 2015 2016 2017 2018 2019
Year ended

Source: compiled by the author using data from Ryanair (2013b).

Jet Fuel
Fuel is generally one of the most important resources for airlines since it is a necessary
input to operate the aircrafts. IATA estimated that global airline industry’s fuel bill was
total $230 billion in 2013, which corresponded to an average of 33,1% of airlines
operating expenses (IATA 2015b).
Ryanair’s fuel costs accounted for 45,26% of the airline’s total operating costs in the
year ended on March 31, 2013, percentage higher than the average computed by IATA
due to the nature of Ryanair’s business model that minimized all the other costs.

Location of Airports
The location of Ryanair’s airports represented a key resource for the implementation of
its low-cost operating model since secondary and regional airports located far away
from city centres allowed the company achieving efficiency advantages and cost
savings.
These airports were less congested and they usually did not have slot requirements or
operating restrictions that limited the number of allowed take-offs and landings, so in
this way Ryanair was able to achieve higher rates of on-time departures and fewer

42



terminal delays. In fact, 91% of Ryanair flights arrived within 15 minutes of the
schedule in 2013 registering record on-time performance for the industry (Ryanair
2013a). Moreover, Ryanair’s aircrafts were able to reduce the time spent at the gates
loading and unloading passengers, thus maximizing aircraft utilization.
Regarding the cost advantages, secondary airports charged lower landing, passenger,
loading, security and general fees allowing Ryanair to reduce its operating costs and
consequently to offer low fares.
Some secondary airports used by Ryanair and their distances from the city centre are
listed in the table below.

Table 6. Ryanair’s airports and their distances from the city centre
Secondary Airport Distance from city center

Frankfurt (Hahn) 68 miles (110 km)

Oslo (Torp) 68 miles (110 km)
Stockholm (Skavsta) 62 miles (99 km)
Barcelona Girona 58 miles (93 km)
Paris Beauvais 55 miles (88 km)
Dusseldorf (Weeze) 50 miles (80 km)
London Stansted 40 miles (64 km)
London Luton 35 miles (56km)

Source: Baldwin (2013).

43



3.2.6.2 Financial

Borrowing Capacity
The borrowing capacity, which can be defined as the amount of money available as loan
to the company at a particular time, was a valuable financial resource for Ryanair in
2013, and it was based on the airline’s strong financial position.
Following, we will evaluate Ryanair’s financial strength performing a liquidity ratio
analysis, a leverage ratio analysis and computing the Altman’s Z-score.

1. Liquidity Ratio Analysis

We performed a liquidity ratio analysis for Ryanair in order to assess the ability of the
firm to meet or exceed its short-term debt obligations. Specifically, we used two ratios:
the Current ratio and the Acid test-ratio.

Ø The Current ratio is computed by dividing the company’s currents assets

by its current liabilities. Companies aim for a Current ratio greater than one
since if it is lower it means their liabilities are larger than their assets, hence
they would not be able to pay off their obligations if they came due at that
point (Investopedia 2016a).

Current assets
Current ratio =
Current liabilities

Ø The Acid-test ratio is similar to the current ratio with the difference that it
only uses those assets that can be converted into cash quickly. Therefore, cash,
short-term investments and accounts receivables are included, while
inventories, income taxes, prepaid expenses and other current assets are
excluded from the calculation (Vasigh 2015).

Cash + Investments + Accounts receivables

Acid − test ratio =
Current liabilities

44



We have computed Ryanair’s Current and Acid-test ratios for the period from 2009 to
2013 in order to evaluate the firm’s financial position. Moreover, we have calculated the
Current ratios for easyJet and Norwegian Airlines for the same period to benchmark
Ryanair with its two main competitors.
Ryanair’s Current ratio had values over 1,8 for the whole period analysed, reaching a
peak in 2012 when it was equal to 2,13, while it was 1,97 in 2013. Furthermore, the
airline’s value was higher than its competitors’ ones indicating that Ryanair had a better
liquidity position.
Regarding Ryanair’s Acid-ratio, it tended to be quite similar to the Current ratio over
the period and this was due to the fact that the airline had small inventories, and the
majority of its current assets were liquid.
So, Ryanair has a strong financial position in the short-term.

Figure 16. Current and Acid-test ratios for selected airlines, 2009-2013

Ryanair current Ryanair acid EasyJet current Norwegian current

2,5

1,5
Ratio

0,5

0
2009 2010 2011 2012 2013
Fiscal year

Source: compiled by the author using data from various airlines’ annual reports.

45


2. Leverage Ratio Analysis

We also executed a leverage ratio analysis to examine the airline’ s ability to meet the
long-term financial obligations, known as solvency.
In this case, we have utilized two ”long-term risk ratios” that focus on the underlying
capital structure of the company, which are: the Debt-to-Equity ratio and the Debt ratio.

Ø Debt-to-Equity ratio is used to measure a company's financial leverage and

it is computed by dividing a company’s total liabilities by its stockholders’
equity (Investopedia 2016b). If the ratio is higher than one it means that the
company is more debt-financed than equity funded, and the more a firm is
aggressive in financing its growth with debt, the higher is its level of risk
due to volatile earnings and additional interest expenses.

Total liabilities
Debt − to − equity ratio =
Total stockholders = equity

Ø The debt ratio measures the proportion of debt relative to the total asset
value of the company, and also in this case the higher the ratio, the greater
the financial risk for the company. In fact, high Debt ratio is negative since
it means that there are fewer assets that can be used to cover the debt
(Vasigh 2015).

Total liabilities
Debt ratio =
Total assets

Ryanair had a Debt-to-equity ratio of 1,73 in 2013 indicating that for every €1 in equity,
the carrier had €1,73 in debt. Therefore, leverage was an important tool used to grow,
even if its ratio was lower compared to other airlines such as British Airways and
Lufthansa. The heavy-debt structure reflected the characteristics of the airline industry
that is capital intensive.

46



Overall, we can state that Ryanair had a balanced capital structure considering its
industry and that was recurring less to debt compared to many other airlines, so it had a
lower risk of default.

Figure 17. Debt-to-equity ratios for selected airlines, 2013

Aer Lingus

Southwest airlines

British Airways

Lufthansa

Norwegian

EasyJet

Ryanair

0 0,4 0,8 1,2 1,6 2 2,4 2,8 3,2 3,6 4 4,4 4,8
Debt-to-equity-ratio

Source: compiled by the author using data from various airline annual reports.

Regarding the Debt ratio, we compared Ryanair’s Debt ratios for the period from 2009
to 2013 since the assessment of the ratio over time is effective in helping to understand
the airline’s past and how it was positioning itself for the future.
Sixty-three percent of Ryanair’s assets were funded by debt in 2013 and the airline had
a stable Debt ratio over the period analysed, indicating that it was satisfied with the mix
of debt and equity in its portfolio, and denoting a stable financial environment.

Figure 18. Debt ratios for Ryanair, 2009-2013

0,7
0,6
0,5
Debt ratio

0,4
0,3
0,2
0,1
0
Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
2009 2010 2011 2012 2013
Year ended

Source: compiled by the author using data from Ryanair (2009; 2010; 2011; 2012; 2013a)

47



3. The Altman’s Z-score Model

The Altman’s Z-score model is a statistical model that groups several financial ratios
together in order to predict the likelihood of insolvency of a company.

𝒁 = 𝟔, 𝟓𝟔𝑨 + 𝟑, 𝟐𝟔𝑩 + 𝟔, 𝟕𝟐𝑪 + 𝟏, 𝟎𝟓𝑫

where:

KLM NOPQRST UVWRMVX [LMVRSL\ LVPSRSTZ ]^_Y ^OOQ `VXaL Ob LcaRMd

𝑨= YOMVX VZZLMZ
𝑩= YOMVX VZZLMZ
𝑪 = YOMVX VZZLMZ 𝑫 = YOMVX XRVeRXRMRLZ

According to the Altman’s Z-score model a company is healthy if Z > 2.6, unhealthy if
Z < 1,1, and in the “gray zone” if 1,1 < Z < 2,59 (Vasigh 2015).
We computed the Altman’s Z-score for Ryanair in 2013 finding a value of 3,3857,
indicating the airline’s low risk of insolvency.

Table 7. Altman’s Z-score insolvency index for Ryanair, 2013

Altman’s Z-score for Ryanair

A 0,2070
B 0,2704
C 0,0803
D 0,0577

Altman’s Z-Score 3,3857

Source: Compiled by the author using data from Ryanair (2013a).

48



3.2.6.3 Intellectual

Intellectual resources include brand, proprietary knowledge, patents and customer

databases that are essential sources of sustainable competitive advantage for the
company. Following, we will analyse Ryanair’s brand.

Brand
A strong Brand is a valuable resource for an organization since it provides many
benefits such as increased marketing communication effectiveness, larger margins and
customer loyalty. Keller (2001) describes through his Customer-Based Brand Equity
model that a brand can be considered strong if it has four characteristics: proper brand
identity, strong, favorable and unique brand associations, positive brand responses and
strong relationships with customers.
Next, we will examine more in detail the four features.

1. Brand Identity. A brand has a strong identity when customers not only
recognize its logo or symbol, but also identify the brand with a specific product
class.
Customers’ awareness of the brand, referred also as Brand Salience, is
indispensable for organizations since it allows their product to be included in
customers’ consideration set during the purchasing decisions. Moreover, brand
awareness influences customers’ buying choices when they have a low
involvement with a product category since they consider first those products
that have higher brand salience.

2. Brand meaning. It is necessary to understand which features and images

customers associate to the brand since if they have strong, favorable and
unique associations the brand becomes a source of value for the organization.
Customers usually make considerations about the brand based on their own
experience or by some other sources of information as advertising or word-of-
mouth. The associations could be categorized in performance-related and
imagery-related ones. Brand Performance associations are related to the
primary features of the product as its reliability, durability, serviceability, the
service effectiveness, the efficiency, the design and the pricing policy adopted.

49



Instead, Brand Imagery associations are related to the type of person using the
product and the situations in which the product is purchased and used.
Some examples of brands that have strong, favorable and unique brand
associations are Volvo (Safety), Intel (performance and compatibility), and
Coke (Americana and refreshment).

3. Brand Responses. Customers have personal opinions and emotional responses

with regard to the brand: the more positive they are, the better.
Consumer Judgments refer to customers’ evaluation of the brand regarding the
perceived quality, perceived expertise in terms of competency or market
leadership, trustworthiness in terms of perceived sensitiveness to the interests
of the customers, and superiority over the competitors.
Instead, Consumer feelings (use of heart) refer to the feelings evoked by the
brand. They could be positive ones such as warmth, fun, excitement, security
or negative as anger, irritation, and disrespect.

4. Brand Relationship. Consumer Brand Resonance is achieved when customers

feel they are in synchrony with the brand. In this case, they build brand
relationships that could be less or more intense based on their behavioral
loyalty, attitudinal attachment and sense of community.

The four characteristics described above can be represented through the Customer-
Based Brand Equity Pyramid that is composed by six “brand-building blocks”, in which
the most valuable brand-building block, that is brand resonance, occurs when all the
other blocks are completely synchronized with customers’ needs, wants, and desires.

50



Figure 19. Customer-Based Brand Equity pyramid (CBBE)

Brand BRAND RELATIONSHIPS

Resonance

Consumer Consumer BRAND RESPONSES

Judgments Feelings

Brand Brand BRAND MEANING

Performance Imagery

Brand BRAND IDENTITY

Salience

Source: Keller (2001).

Next, we will evaluate the Ryanair brand in 2013 through the CBBE framework
analyzing each one of the six-building block and identifying strengths and weaknesses.

Ryanair brand had a strong identity and customers’ awareness was phenomenal in
Europe, where most of the leisure customers included the airline company in their
consideration set while they were buying a flight ticket (Neil 2014). So, Brand Salience
was high.
Then, we can state that customers had strong and unique associations with the brand
since the company had been able to create a very clear image about its offer (Serusi
2014). Consumers undoubtedly associated Ryanair with a low-fare and no-frills airline
that was mostly used by leisure and VFR travellers that flied during their free time and
holidays.
Regarding Brand Responses, it is necessary to analyse distinctively consumers’
judgements and feelings. Judgements were both positive and negative; positive ones
included that customers perceived the company as the market leader in the low-cost
segment and the brand as superior over the competitors in terms of low prices. Instead,

51



negative ones comprised that consumers judged unenthusiastically the sensitiveness of
the company to their interests since the airline was providing a poor customer service
and was not interested to listen to their requests.
About the feelings evoked by the brand, they were in most of the cases negative: people
thinking about Ryanair were feeling uncomfortable, in fact the expression ‘Doing a
Ryanair’ became used to describe a troubled and difficult experience that, at its worst,
left people swearing they would have never done it again (Creaton 2007, pp2).
Moreover, many passengers were used to feel unheard, unsupported, rejected or even
insulted. The negative judgments and feelings had an adverse impact on Ryanair’s
Brand Resonance that could be defined low since customers were not feeling in
synchrony with the brand.
Overall, we can state that the Ryanair brand was pretty strong due to the high brand
identity and brand meaning, but it had substantial weaknesses regarding brand
responses and brand relationships. So, Ryanair needed to change its strategy to improve
the brand perception and the consequent value, even if its brand was a source of
competitive advantage since it contributed positively to customer acquisition.

Figure 20. Ryanair's Customer-Based Brand Equity pyramid (CBBE)

Brand BRAND RELATIONSHIPS

Resonance

Consumer Consumer BRAND RESPONSES

Judgments Feelings

Brand Brand BRAND MEANING

Performance Imagery

Brand BRAND IDENTITY

Salience

Source: Adapted from Keller (2001).

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3.2.6.4 Human

Micheal O’Leary
Micheal O’Leary was a valuable, rare, costly to imitate and no-substitutable resource
for the airline that was completely dependent on him.
He shaped the company’s low-cost culture over the years and it led Ryanair taking the
most important decisions since the 1990s, becoming the responsible above anyone else
of its success. Ryanair would have never been able to become the Europe’s biggest low-
fares carrier without him.

Management Team
Top management team is required when substantial amount of knowledge and expertise
is necessary during the strategy formulation and implementation processes in order to
achieve strategic competitiveness. The key individuals that compose the team must have
different backgrounds and experiences since heterogeneity leads to better strategic
decisions that are the result of the integration of different perspectives (Volberda et al.
2011).
Ryanair’s Board of Directors was a significant and no substitutable resource for the
airline in 2013 since the top-managers were able to lead successfully the carrier thanks
to their broad knowledge regarding several aspects. Some members had wide
experience in the airline industry as Michael Horgan and James Osborne, others knew
Ryanair very deeply since they had been working in the company for many years as the
CEO Micheal O’Leary and David Bonderman. In addition, the airline appointed new
directors to bring new skills to the Board, as Julie O’Neill and Louise Phelan on
December 13, 2012 and Dick Milliken on July 26, 2013 (Ryanair 2013a).
Table 8 in the next page shows the components of the board and their specific expertise.

53



Table 8. Ryanair’s Board of Directors composition
Years on
Name Role Previous experiences/Expertise
board
Michael O‘Leary Airline industry

Chief
David 17 Private equity, Airline industry
Executive
Bonderman

17 Solicitor, Airline industry
Chairman
James R.

Osborne 17 Consultant in several international airlines,
Senior Indep.
civil aviation authorities and EU
Michael Horgan 12 commission
Non Executive


Capital markets
Kyran 12
Non Executive
McLaughlin EU commissioner, Irish Minister for

3 Finance, Tourism&Trade and Social
Non Executive
Charles Welfare

McCreevy
3 Audit partner at PWC
Non Executive


Declan McKeon 0 Director of Bank of Ireland Mortgage
Non Executive
Bank

Dick Milliken 0
Non Executive
Secretary General of Department of

Julie O‘Neill Transport in Ireland and strategic
0 management consultant
Non Executive


Louise Phelan PayPal Global Operations EMEA

Source: Ryanair (2013a).

54



Staff
People are a fundamental resource for every organization and this was true also for
Ryanair. In 2013, the airline had a staff of 9137 people and it was still planning to hire
new personnel in order to sustain its growth, as it did in the previous years as shown in
the figure below.

Figure 21. Ryanair's staff, 2006-2013

10000
9000
8000
7000
6000
5000
4000
3000
Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
2006 2007 2008 2009 2010 2011 2012 2013
Year ended

Source: compiled by the author using data from Ryanair (2006; 2007; 2008; 2009; 2010; 2011; 2012;
2013a).

Flight attendants represented the larger part of the airline personnel and they were
skilled employees that had to undertake periodic training programs offered by the
airline regarding on accident prevention and covering all the aspects of flight operations.
Then, pilots constituted the second larger group composed by 2625 people whose
average age was 35 years and whose average period of employment with the airline was
4.8 years (Ryanair 2013a).
Staff related to ground and maintenance operations was equal to 229 and 139 people
respectively: the small number was due to the fact that the airline was outsourcing those
activities to third-party entities.
Administrative personnel and management formed the remaining part of the staff.

55



Table 9. Ryanair’s staff classification, 2013
Classification

Flight Attendants 5763

Pilots 2625
Administrative 282
Ground Operations 229
Maintenance 139
Management 99
Total 9177

Source: Ryanair (2013a).

These people were representing undoubtedly a valuable resource for the organization
and they were allowing the company to achieve efficiency since they had one of the
highest rates in terms of productivity in the industry.

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3.2.7 Key Activities

This building block describes the activities an organization must perform to make its
business model work (Osterwalder and Pigneur 2010). After defining the general
configuration of an airline value chain, we will examine the Ryanair’s one.

3.2.7.1 The Airline Value Chain

It is useful to use Porter’s value chain concept to analyse the activities performed by
Ryanair in order to deliver its value proposition. Porter stated that every firm is a
collection of activities that can be segmented into primary and support ones. Primary
activities are involved with product’s physical creation, its sale, its distribution to
buyers and its service after sales, while support activities provide the resources that are
necessary for the primary activities to take place (Volberda et al. 2011).
However, some adaptations need to be done to create the value chain of an airline that is
a service organization, since the framework as defined by Porter is suitable just for
manufacturing organizations. First of all, the Porter’s primary activities can be re-
categorized among three phases that are potential, process and results phases. Second,
network planning and yield management are two support activities that have to be added
to the original ones (Wiedemann and Holtbrugge 2009).
The typical value chain of an airline is illustrated in figure 22.

Figure 22. The value chain of an airline

FIRM INFRASTRUCTURE
Support activities

HUMAN RESOURCE MANAGEMENT

TECHNOLOGICAL DEVELOPMENT

PROCUREMENT

NETWORK PLANNING

YIELD MANAGEMENT
f
RESULTS
POTENTIAL PHASE PROCESS PHASE
PHASE
Primary activities

POST-
PRE-FLIGHT FLIGHT
FLIGHT

FLIGHT
MARKETING INBOUND Follow-up
OPERATIONS Ground Ground
& SALES
PREPARATION
LOGISTICS
handling at
location of
Operations
handling at
location of
contact

departure arrival

57



The first phase is the Potential Phase and it is characterized by three groups of activity.
Marketing and sales are located at the beginning of the value chain, differently from
manufacturing organizations in which they take place at the end. Flight operations
preparation refers to all the activities related to planning flight paths taking into
consideration wind direction, weather, possible storms, landing conditions at destination
and load planning. Moreover, it includes maintenance activities that can be divided
between ordinary and heavy maintenance (Wiedemann and Holtbrugge 2009).
Finally, inbound logistics that generally refer to activities regarding receiving goods
from suppliers, storing the goods as inventory and managing the inventory, in this case
includes the apron activities that take place at the airport of departure such as cleaning,
fuelling, catering and loading of on-board equipment.
The second phase is the Process Phase in which passengers and their baggage are
involved, and it can be sub-divided in three sequential stages.
During the pre-flight stage, ground handling activities at the location of departure are
performed such as passengers’ check-in, boarding, loading of luggage onto the aircraft
and the pushback that can be defined as the action of moving the airplane from the
terminal to the runway.
The flight-stage is characterized by the actual relocation of the passengers and their
baggage from one location to the destination and by the on-board services such as
providing meals and drinks. Finally, the after-flight stage includes all the ground
handling activities at the location of arrival such as de-boarding of passengers,
unloading and recirculating the luggage back to their owners.
The third and last phase is the Results Phase in which follow-up contact activities take
place. They comprise Customer Relationship Management, complaint management and
the offering of Frequent Flyer Programs.

Regarding the support activities, the Firm Infrastructure includes activities such as
general management, planning, finance accounting and legal support, and they are
necessary in order to perform the value added activities efficiently and to drive
organization forward to meet the strategic objectives (Volberda et al. 2011).
Human Resource management refers to recruitment processes, compensation plans and
training activities that play an important role for airlines that usually train their pilots,
crew, baggage handlers and yield analysts.

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Technological development activities are essential to improve the firm’s products,
services and processes. For the airline companies, activities related to the digitalization
have become key factors in order to gain competitive advantage.
Procurement activities comprise the purchase of the inputs needed to produce the firm’s
product or deliver the service. Airlines are mainly committed to purchasing inputs such
aircrafts and fuel.
Network planning activity is related to the definition of the airports and destinations that
have to be part of the company’s offer. The decisions taken on regard are crucial since
fleet size, the number and the location of the slots are influenced by these choices
(Wiedemann and Holtbrugge 2009).
Finally, yield management activities are essential to match supply and demand in a way
that the maximal number of seats is sold at the highest achievable price.

3.2.7.2 The Ryanair’s Value Chain

Following, we will examine Ryanair’s primary activities distinguishing between core
and non-core ones.

Marketing and Sales Activities. These activities did not constitute the core of
the Ryanair’s business that was spending substantial lower amount of money
on marketing compared to direct competitors, and generally to other airlines.

Flight operations preparation. Ryanair had a quality assurance department

and qualified maintenance personnel that provided routine aircraft
maintenance and repair services including pre-flight checks as required by the
European Aviation Safety Agency. The company disposed of several
dedicated facilities around Europe as in London Stansted, Glasgow, Frankfurt
Hahn and Kaunas in order to keep its aircrafts efficient and ensure high safety
standard (Ryanair 2013a). Instead, Ryanair outsourced the heavy
maintenance and was planning to extend the contracts with external suppliers
since that allowed the company saving costs and focusing on the core
business avoiding complexity. Ryanair did not outsource flight-dispatching
activities due to the key role of aviation schedulers that kept the planes
operating on schedule and furnished flight plans that enabled the aircrafts to

59



arrive at its destination on schedule with the least operating costs (Ryanair
2013a, p68).

Inbound logistics. Ryanair did not perform directly many of the activities
related to the inbound logistics and it relied on external suppliers that
provided services as fuelling, cleaning and catering in order to make aircrafts
ready to use.

Ground handling at location of departure and arrival. The company was

dependent on external service suppliers regarding passenger, aircraft and
ground handling services in most of the airports with the only exception of
Dublin. Ryanair considered outsourcing these activities more convenient than
performing them internally since it was able to obtain competitive rates by
negotiating multi-year contracts at fixed prices (Ryanair 2013a, p49 and 70).

Operations. The flight service constituted the core activity performed by

Ryanair, with the company that relocated passengers and their baggage from
one location to another offering frequent point-to-point service on short-haul
routes. In 2013, the airline operated 512,765 flights and produced a total of
72,830 million Available Seat Miles (Ryanair 2013a, p83). Flights departures
were distributed between 6 a.m. and 11 p.m., while the airline reduced the
number of flights during the winter period due to the lower demand: it
grounded approximately 80 aircrafts from November 2012 to March 2013.
Ryanair provided additional in-flight services but at an added fee, offering a
limited selection of food and drinks. This allowed savings catering and
cleaning costs with Ryanair crew that distributed the nausea bags only on
demand since they were less necessary due to the lower food consumption
(Grob and Schroder 2007, p37).

The process phase comprised the key activities for the airline that founded its
competitive advantage on the efficiency achieved during this stage. In fact, the airline
was able to create value maximizing the utilization of it aircrafts by minimizing the
turnaround time to 25 minutes that was achieved through the close coordination among
the airline’s fleet planning, flight operations, ground operations, airplane maintenance

60



systems, air traffic controllers and airport authorities, and through the utilization of
outdoor stairs rather than jetways to speed up the boarding and de-boarding of
passengers.
In addiction, the adoption of the point-to-point system allowed achieving turnaround
times that were generally half as long as hub-and-spoke network, in which time was
longer to enable the synchronization between the feeder network and trunk routes (Mirza
2008).

Figure 23. A scheme of point-to-point and hub-and spoke configurations

C C

H H

A B A B
Point-to-point Hub-and-spoke

Optimizing airplane utilization helped the airline maximizing the large capital
investment it made in its airplanes by spreading fixed ownership costs over an increased
number of trips and by effectively lowering airplane-related operating costs (AROC). As
demonstration of that, Boeing estimated that reducing the average turnaround time from
40 to 30 minutes, for a point-to-point carrier with an average mission length of 500 miles,
improved the utilization level from 2304 trips per year to 2491 trips, and lowered AROC
by 2% for a Boeing 737-800 (Mirza 2008).
Next, we will examine Ryanair’s support activities.

Follow-up contact. Ryanair looked for standardization of the follow-up

activities since this led to cost savings, but in the same time it led to
disadvantages in terms of understanding customer needs and preferences, as
we have seen in the customer relationships section.

Firm-infrastructure. The Board of Directors of Ryanair performed and

coordinated all those activities such as general management, planning,
finance, accounting and legal assistance that were required to support the

61



work of the entire value chain. The members of the Board constituted five
different committees, each one executing different tasks.
The executive committee defined the strategic actions the company was going
to take; the Audit committee was composed by individuals with high financial
expertise and its main responsibilities were monitoring the integrity of the
financial statements, reviewing the risk management system, reviewing the
effectiveness of the company’s internal auditors and related issues. Then, the
Nomination committee had the important role of determining the composition
of the Board and periodically assessing the skills and knowledge of the
directors. The activities executed by this team were crucial to guarantee an
effective and high capable general management that could lead the company
to sustain its competitive advantage. Finally, the Air Safety committee dealt
with air safety and related issues. (Ryanair 2013a, p20)

Human Resource Management. Ryanair managed the relationships with its

employees negotiating with Employees Representation Committees (ERC)
that were internal collective bargaining units used to discuss with the airline’s
senior managers about work practices, conditions of employment and pay.
Ryanair‘s employees earned productivity-based incentive payments,
including a sales bonus for on-board sales for flight attendants and payments
based on the number of hours or sectors flown by pilots. During the 2013
fiscal year, such productivity-based incentive payments accounted for
approximately 46% of an average flight attendant‘s total earnings and
approximately 35% of the typical pilot’s compensation (Ryanair 2013a, p109).
Additionally, Ryanair was committed to directly train its pilots though four
Boeing 737-800 full flight simulators, and its maintenance personnel and
flight attendants through periodic programs that were approved by the Irish
Aviation Authority

Technological Development. Ryanair developed its booking website in 2000

with the aid of the external provider Navitaire allowing its users making and
paying for confirmed reservations in real time through the Internet facility.
Ryanair developed also an Internet check-in service system in 2009 in order
to reduce check-in lines and passengers’ handling costs, however the airline

62



was not sufficiently performing activities related to the digitalization of its
business model.

Procurement. The most important activities for airlines in term of

procurement are related to the provision of aircrafts and fuel.
Ryanair purchased airplanes exclusively from Boeing since 1998 and entered
a new agreement to purchase 175 Boeing 737-800 series aircraft during the
period 2014-2019 on 19 March 2013 (Ryanair 2013b).
Regarding the fuel provision, jet fuel represented an issue since its cost was
subjected to wide fluctuations as a result of many economic and political
factors occurring throughout the world that Ryanair could neither control nor
accurately predict. For this reason, the company had historically entered into
fuel hedging contractual agreements to reduce the exposure to volatile and
potentially rising fuel costs fixing capped cost via commodity swaps and
options. On the 26 July 2013, Ryanair covered roughly 90% of its estimated
fuel requirements for the fiscal year ending March 31, 2014 and around 75%
requirements for the fiscal year ending March 31, 2015 (Ryanair 2013a,
p134).

Network planning. Network planning was an essential activity for Ryanair

since choosing the right combination of airports and routes was essential for
sustain the competitive advantage and successfully implement its low-cost
model. The airline was continuously expanding its route system targeting
specific markets and it opened 217 new routes and 7 new bases in 2013.
However, the network planning activity did not apply just on the opening of
new routes, but it included also the evaluation and eventually shutdown of the
existing ones. The company’s Chief Operating Decision Maker (CODM),
Micheal O’Leary, cancelled routes from Madrid and Barcelona in 2012 since
Spanish governmental taxes had been doubled, making the routes not
convenient to operate anymore (Ryanair 2013a, p47).

Yield management. Ryanair was involved in yield management practices, as

described in the Revenue Streams section.

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3.2.8 Key Partnerships

The Key Partnerships building block describes the network of suppliers and partners
that make business model work. It is possible to distinguish among three different types
of partnership based on the nature of the entities with which the company has the
relation: buyer-supplier relationships, strategic alliances between non-competitors and
strategic alliances between competitors (Osterwalder and Pigneur 2010).

3.2.8.1 Buyer-Supplier Relationships

External Service Providers

Airlines transfer some activities to third parties if external providers can better manage
the operations under consideration in terms of efficiency, costs and expertise.
Outsourcing can lead to economic benefits by lowering operating costs such as
employee compensation and benefits, as well as recruiting and training expenses.
Moreover, airlines can focus more on core competencies rather than routine activities
and they can reduce cash outflow optimizing resource utilization (Khan 2014).
Low-cost airlines outsourced many activities in the attempt to drive costs down as the
case of Ryanair that relied on some external providers in 2013, as emerged in the Key
Activities section. The airline outsourced the heavy maintenance to General Electric
Engine Services that had signed a ten-year agreement in 2004 with an option for 10-
year extension, and it provided maintenance especially for repair and overhaul of
engines (Ryanair 2013a). Regarding inbound logistic activities, the airline outsourced
catering and cleaning to third parties as the ISS FS Transport at Luton and Stansted
London airports, since the management believed they were more cost-efficient (Fmj
2013). Servisair plc and Swissport Ltd provided ticketing, passenger, aircraft and
ground handling services in the Irish and UK airports, while local authorities delivered
the same services across continental Europe operating bases either directly or through
sub-contractors. Ryanair relied on external parties also for the administration of its
website since Ryanair.com was operating under a hosting agreement with Navitaire
LLC that is a subsidiary of the management consulting firm Accenture, that provides
technology services to the airline and rail industries.
Finally, the airline outsourced partially its call centre activities to third-party providers.

64



Suppliers of Capital
Ryanair was a regular borrower due to the nature of its business that required high
amount of capital; therefore, it is necessary to understand the financial sources of the
company. Following, we will identify the aircraft-financing environment and its major
players and then we will define the suppliers of capital used by Ryanair.
The main players in terms of aircraft financing are listed and described below.

Leasing companies. The aircraft leasing market was dominated by two large
US entities, GECAS and ILFC, which had a fleet larger than any airline in the
world in 2012. Beyond these companies, there were many growing new
entrants such as AerCap, Aviation Capital Group and AWAS (PwC 2013b).
Leasing companies were offering both operating leasing and financial leasing.

Commercial Banks. Banks lend money to airlines with the loan guaranteed by
the aircraft, with the bank that can repossess the aircraft if the airline stops
playing its loan.

Export Credit Agencies. Aircraft manufacturers such as Boeing and Airbus

are very important for the countries they produce in since these companies
employee thousands of people. For this reason, governments help aircraft
exports guaranteeing loans (PwC 2013b).
In the case of Boeing, the Export-Import Bank of the United States guarantees
the financial institutions that provide loans to airlines in the case they stop
paying.

Aircraft Manufacturer. Aircraft manufacturers can finance the purchase of the

planes they produce, leasing them on finance or operating lease.

Capital Markets. Capital markets fund commercial aircrafts through the usage
of Enhanced Equipment Trust Certificates (EETCs) that are bonds that
airlines issue to pay for aircraft. The airline sets up a special purpose
company or SPV, which only purpose or business is to own the aircraft, that
issues bonds to investors. The SPV uses the cash from these bonds to buy
aircraft and the airline then makes lease payments to the SPV that passes
these to the investors as bond interest (Airfinance Journal 2015).

65


Japanese Investors. A Japanese Operating Lease with Call Option is an

operating lease fully or partly funded by a Japanese investor or equity sourced
from Japan that can provide airlines with 10 to 12 years of low-cost aircraft
funding. JOLCOs comprise a purchase option with the airline that can buy the
aircraft at a fixed price at the end of the period (DVB Bank 2009).

Ryanair had funded the acquisition of its aircrafts through different suppliers of capital.
210 aircrafts had been funded through borrowings under facilities provided by financial
institutions on the basis of guarantees issued by the Export-Import Bank of the United
States. 30 aircrafts had been funded through Japanese Operating Leases with Call
Options (JOLCO) and 6 through commercial bank financing. The remaining 59 aircrafts
had been financed through operating lease arrangements with leasing companies.
Ryanair did not own these aircrafts and it had no right or obligation to purchase them at
the end of the 7 years lease period (Ryanair 2013a, p98).

Suppliers of Aircrafts
The global commercial airplane market for aircrafts with a seating capacity of over 100
passengers was dominated by Boeing and Airbus, with the U.S. manufacturer that
delivered 648 commercial airplanes and had a global market share of 43% in 2013
(Forbes 2014). Ryanair had established a stable partnership with Boeing purchasing 348
airplanes since 1998, and obtaining favourable purchase terms.
For instance, the aircraft manufacturer submitted a competitive offer as it was used to
do with the airline in 2013, granting price concessions and allowances for promotional
activities, as well as providing support in addition to manufacturing and delivering the
new aircrafts. Moreover, Boeing granted favourable payment terms with the option of
terminating the contract without penalties in specific circumstances and provided
Ryanair with an extended warranty on the new aircrafts that made the purchase even
more convenient. Boeing was an ideal partner for Ryanair also due to the financing
benefits offered by the Export-Import Bank of the United States (Ryanair 2013b).

Airports
Airports are essential suppliers for any airline that needs their facilities, slots and
runways in order to operate the flights.

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3.2.8.2 Strategic Alliances between Non-Competitors

Ryanair was able to deliver additional services to its value proposition and enrich its
offer through some partnerships with third-party entities.
The airline was offering hotel and accommodations through the website
RyanairHotels.com that was the result of the partnership with HotelsCombined in 2012.
The website was providing Ryanair’s passengers the lowest hotel prices using screen-
scraping methods to find the cheapest deals among 300,000 hotels across Europe: the
carrier wanted to help customers save money on accommodation, as well as flights
(Staywise.org 2012).
Ryanair was also giving its passengers the opportunity to rent cars at favourable rates
through a partnership with Hertz. The first deal between the two companies originated
in 2005 when Hertz started offering preferential fly-drive rates to Ryanair passengers
and paying the airline a percentage of the sale price. Specifically, the percentage was set
at around 20% for the first 10,000 cars rented, rising at 30% for the next 20,000 cars
and then rocketing to 50% (Creaton 2007). In the financial year ended March 2008, the
airline generated €25.2 million in revenue from car hiring and the following year it
extended the deal till 2014 (Mulligan 2009).
Regarding rail and bus tickets, Ryanair entered into various partnerships with national
rail operators and coach operators as National Express, Terravision and Plus Group, in
all of the airports it served across Europe (National Express 2013).
Finally, the airline had strategic alliances with financial institutions as Deutsche Bank,
GE Money, Mastercard and Banco Santander in order to provide its branded credit and
prepaid cards.

3.2.8.3 Strategic Alliances between Competitors

In the airline industry, most of the passenger carriers belonged to three major alliances
that were Star Alliance that had 27 members, Oneworld that had 15 members and
SkyTeam that had 20 members in 2013 (Hill 2014).
The alliances generated positive externalities produced by the “network effect”: the
carriers were able to offer passengers an extended network of routes through code

67



sharing agreements that made booking easier and moving between connections more
efficient, besides lowering down ticket prices.
Moreover, agreements were likely to be made by partners with complementary
resources in order to overcome trade barriers, develop new knowledge, sharing
processes, create value in the marketing and sales primary activity segment of the value
chain, gain market power and market share.
Despite the numerous advantages, Ryanair did not have strategic alliances with any
airline in 2013.

68



3.2.9 Cost Structure

The cost structure describes all the cost incurred to operate a business with
organizations that can be more or less cost-driven (Osterwalder and Pigneur 2010).
In the airline industry, low-cost carriers adopt cost-driven business models, while legacy
carriers operate more value-driven models that focus on offering premium value
propositions. However, the minimization of costs is important for both since the airline
industry is an extremely competitive environment in which it is difficult to raise prices,
thus leaving cost control the only real solution to profitability.
The costs of an airline’s resources can be divided between operating and non-operating
costs. Airline operating costs are those that are incurred in the process of providing air
transport services to passengers, which include aircraft expenses, fuel, maintenance,
staff expenses, landing fees, and other operating expenses.
Instead, airline non-operating costs are those associated to the financial structuring of
the company, as interest expenses that are the most common ones, and any loss on the
sale of aircrafts or losses from investments positions (Vasigh 2015).
Moreover, airlines are subjected to taxation that is a cost area they have very little
control on, and that differs greatly from country to country.

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3.2.9.1 Ryanair’s Cost Structure

Ryanair’s operating costs for the period from 2009 to 2013 are shown in the table 9,
while table 10 shows the same costs but expressed as percentages of total operating
expenses – common-size income statement - since they are useful to compare changes in
cost structure over time.

Table 10. Ryanair’s operating expenses, 2009-2013

Mar Mar 31, Mar Mar Mar
OPERATING EXPENSES
31,2009 2010 31,2011 31,2012 31,2013
Staff costs 309,296 335,000 376,100 415,000 435,600
Depreciation 256,117 235,400 277,700 309,200 329,600
Fuel and oil 1.257,062 893,900 1.227,000 1.593,600 1.885,600
Maintenance, materials and
66,811 86,000 93,900 104,000 120,700
repairs
Aircraft rentals 78,209 95,500 97,200 90,700 98,200
Route charges 286,559 336,300 410,600 460,500 486,600
Airport and handling charges 443,387 459,100 491,800 554,000 611,600
Marketing, distribution &
12,753 144,800 154,600 180,000 197,900
other
Other 139,140 0,000 12,400 0,000 0,000
Total operating expenses 2.849,334 2.586,000 3.141,300 3.707,000 4.165,800

Table 11. Ryanair’s common-size operating expenses, 2009-2013

Mar Mar 31, Mar Mar Mar
OPERATING EXPENSES
31,2009 2010 31,2011 31,2012 31,2013
Staff costs 10,86% 12,95% 11,97% 11,20% 10,46%
Depreciation 8,99% 9,10% 8,84% 8,34% 7,91%
Fuel and oil 44,12% 34,57% 39,06% 42,99% 45,26%
Maintenance, materials and
2,34% 3,33% 2,99% 2,81% 2,90%
repairs
Aircraft rentals 2,74% 3,69% 3,09% 2,45% 2,36%
Route charges 10,06% 13,00% 13,07% 12,42% 11,68%
Airport and handling charges 15,56% 17,75% 15,66% 14,94% 14,68%
Marketing, distribution &
0,45% 5,60% 4,92% 4,86% 4,75%
other
Other 4,88% 0,00% 0,39% 0,00% 0,00%
Total operating expenses 100,00% 100,00% 100,00% 100,00% 100,00%

Source: Compiled by the author using data from Ryanair (2009; 2010; 2011; 2012; 2013a).

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Fuel was the largest operating cost and it accounted for 45,26% of total operating
expenses in 2013, even if its weight on the airline’s cost structure had changed
significantly from 2009 to 2013.

Figure 24. Fuel costs/Total operating costs (%), 2009-2013

50,00%

45,00%

40,00%

35,00%

30,00%
Mar 31,2009 Mar 31, 2010 Mar 31,2011 Mar 31,2012 Mar 31,2013
Year ended

Source: Compiled by the author using data from Ryanair (2009; 2010; 2011; 2012; 2013a).

The fluctuation was due to the fact that the price of the jet fuel is highly correlated to
the price of the crude oil since it is derived from it, and therefore it is subject to wide
oscillations as a result of many economic and political factors occurring throughout the
world. Figure 25 shows the historical development of the price of jet fuel and crude oil
per barrel from January 2007 to January 2013.

Figure 25. Jet fuel and crude oil price correlation, 2007-2013

Jet Fuel Price Crude Oil Price (Brent)

180
160
140
US $/barrel

120
100
80
60
40
20
0
mag-07

mag-08

mag-09

mag-10

mag-11

mag-12
gen-07

set-07
gen-08

set-08
gen-09

set-09
gen-10

set-10
gen-11

set-11
gen-12

set-12
gen-13

Source: Compiled by the author using data from Index Mundi (2016).

71



The oil price registered a massive drop in 2008 due to the recession and that is why
Ryanair’s fuel costs accounted just for 34,57% on March 31, 2010. After that, the oil
price steadily increased till 2011 for mainly lying at the same level until March 2013.
Fluctuating fuel prices were a considerable cause of concern for Ryanair since increased
fuel costs passed to passengers through increased fares, reducing their willingness to fly.
Staff costs including wages, salaries and benefits usually represented the second largest
operating expense for airlines. However, low-cost carriers had considerably lower
personnel costs than legacy ones due to the fact that LLCs needed a smaller number of
employees that were used to work multiple roles, as flight attendants that also cleaned
the aircrafts or worked as gate agents.
Ryanair’s staff costs accounted just for 10,46% of total operating expenses in 2013,
much less compared to some legacy carriers as Airfrance–KLM (29,46%) and
Lufthansa Group (23,40%).

Figure 26. Staff cost on total operating expenses (%) for legacy and low-cost
carriers

35%
30%
25%
20%
15%
10%
5%
0%
Airfrance-KLM Lufthansa Group Easyjet Ryanair

Source: Compiled by the author using data from Air France-KLM (2013), EasyJet (2013), Lufthansa
Group (2013) and Ryanair (2013a).

Other operating costs included maintenance, aircraft rentals and route charges that did
not exhibit a significant shift in the airline’s operating cost structure during the period
analysed. Instead, airport and handling charges decreased during the period in relative
terms.

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3.2.9.2 Ryanair’s Cost Structure compared to Competitors

Many organizations track unit cost that is the cost incurred by a company to produce,
store and sell one unit of a particular product considering all fixed and all variable costs
involved in production. Knowing cost per unit is useful to determine the company’s
efficiency and helps business owners to price their products.
For passenger airlines, unit cost is known as Cost per Available Seat Kilometer (CASK),
where ASK is a measure of the passenger carrying capacity of an airline, and it is equal
to the number of seat available multiplied by the number of kilometres flown. CASK is
obtained dividing total operating costs by Available Seat Kilometres and allows airlines
comparing costs over several periods or with competitors (Belobaba et al. 2009). The
lower the CASK, the more efficient an airline is operating.

Operating Costs
CASK =
Seats available ∗ kilometers flown

Ryanair’s CASK was equal to € 0,03554 in 2013, registering an increment of

approximately 9,8% compared to the previous year and an overall increase of 18%
compared to 2010. However, the growth of the CASK was due to the upsurge in the fuel
price that the airline could not influence; in fact, the CASK computed excluding the fuel
component had remained relatively stable.

Figure 27. Ryanair's CASK, 2010-2013

CASK excluding fuel Fuel Component

Mar 31,2013
Year ended

Mar 31,2012

Mar 31,2011

Mar 31, 2010

0,0000 0,0100 0,0200 0,0300 0,0400

CASK €

Source: Compiled by the author using data from Ryanair (2010; 2011; 2012; 2013a).

73



Ryanair had the lowest unit costs of any European airline and one of the lowest of any
airline in the world in 2012, as shown in figure 28. However, it is necessary to take into
consideration that the average sector length had an influence being negatively correlated
with CASK, therefore the comparison between airlines flying short-haul routes and the
ones flying medium and long-haul routes was biased. In fact, carriers flying longer
average stage length were able to spread fixed costs over a larger output of ASK.

Figure 28. Unit costs and average sector length for selected European legacy and
low-carriers in 2012

Source: Adapted from CAPA (2013a).

The major European low-cost carriers as Ryanair, easyJet, Norwegian and Vueling were
able to enjoy lower input costs in many areas of their operations compared to legacy
carriers. This resulted in considerably lower costs per passenger with Ryanair that was
outperforming its peers in 2012.

74


below.
Key Partners Key Activities Value Propositions Customer Relationships Customer segments

Operations! Transactional Marketing!

Buyer-supplier relationships! 25-minute turnaround time! Short-term relationships!
! Network planning! Low customer service!
External service providers! Yield Management! Low commitment to customers!
Suppliers of capital! Poor touchpoints!
Core air passenger service!
Suppliers of aircrafts!
Lowest fares!
Airports! Wide range of destinations
! across Europe!
! Leisure passengers!
Strategic alliances between Key Resources Ancillary services! Channels (short-haul)!
non-competitors! Non-flight scheduled services!
3.2.10 Ryanair’s Canvas in 2013

! In-flight services!
Hotel and Accommodations!
Internet-related services!
Car Rental! Physical!
Bus and Rail tickets ! Fleet, Location of airports! Distribution channels!
Branded credit card! Financial! Website!
Borrowing capacity! !
Intellectual! Communication channels!
Brand! Earned media !
Figure 29. Ryanair's Business Model Canvas, 2013

Human! Owned media!

O’Leary, Management Team! !

Cost Structure Revenue Streams

Jet Fuel!
Lowest CASK ! Scheduled passenger ! Ancillary !
Airport and handling charges!
among all the European carriers! Revenues! Revenues!
Route charges!
Yield Management! List Price!
Staff cost!
The nine building blocks are summarized and represented graphically in the figure

75


4 THE DESIGN SPACE OF THE NEW

BUSINESS MODEL

4.1 The Need for Transformation

Ryanair had registered exceptional financial results for the period 2010-2012, beating
every time analysts’ profit forecasts. However, the airline underperformed against
targets issuing its first profit warning after a decade in September 2013: it advised the
stock market that profits would have been lower than expected and that they would have
fallen for the first time in five years. Ryanair issued a second profit warning in
November, in which it cut its profit forecast further from €570 million to €510 million
for the year ending March 2014 (Coombs 2014).
Micheal O’Leary stated that the financial situation was “a bit grim” (Monaghan and
Topham 2013) and this was confirmed by the fact that the airline reported Q3-2014
(October-December 2013) losses of €35.2 million (Ryanair 2014b).

Figure 30. Ryanair's profit after taxation, 2010-2014

600
Forecasted
500

400
Million (€)

300

200

100

0
Mar 31, 2010 Mar 31,2011 Mar 31,2012 Mar 31,2013 Mar 31,2014
Year ended

Source: Compiled by the author using data from Ryanair (2010; 2011; 2012; 2013a; 2014b).

76



In addition, Ryanair had been voted worst brand in Britain and one of the worst in
Europe for customer service in September 2013 with consumers that judged negatively
its staff’s knowledge, attitude and ability to deal with issues. For instance, passengers
said Ryanair was “aggressive and hostile towards customers” and some of them claimed
to be happy to pay more on a rival “to be treated like a human being” (Savid 2013).
The negative financial results and the negative brand responses led the airline’s Board
of Directors to consider some strategic changes. The management decided to review the
business model of the company to sustain the competitive advantage and redesign the
content of the nine building blocks to fit the changing market conditions.
The Business Model Adaptation required a good understanding of the external trends
and factors such as new customer needs, new technologies and major competitors
actions.

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4.2 Mapping the Environment

In this section, we will map Ryanair’s environment in order to describe in which context
the new business model was born and the major trends that influenced the airline’s
strategic decisions.
We will examine four main areas to get a good comprehension of the business model
“design space”, as suggested by Osterwalder and Pigneur (2010). These are: market
forces, industry forces, key trends, and macroeconomic forces.

Figure 31. Business model environment

KEY
TRENDS

KP KA VP CR CS

INDUSTRY KR CH MARKET
FORCES FORCES
CS RS

MACRO-
ECONOMIC
FORCES

Source: Osterwalder and Pigneur (2010).

78



4.2.1 Market Forces

4.2.1.1 Market Segments

The analysis of the major market segments was important in order to understand where
there were growth opportunities. The results of the IATA Global Passenger Survey
conducted among 5500 participants showed that Business travellers spent considerably
larger amount of money on flying compared to Leisure travellers. In fact, the business
passengers mostly spent up to $12000 yearly, while the leisure ones just up to $3000.
Therefore, those airlines that were targeting just leisure travellers were not considering a
part of the market that could have been very lucrative (IATA 2014a).

Figure 32. Amount spent over 12 months on leisure travel (left) and on business
travel (right) in 2014

6% 4% 15% 6% 4%
24%
12%
15%

20%
16%
17% 21%

23% 17%

Less than $500 $501-$1000 Less than $1000 $100-$3000

$1001-$2000 $2001-$3000 $3001-$6000 $6001-$12000
$3001-$6000 $6001-$10000 $12001-$24000 $24001-$48000
More than $10000 More than $48000

Source: IATA (2014a).

In addition, the Business traveller segment could be sub-segmented in order to identify

groups of customers with similar and specific needs that airlines could target with
appropriate value propositions, based on their specific preferences, behaviours and
attitudes.
PwC (2013c) identified five experience segments.

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High-Standard Segment
Passengers belonging to the High-standard segment were wealthy individuals that
travelled very frequently and looked for luxury and exclusivity. They were very time-
sensitive, they required priority security line and comfortable seats, and they were
willing to pay a premium for upgraded seats and in-flight content. Passengers of this
segment expected to be treated as elite fliers by the airline’s staff.

Figure 33. High-standard segment characteristics Low High

Demographics Top purchase drivers Top experience themes

Annual income >$150K Routes/times Friendly staff #1
Large
Company type Ticket/price Helpful staff #2
corporation
CEO, Senior Loyalty Upgrades and
Position Type #3
Level programs/FFP freebies
Travel profile Top preferences Top add-ons
Purpose of travel Business Seat space Upgraded seats
Average travel Priority security
27 per year In-flight content
frequency line
Travel spend per
>$24K Lounge access
year
Within a
Time of purchase
week

Source: Adapted from PwC (2013c).

80



Efficiency Segment
Passengers of the efficiency segment were slightly less wealthy compared to the ones of
the high-standard segment, and they looked more for productivity rather than
exclusivity. They required priority security line in order to save time and Wi-Fi access,
both in the airport and inside the plane to be able to work during the flight.
They became loyal to the airline when this was able to provide simultaneously
convenience and efficiency.

Figure 34. Efficiency segment characteristics Low High

Demographics Top purchase drivers Top add-ons

Food/beverage
Annual income >$150K Routes/times
at the airport
Small Food/beverage
Company type Ticket/price
business in-flight
Director Loyalty
Position Type Wi--Fi in-flight
level programs/FFP
Travel profile Top preferences Top experience themes
Separate business
Purpose of travel Business Helpful staff #1
class
Average travel 28 per Priority security
Friendly staff #2
frequency year line
Travel spend per Upgrades and
$12-$48K Seat space #3
year freebies
Within a
Time of purchase Wi-Fi access
month

Source: Adapted from PwC (2013c).

81



Upgrade Segment
These passengers did not belong anymore to the elite segment, but to the middle-of-the
road one. They flied less frequently, around 9 times a year, and they were inclined to
pay for small luxuries like seat space and priority treatment to make the flight more
comfortable. Airlines could considerably improve their customer experience by
providing them freebies and discounts to tempt them to upgrade.

Figure 35. Upgrade segment characteristics Low High

Demographics Top purchase drivers Top add-ons

$100- Purchasing any
Annual income Routes/times
$150$ add-ons
Medium
Food/beverage
Company type sized Ticket/price
at the airport
business
Mid-level Loyalty
Position Type Seat type
staff programs/FFP
Travel profile Top preferences Top experience themes
Business& Upgrades and
Purpose of travel Seat space #1
Leisure freebies
Average travel 8-9 per Priority security
Helpful staff #2
frequency year line
Travel spend per Rebooking via Food and
$3-$6K #3
year digital channels Beverage
Within a
Time of purchase
month

Source: Adapted from PwC (2013c).

82



Deal-seeking segment
Deal-seeking passengers earned lower income compared, therefore they were more
price-sensitive with ticket price that was a more important driver for the purchase. Their
mantra was “waste not, want not”, that literally means “if we don't waste what we have,
we'll still have it in the future and will not lack (want) it”.
They preferred package options (bundles) since these made them feeling like they were
making a deal, and they appreciated rewards and freebies. Airlines had to serve them by
meeting their needs in terms of flexibility and time-sensitiveness.

Figure 36. Deal-seeking segment characteristics Low High

Demographics Top purchase drivers Top add-ons

“Premium”
Annual income $50-$75 Routes/times
seating

Small Food/beverage
Company type Ticket/price
business in-flight
Manager, Checked bags
Loyalty
Position Type Director-
programs/FFP at the airport
level
Travel profile Top preferences Top experience themes

Business& Upgrades and

Purpose of travel Lounge #1
Leisure freebies
Average travel Helpful staff #2
8 per year Seating comfort
frequency
Travel spend per Priority security Friendly staff #3
$1-$6K
year line
Within 1-3 Rebooking and
Time of purchase
months change flights

Source: Adapted from PwC (2013c).

83



Functional segment
Also functional segment travellers were price-sensitive individuals that were concerned
both with the fare and the timing of the flight. They did not indulge in additional frills
and therefore their likelihood of purchasing any add-ons was very low. Their customer
experience depended on the staff that had to be helpful and friendly with them in order
to gain their loyalty.

Figure 37. Functional segment characteristics Low High

Demographics Top purchase drivers Top add-ons
“Premium”
Annual income $50-$100K Routes/times
seating
Food/beverage
Company type Government Ticket/price
in-flight
Entry, mid- Loyalty Checked bags at
Position Type
level programs/FFP the airport
Travel profile Top preferences Top experience themes
Mostly Separate Upgrades and
Purpose of travel #1
business business class freebies
Average travel
11 per year Seating comfort Helpful staff #2
frequency
Travel spend per Priority
$1-$6K Friendly staff #3
year boarding
Within 1-3 Rebooking and
Time of purchase
months change flights

Source: Adapted from PwC (2013c).

84



4.2.1.2 Needs and Preferences

Enhanced Customer Experience

People had grown accustomed to seeing significant improvements in their experiences
with things they bought over the last years with products that became more reliable and
more user-friendly than ever before, consequently airline passengers started to require
enhanced customer experience (Clayton and Hilz 2015). For instance, both business and
leisure travellers were requiring more seat space in order to improve their flight
experience and they were becoming less willing to waste time queuing at security.

Figure 38. Acceptable queuing time at security

2012 2013 2014

60%

50%

40%

30%

20%

10%

0%
Less than 5 minutes Between 5 and 10 Between 10 and 20 More than 20
minutes minutes minutes

Source: IATA (2014a).

Moreover, flyers were requiring higher quality of customer service and prompt help to
solve their issues. When airlines did not listen and respond adequately, they were used
to switch carrier as soon as they had a chance and discourage other customers from
using the same airline. Negative word-of-mouth had a negative impact on the carrier’s
reputation since bad experiences were usually told and retold for a longer period of time
compared to positive ones, influencing potential customers’ purchase decisions.
Therefore, airlines had to avoid that by addressing as much as customer issues as
possible through quick solutions as apologies and compensation, and through
innovative ways such as Social media. Repurchases increased of 63% after apologies

85



and of 66% after compensation in the U.S. market in 2013 based on a PwC study,
demonstrating the efficacy of the two solutions (PwC 2013c).

Promotional Bundles
Airlines were offering too many add-ons to customers that found difficult and too
expensive to create their desired combination of extra services, choosing them à la carte.
Therefore, they required the airlines to bundle trip extras promoting tiered and
customizable packages with amenity options based on customer data and preferences
(PwC 2013c). For instance, some passengers desired an in-flight basic bundle
comprising in-flight Wi-Fi, in-flight food and beverage, and baggage allowance. Instead,
time-sensitive business travellers felt the necessity for an efficiency bundle including
priority check-in and security line, and flight change flexibility.

Figure 39. Example of possible bundles based on customers’ preferences

In-flight basic bundle Luxury bundle

In-flight Wi-Fi Concierge services

In-flight food and On-board
lounge
beverage Luggage pick-up
Baggage and delivery

Efficiency bundle Comfort bundle Entertainment bundle

Priority check-in Seat type Tablet rental

Security line Seat location
Specific content
Flight flexibility Lounge access Wi-Fi (air and ground)

Family bundle Group bundle

Discounts for Flexibility regarding

children submission of
the
Flight + Hotel + the names
Attractions Airport services

86



Do-It-Yourself Options
Most of airline passengers were tech-savvy customers that preferred Do-It-Yourself
(DIY) options to perform routine tasks related to the flight, such as research&purchase
and check-in&boarding (PwC 2013c). Therefore, digital systems such as websites and
mobile apps that allowed flyers to access information and interact with the airline
needed to be constantly developed in order to match customers’ needs.
Airline passengers were used to compare multiple travel and airlines’ web pages before
purchasing tickets, as shown by the results of the IATA Global Passenger Survey
(2014a), hence carriers had to develop easy-to-use website where customers could
easily find all the information they needed during the research&purchase process.

Figure 40. Number of websites compared before booking flights

8% 15%
3%
6%
1
2
3
19%
4 to 5
22%
6 to 10
More than 10
Do not remember
27%

Source: IATA (2014a).

Regarding the check-in&boarding phase, travellers preferred completing the process on-
line through the website or the mobile app rather than doing it at the airport using kiosks.
Moreover, an increasing number of travellers would desire to receive the boarding-pass
automatically, avoiding all the hassles related to the process (IATA 2014a).
Once the check-in was done, passengers would have liked to receive and manage the
electronic boarding-pass via mobile app and therefore, any airline that wanted to
enhance customer experience and satisfaction had to develop its own app.

87



Connectivity
The diffusion of smartphones and the increasing amount of people that wanted to be
always connected drove up the demand for Wi-Fi, both at the airport and in-flight.
According to HIS, the average personal electronic device user spent over 40 per cent of
his flight-time using the device, and desired to be online also inside the plane (PwC
2013c).
The demand for Wi-Fi depended on the length of the route: the longer the haul, the
higher the demand. Even if business travellers’ request for connectivity was higher,
leisure passengers required in-flight Wi-Fi as well, and they were willing to pay a
premium for it. However, some passengers such as younger flyers were expecting Wi-Fi
to be offered for free.
Airlines had to invest in infrastructure and structure Wi-Fi offerings to meet the
customers’ connectivity needs.

88



4.2.2 Industry Trends

4.2.2.1 The Evolution of the Airline Industry

The origin of the airline industry dates back to 1909 when DELAG, the first airline
company, was established in order to provide passenger air service (Airships.net 2015).
Following the introduction of major technological innovation in the 1950s and the
development of the “jumbo-jets” in the 1970s, the industry started to play a decisive
role in the creation of the global economy and it became a major economic force.
Most of the airline companies in the early 1980s were government owned since the
airline industry was perceived too fragile to be exposed to competition, since the private
sector was reluctant to assume the financial cost and the economic risk associated with
operating an airline was to high. However, a partial or complete privatization of many
government-owned airlines had transformed the industry since the mid-1980s and more
and more private carriers emerged with the consequent explosion of low-cost carriers
(Belobaba et al. 2009).
A significant characteristic of the industry is that overall profitability is cyclical with
upturn cycles typically compensating the effects of preceding downturns as shown in
the figure.

Figure 41. Net margin profits of the worldwide airline industry, 1975-2013

4,50%
3,50%
2,50%
1,50%
0,50%
-0,50%
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013

-1,50%
-2,50%
-3,50%
-4,50%

Source: Compiled by the author using data from Cento (2009) and IATA (2014b).

89



After the industry posted four consecutive years of losses totalling over $22 billion from
1990 to 1993 as a result of the Gulf War, it returned to record profitability in the late
1990s due to worldwide increases in GDP and a greater demand for travel resulting
from globalization. Even more dramatic was the industry’s plunge into record operating
losses between 2001 and 2005 due to the terroristic attacks of 11 September 2001 and
the SARS virus in 2003 (Cento 2009). The negative consequences of the financial crisis
had been equally significant in 2008 and 2009, while the industry was in an upturn
cycle in 2013.

4.2.2.2 Airline Business Model Convergence

The U.S. airline deregulation in 1978 and the following European deregulation in the
1990s encouraged industry participants to look for sustainable competitive advantage
through dozens of different business models covering the spectrum of service level,
geography, frequency and price.
Through the 2000s, the net result of this business model experimentation was a clear
competitive dichotomy between Traditional Full-Service Carriers (FSCs) that provided
a wide range of destinations, frequent and flexible services to the needs of both business
and leisure travellers, and Low-Cost Carriers (LCCs) that offered a “no-frills” service
and very low fares to leisure passengers (L.E.K. Consulting 2014). However, the higher
competition on the aviation market, the global economic crisis in 2008-2009 and the
increasing fuel prices forced either FSCs or LCCs to adjust their business models to
remain competitive over the long term.
After low-cost carriers penetrated and reached the most price-sensitive business
passengers in the latter half of the 2000s, especially in the short-haul routes, traditional
airlines reviewed their business strategies to compete for the cost-conscious and short-
haul passengers they were loosing. Therefore, they started to streamline their processes,
they adopted selective product unbundling and new distribution methods, and they
reduced fares.
As consequence, LCCs reviewed their business models as well in order to respond to
the strategic changes of the legacy carriers. Even if price remained the key competitive
factor, they placed more emphasis on integrating new services and on enhancing
customer service that were typical features of the other model. Moreover, they targeted

90



business travellers providing reasonable fares combined with the flexible and frequent
service they wanted, besides participating in GDSs (Sabre 2010). This was the case of
easyJet, one of the low-cost model pioneer in Europe, that decided to target the business
travel market in 2013 in order to sustain its strategic growth objectives. The airline
adapted its distribution channels partnering with GDS Amadeus and fine-tuned its offer
introducing the business specific Inclusive and Flexi Fares, in addition to the existing
Standard Fare to suit business passengers’ specific needs (Amadeus 2015).
The final result of the changing business models was that airlines were becoming more
similar across the full spectrum of their strategies, activities and asset configurations,
and the two initially distinctive business models were evolving into one hybrid, sharing
features of both the initial forms (Albers 2015).

Figure 42. Airline business model hybridization

Low-Cost Hybrid Full-Service
Model Model Model

Fares One tariff, Low Multiple, Med/High

Frills No-frills Yes

Cabin Class One passenger class 2-4 passenger classes

Structure of
Network Point to point Hub & Spoke Network

Geographical
Short to medium haul Short to long haul
Network Coverage

Type of
Secondary airports Primary airports
Airports Used

Fleet Homogeneous fleet Multi-fleet

Sales &
Online sales GDS/online sales
Distribution

Alliances & No Yes

Loyalty Programs

Schedules Lower Frequency High frequency

Type of
Leisure Leisure, Business
passenger

91



4.2.2.3 The Industry Forces

We will analyse the characteristics of the main forces that shaped the airline industry in
the last years using the Porter’s 5 forces model in order to understand which industry
dynamics influenced Ryanair’s strategic decisions.

Figure 43. Porter’s Five Forces Model

Threat of
New
Entrants

Bargaining Rivalry Bargaining

Power of Among Power of
Suppliers Existing Buyers
Competitor
s

Threat of
Substitute
Products

Threat of New Entrants

New entrants bring additional production capacity and a desire to gain market
share shaking up competition, forcing incumbents to hold down their prices and
reducing the overall profitability of the industry (Porter 2008).
The threat of new entrants in the airline industry was high due to the elevated
number of new airlines that entered the market each year: on average, 33 carriers
a year had been established from 1970 to 2009 for a total of more 1300 new
players, even when the profitability of the industry was low and the economic
conditions were adverse (IATA 2011). It is possible to observe in figure 44 how the
entry had been cyclical during the 40 years period and how entry and exit rates
increased after 2000 with a significant number of new entrants failing, even in the

92



LCC segment. No data is available regarding the number of new entrants from
2009 to 2013, but we expect that many players entered the market due to the
recovery of the global economy.

Figure 44. Net Entry of New Airlines, 1970-2009

100

80
Recessions
60
Number of Airlines

40

20

-20

-40

-60
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

New Entrants Exit Mean

Source: IATA (2011).

The threat of new entrants depended on the barriers of entry that were still high even if
much smaller compared to the past for players outside the industry that wanted to
establish a new airline, but very low for existing carriers that aspired to expand their
services to new customer segments, as demonstrated by the hybridization phenomenon
through which LCCs targeted FSCs’ passengers, and vice versa.
Next, we will analyse the different kinds of entry barriers.

Economies of scale. Incumbents had structural cost advantages associated

with the achievement of economies of scale through which unit costs declined
as a function of increasing output. Large fleets of a type allowed lower cost
per unit since efficiency increased in some activities as maintenance, pilot
and crew training and managing the inventory. Incumbents realized supply-
side benefits of scale since they could command better terms for suppliers: for
instance they were able to obtain substantial discounts on aircraft orders if

93



they involved a large amount of bodies. However, supply-side economies of
scale were less significant once a carrier had a fleet with more than 50
aircrafts and they were almost not significant for existing airlines looking to
expand into new markets (Holloway 2008).

Capital requirements. Great amount of capital was required for aircraft

purchases, physical facilities and marketing activities in the airline industry.
Investors, aircraft producers and mostly banks were financing the acquisitions
of planes until 2008, but after the financial crisis several European banks had
rating downgrades due to their exposure to the debt crisis, and they started
withdrawing from balance sheet heavy investments on aircrafts (PwC 2013b).
Considering what stated above, it would seem that capital requirements were
a significant barrier to entry, but it is important to not overstate the degree to
which they alone deterred entry. In fact, financing was still highly available
for aspiring carriers, as it is demonstrated by the growing presence of leasing
companies that reduced capital necessities. Leasing companies over the years
had built up a significant market presence and leasing’s market share had
increased from 14,7% of the global fleet in 1990 to around 40% in 2014, as
represented in figure 45 (US SEC 2014).
In 2014, leasing companies were preferred by airlines since they guaranteed
clear operational benefits such as flexibility and access to delivery slots,
significant cash flow advantages and utilisation of freed-up liquidity (PwC
2013b).

Figure 45. Percent of global fleet on operating lease

40%
24,7%
14,7%
1,7%

1980 1990 2000 2014

Source: United States Securities and Exchange Commission (2014).

94



Customer Switching Costs. Switching costs are the one-time costs customers
incur when they buy from a different supplier, in this case the cost of
switching from an airline company to another (Volberda et al. 2011). The
larger the switching costs, the harder it will be for an entrant to gain
customers.
In the airline industry, these costs were very low for LLC customers and a bit
higher for legacy ones since these carriers used loyalty programmes (IATA
2011).

Access to Distribution channels. The new entrants must secure the

distribution of their new products: the more limited the channels, the harder
the entry. Regarding the airline industry, travel agents were an important
distribution channel in the past and they represented a high barrier for LCCs
since they tended to favour established higher-fare carriers (Porter 2008).
However, they had not the same role in 2013 and access to distribution
channels had become easier for new entrants that could exploit Internet
functionalities and sell their flights through websites.

Incumbency advantages independent of size. Sometimes established airlines

had cost or quality advantages that new entrants could not duplicate such as
government subsidies or desirable location in the airports, established brand
identities or cumulative experience. These constituted significant entry
barriers for potential rivals, but not for existing carriers that intended to target
a new customer segment.

Government regulation. While in the past the airline industry was highly
regulated with government policies defending the position of established flag
carriers, the deregulation made the entry easier. However, legacy rights on
slots were still giving existing carriers some advantages. Moreover, there
were some legacy rights in governmental air policy agreements that allocated
international travel rights just to specific existing carriers (IATA 2011).

To sum up, the threat of new entrants was high both for the elevated number of new
airlines that entered the market each year and the existing carriers targeting new
segments.

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Bargaining Power of Suppliers
The ability to influence the price and the quality of their customers’ inputs determine
the bargaining power of suppliers that can squeeze profitability out of an industry when
firms within it are not able to transfer cost increases in their own prices (Porter 2008).
Airlines depended on a wide range of different supplier groups that in most of the cases
had high bargaining power. Following the different supplier groups and their power are
analysed.

Aircraft manufacturers. Airbus and Boeing were the two major producers of
aircrafts worldwide making the commercial large aircraft manufacturing
industry almost a duopoly since smaller manufacturers such as Bombardier,
COMAC and Embraer owned just small market share. Despite their power
was threatened by the potential entry of new players from emerging markets,
Airbus and Boeing had high bargaining power over the airlines in 2013: the
aircraft manufacturing industry was more concentrated compared to the
airline one, it did not depend only on commercial airlines since it had
important alternative markets as the one for defense equipment and finally,
carriers were facing switching costs in changing suppliers due to the
resources invested in learning how to operate a specific aircraft model and to
the significant time lag between order and production.
Also the largest engine suppliers as GE, Pratt & Whitney and Rolls & Royce
exercised bargaining power over the carriers (IATA 2011).

Labor. Labor was a crucial input for airlines that depended on their skilled
employees, especially pilots and technical personnel. These categories had
high bargaining power over the airlines for two reasons.
First, they were represented by powerful labor unions that protected their
rights and were able to easily disrupt airlines operations promoting strikes or
protests. Second, extraordinary demand for pilots and technical personnel was
projected for the following years since airlines were ordering thousands of
new commercial aircrafts to meet global economic expansion (Boeing
2015a).
The consequence was that skilled employees in the industry were able to
negotiate and obtain higher wages relative to the other industries.

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Figure 46. New pilots (left) and new technicians (right) by region, 2015-2034

17.000 18.000 22.000

22.000
47.000 47.000

226.000 238.000
60.000 68.000

95.000

113.000

95.000 101.000

Asia Pacific Europe Asia Pacific Europe

North America Middle East North America Middle East

Latin America CIS Latin America CIS

Africa Africa

Source: Boeing (2015a).

Other suppliers. Airports were suppliers for airlines and their ability to influence
the fees for gate usage, take off and landing slots depended on the potential traffic
flows they provided access. Despite in some locations there were no equivalent
substitutes, they did not have high bargaining power as demonstrated by their low
margins.
Ground handling suppliers had small bargaining power as well, since the airlines
could provide the same services in-house. Moreover, the low power was due to
the fact that the services offered were not differentiated, the switching costs for
airlines were very low and there were many potential entrants in the ground
handling market.
Finally, the providers of capital had high power. Providers of debt like banks with
specialized airline financing divisions were not dependent on the industry since
they had many alternatives for investment, so they could set the financing terms
that were more convenient for them. Providers of equity capital and leasing
companies had high power as well (IATA 2011).

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Bargaining Power of Buyers
Buyers with high bargaining power are able to force down prices and demand better
quality for the products they buy. High bargaining power can be seen as a threat since
powerful buyers can reduce the overall industry profitability making pressure for price
reductions and playing industry participants off against one another (Porter 2008).
The bargaining power of customers was high and increasing in the airline industry due
to the aggregator websites that provided great amount of information about the airlines’
fares allowing customers to find the most convenient offers. Moreover, end customers
had elevate negotiating leverage since the products of the industry were becoming less
differentiated due to the hybridization phenomenon with airlines offering more similar
products, so they could always find an equivalent offer across various carriers. In
addition, there were basically no switching costs for leisure customers.
Finally, the bargaining power of buyers could be considered high even if each customer
was contributing only a tiny part of the total airline’s revenue, and no large buyers
contributing for a great amount of the firm’s revenue existed.

Threat of Substitute Products

Substitute products are goods or services from outside a given industry that perform
similar functions as a product that the industry produces and they represent a threat
when customers face few switching costs, the price is lower and the quality is greater
(Volberda et al. 2011). They affect negatively the industry’s profitability since they
place a ceiling on prices.
Traditional trains, ships, buses and cars represented substitutes for commercial flights
but the high-speed rails (HSR) were the real alternative for air travel. Europe added
more than 6000 kilometres of high-speed track to the 1000 kilometres it had in 1990,
with Spain and France that were planning to have more than 5000 kilometres each in the
near future. HRS were really threatening airlines and that was demonstrated by the fact
that Eurostar had more than 75% market share of the combined rail/air market on its
routes at the end of 2013 (The Economist 2015). Figure 47 represents how the HSR
network was widespread over all the European territory at the end of 2013.

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Figure 47. High-speed Railways in Europe at the end of 2013

Source: Uic (2015).

Another threat for airlines was represented by the customers’ decision to not travel.
Leisure customers could prefer spending their money in other activities rather than
travelling or they could select closer destinations reachable with buses or cars.
Regarding business travellers, they could benefit from IT communication developments
and videoconferencing that made simpler to arrange virtual meetings.
To sum up, the threat of substitutes in the airline industry was rising due to the high-
speed rails and the improvements in IT communication. However, the drops in the cost
of air transportation and the lack of competition among rail operators, that did not allow
HSR to win a large number of passengers from other means of transport, make us
consider the threat of substitutes as moderate.

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Intensity of Rivalry among Competitors
The intensity of rivalry among competitors in the airline industry was very high and
increasing in 2013, as demonstrated by the following six factors determining the degree
of the competition.

Numerous or equally balanced competitors. The intensity of rivalry is higher

in the industries with many companies or with only few equally balanced
competitors (Volberda et al. 2011). The airline industry was characterized by
high number of carriers that had been increasing following the liberalisation
of the European sky and the EU-US Open Sky Agreement. Moreover, the top
carriers had large and similar resources allowing them to take strong strategic
actions and responses to improve their market positions.

Industry growth. The intensity of competition is lower when market is

growing since there is less pressure to take customers from the competitors.
The air travel market was continuing its expansion in 2013 with a yearly
growth rate slightly above the 20-year average of 5% (IATA 2015a).

Figure 48. Growth in the Air Travel, 2008-2014

Travel (RPK) growth

20-year Average Travel (RPK) growth
15

10
Year-on-Year % growth

0
gen-08
apr-08
lug-08
ott-08
gen-09
apr-09
lug-09
ott-09
gen-10
apr-10
lug-10
ott-10
gen-11
apr-11
lug-11
ott-11
gen-12
apr-12
lug-12
ott-12
gen-13
apr-13
lug-13
ott-13
gen-14

-5

-10

Source: IATA (2015a)

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Fixed and Storage Costs. Airlines were trying to achieve cost advantages
through the realization of economies of scale by increasing their productive
capacity; in this way cost per unit, measured by CASK, decreased as fixed
costs were spread out over more units of output. However, this led to excess
capacity on an industry-wide basis considering that every airline was
attempting the maximization of its volume. Consequently, players had to
adopt price-cutting strategies to reduce inventories, resulting in higher
competition.
The intensity of rivalry was high also due to the nature of the product, in fact
transportation capacity is a perishable product that is available only for a
limited period of time. Hence, the cost of providing additional capacity is a
sunk cost in the short term and this increases the storage costs for the airlines
that need to sell their product as quick as they can. Therefore, airlines were
adopting price-cutting and special discounting strategies in order to reduce
storage costs with subsequent rising competition.

Lack of differentiation. Industries with many companies that have

successfully differentiated their products have less rivalry, while competition
is more intense in the industries in which buyers see the products as
commodities (Volberda et al. 2011). This was the case of the airline industry
in which the core transportation service was not differentiated across carriers
implementing the same business model. Moreover, the hybridization of the
models was reducing the differentiation further.

High exit barriers. High exit barriers force companies to continue operating
in the industry even if the returns on their invested capital are very low,
consequently excessive capacity stays in the market and the profitability of
healthy competitors suffers as the sick ones hang on.
The exit barriers in the airline industry could be considered high, in fact less
than 1% of carriers were used to exit the market in an average year (IATA
2011).
This was happening for several factors: airlines preferred avoiding the capital
loss they would incur selling their aircrafts or getting out of leasing contracts
in a downturn period. In addiction, the agreements with the airports regarding

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the slots, the long-term contracts with manufacturers, government restrictions
and the strategic interrelationships with other airlines represented exit barriers
that were forcing carriers to remain in the market.
Regarding the aircrafts, they were not high exit barrier since there was a huge
market for second-hand planes due to the fact that aircraft manufacturers were
not able to satisfy all the demand. However, they were becoming an exit
barrier since emerging economies carriers were reducing the purchases of
second-hand aircrafts preferring new ones (PwC 2013b).

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4.2.3 Key Trends

4.2.3.1 Socio-Demographic and Cultural Trends

European Population Projections

On 1st January 2013 the population of EU-28 state members was equal to 505.7 million
and the EUROPOP2013, the European Population Projections released by Eurostat,
forecasted high growth for the future: the European population was projected to reach
518 million in 2030 and 525 million in 2050 (Eurostat 2013a; 2013b).
Regarding the main national markets served by Ryanair, they could expect an increase
in population size as well, with the exception of Germany. Especially, forecasts showed
an increase from 63,8 million in 2013 to 80 million in 2060 in United Kingdom, that
was extremely relevant for Ryanair since UK accounted for 24% of its revenues by
country of origin (Ryanair 2013a).
The graph below shows the estimated population development for the main European
countries computed on the initial population size in 2013.

Figure 49. Estimated population development for the main European countries,
2013-2060

126 Index 2013=100 United Kingdom

121
France
116
Ireland
111
Italy
Index

106 European Union

(28 countries)
101
Spain
96

91
Germany
86
2013 2015 2020 2030 2040 2050 2060

Source: Compiled by the author using data from Eurostat (2013b).

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Worldwide and European Tourism Projections
The United Nation World Tourism Organization (UNWTO) forecasted the development
of tourism from 2010 to 2030 projecting that the number of international tourists arrival
worldwide would have increased by an average 3,3% a year over the 20-year period.
Specifically, the rate of growth was projected to slowly decrease from 3,8% in 2012 to
2,9% in 2030. In absolute terms, international tourist arrivals would have risen by some
43 million a year and overall, they were expected to reach 1,4 billion by 2020 and 1,8
billion by 2030 (UNWTO 2014).

Figure 50. Tourism: Actual trend and forecast, 1980-2030

2000
Forecasts
International tourist activiries received (million)

1800 1,8 bn

1600 Africa

1400 Middle East 1,4 bn

Americas
1200
Asia and Pacific
1000 940 mn
Europe
800

600

400

200

0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030

Source: UNWTO (2014).

UNWTO projected that emerging economy destinations would have grown at a double
rate (+4,4% a year) compared to advanced economy destinations (+2,2% a year).
Among these, Europe would have grown on average at 2,7% for the period 2015-2020
and at 1,8% rate for the period 2020-2030.

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Table 12. Tourism in Europe: projected growth rates by area, 2015-2030

Projections for Europe 2015-2020 2020-2030

Northern Europe 2,2% 1,4%

Western Europe 2,3% 1,4%
Central/eastern Europe 3,7% 2,5%
Southern/Medit. Europe 2,6% 1,9%
Europe 2,7% 1,8%

Source: UNWTO (2014).

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Characteristics of Tourism Trips in Europe
Eurostat provided statistics about the characteristics of trips that EU residents aged 15
and over made in 2013, offering a useful insight to understand European travelling
attitudes. EU residents made 1177 million trips with overnight stays, 75,3% of these
were inbound trips spent in the country of residence while the remaining 24,7% were
outbound trips, most of them spent in other EU member states, demonstrating how EU
was an attractive destination for its residents (Eurostat 2015b).
Almost half of the tourism trips (48.9 %) had holidays, leisure and recreation as the
main purpose, 35.2 % were to visit relatives and friends, and 11,58% were for
professional purposes, equal to a number of 136.4 million business trips (Eurostat
2015c).

Figure 51. Percentages of trips by purpose in EU-28, 2013

Professional,
business
11,58%
Other (e.g.
pilgrimage,
health
treatment)
Holidays, 4,33%
leisure and
recreation
48,85%
Visits to
friends and
relatives
35,23%

Source: Eurostat (2015c).

Regarding the means of transportation used, 83% of European tourists utilized land
transportation to travel to their destination, while 15,3% used air transportation and
1,7% Waterway.
Considering just the outbound trips, air transportation was the most used mean with a
share of 53,2% and European residents were increasing their preference to travel by
plane year-over-year, especially for outbound trips (Eurostat 2015b).

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Figure 52. Outbound trips in EU-28, 2013

Waterway
4,8%

Motor vehicle
Land 30,3%
Air 42.0%
53,2%
Bus, coach
6,0%
Railway Other land
4,9% transport
0,8%

Source: Eurostat (2015b).

Outbound trips intra-EU by air transportation were flowing in great part from the United
Kingdom to other EU countries such as Spain, Germany, Italy, France and Ireland, as
represented in the table below that shows the top-10 country pairs of 2013 intra-EU air
traffic (Eurostat 2015a). Therefore, UK was a market on which every airline that wanted
to have a dominant role in Europe had to target.

Table 13. Top-10 country pairs of 2013 intra-EU traffic

Passengers carried
Rank Country pairs
(in 1000)

1 United Kingdom Spain 32 879

2 Spain Germany 23 042
3 United Kingdom Germany 12 213
4 Italy Germany 11 335
5 United Kingdom Italy 11 042
6 United Kingdom France 11 029
7 France Spain 10 288
8 Italy France 9 980
9 United Kingdom Ireland 9 704
10 Italy Spain 9 648

Source: Eurostat (2015a).

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4.2.3.2 Regulatory Trends

Government Taxation
In the context of consolidation of public finance, tax policy is used to provide budget
revenues and taxes on travel are used to increase tax revenues for governments. UK
government introduced an Air Passenger Duty (“APD”) in 1994 of £5 per passenger,
increasing it to £13 in 2012 (House of Commons 2012), but similar taxes have been
introduced in many other European countries such as Netherlands, Ireland, Germany,
Italy and Austria in the last decades. It is important to consider that these duties could
have negative effect on passenger volumes if increased further, damaging airlines’
profitability and ability to grow.
Regarding Ryanair, the majority of its profits were subjected to Irish corporation tax at a
statutory rate of 12,5% but due to the size of Irish government’s budgetary deficit, there
was a risk that the corporation tax rate could have been increased in order to repay
current and future loans. Therefore, Ryanair’s cash flow and financial position were
threatened by a potential upsurge in the Irish tax rate (Ryanair 2013a).

Labour Relations and EU Regulations

Some government agencies were questioning the applicability of a practice commonly
used by some airlines which applied to their crews the national labor law of the nation
in which aircrafts were registered, independently from where the crews effectively
operated. This was the case of Ryanair: in continental Europe its crews were operating
on Irish contracts of employment on the basis that they were working on board of
aircrafts registered in Ireland, so on “Irish territory”. If the Irish jurisdiction had not
applied to those crews operating in Continental Europe, salaries, social insurance and
pension costs would have increased (Ryanair 2013a).

The Emission Trading Scheme

The European Union set some climate and energy targets for reducing its greenhouse
gas emissions (mainly for CO , CH4 and N O) in order to achieve the transformation
2 2

towards a low-carbon economy by 2050.

The European emission trading system (“ETS”) was one of the policies adopted: it was
a cap-and-trade system in which the cap, or limit, was set on the total amount of certain

108



greenhouse gases that could be emitted by the factories, power plants and other
installations in the system.
Despite direct emissions from aviation accounted for a low percentage of the EU’s total
amount, the European Council of Ministers decided to add the aviation industry to the
ETS with effect from 2012. The decision was taken since the gas releases of the
industry were growing faster with projections to be 70% higher than in 2005 by 2020,
and from 300% to 700% higher by 2050. Airlines had been granted initial CO 2

allowances based on historical performance and CO efficiency benchmark, and they

2

had to purchase any future shortage in the open market or at government auctions
(European Commission 2016). In this way, the ETS gave the most fuel-efficient airlines
an advantage compared to competitors, while it represented an issue for fuel-inefficient
carriers.

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4.2.3.3 Technology Trends

Mobile Internet
The technology of mobile Internet that is the combination of mobile computing devices
such as smartphones and tablets, high-speed wireless connectivity and applications, was
evolving rapidly in 2013 (McKinsey Global Institute 2013a; 2013b).

Figure 53. Mobile Internet

Apps

Tablets and smartphones were improving with every new cycle of updates and models.
For instance, in 2013 the processing speed had increased roughly 12-times since 2000,
the processing power had augmented by about 25 per cent per year since 2009 and the
battery capacity had doubled.
Smartphones had ultra–high resolution screens with precise touch sensing, graphic-
processing power and new kinds of sensors that made them intuitively interactive and
further progression was taking place: mobile internet devices would have become
smaller, far more powerful, more intuitive, wearable, and packed with many types of
sensors soon.
Regarding high-speed wireless connectivity, progress was being made with more and
more mobile devices connected to the Internet via cellular networks as 3G and 4G/LTE,
or Wi-Fi offering increasingly fast data speeds. Moreover, network advances were
planned in the next years including 5G cellular networks, satellite services and long-
range Wi-Fi (McKinsey Global Institute 2013a).
Finally, proliferation of apps was taking place with these software applications that
were disrupting established business models. They were enabling users to go about their
daily routines with new ways of knowing, perceiving, and interacting with the physical

110



world providing location-based service, personalized feeds of information and
entertainment content, constant online contact with friends, colleagues, and customers.

Spread of Mobile Devices

In just a few years, Internet-enabled portable devices have gone from a luxury for a few
to an indispensable object for many people that became strongly dependent on them.
1.1 billion people were using mobile devices in 2013, number that was exceeding the
installed base of personal computers as demonstration of the extent of the phenomenon,
and in the same year 1.3 billion of smartphones and 200 million tablets were sold with
expected sales growth for the future (McKinsey Global Institute 2013a).
The time spent online on mobile phones was increasing at 25 percent per year and it
was projected that around 80 percent of all Internet connections could have been
through mobile devices by 2025.
Regarding the array and the quality of Internet-based services, they were increasing
with people that could use mobile devices for Web browsing, social media and
entertainment consumption, emailing, text messages and many other activities. App
downloads grew 150 percent in 2012, with Apple and Google Play that surpassed 25
billion downloads (Deloitte 2013).
There was no doubt that the world was entering an era of “mobile only” with
individuals using their portable devices as their primary or unique mean of connecting
to internet.

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4.2.4 Macro-Economic Forces

4.2.4.1 Global Market Conditions

The world economic growth had been driven by the emerging economies from 2001 to
2013 and it was expected to grow at 3,1% (real GDP) per year till 2034, according to
the global market forecast done by Boeing (2015b). Emerging regions would have
grown above world trend and advanced economies below world trend, as represented on
the graph.

Figure 54. Real GDP, 2001-2020

8,5
Forecasts

6,5 Emerging
Economies

4,5
Growth rate in %

World

2,5
Advanced
Economies
0,5
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

-1,5

-3,5

Source: Boeing (2015b).

The annual GDP growth was projected to be 1,8% between 2014 and 2034 in Europe,
while Africa and Asia were projected to register higher rates, respectively of 4,5% and
4,3%.

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Figure 55. Annual GDP growth (%), 2014-2034

Africa 4,5

Asia 4,3

Middle East 3,8

Latin America 3,4

North America 2,5

CIS 2,4

Europe 1,8

Source: Boeing (2015b).

4.2.4.2 Commodities and other Resources

Crude Oil Projections

The U.S. Energy Information Administration (EIA) defined long-term projections of the
oil price through 2040 focusing on the U.S. energy markets, but providing useful results
for organizations depending on crude oil worldwide. EIA (2014; 2015) considered a
wide number of factors related to the uncertainty of future world crude oil price such as
potential changes in global demand for petroleum products, crude oil production and the
supplies of other liquid fuels, and it finally defined three potential scenarios:

High oil price scenario. In this case the Brent crude oil price was projected
to grow considerably till 2040 when it was forecasted to be equal to
$252/bbl. This was based on hypothetical increasing demand for petroleum
products, decreasing upstream investment by OPEC and rising non-OPEC
exploration and development costs.

Reference scenario. In this case the Brent crude oil price was expected to
increase moderately to $76/bbl in 2018 and to $141/bbl in 2040. The
assumptions underlying this case were: current laws and regulations would

113



have remained largely unchanged and GDP would have grown at an average
annual rate of 2.4% throughout the projection period.

Low oil price scenario. The Brent crude oil price would have reached the
price of $76/bbl in 2040 assuming low demand for petroleum product, high
OPEC upstream investment and low non-OPEC exploration and
development costs.

Figure 56. Brent crude oil price projections in the three cases, 2013-2040

300

250
High price
200
$ per barrel

150
Reference

100 Low price

50

0
2013 2016 2019 2022 2025 2028 2031 2034 2037 2040

Source: Adapted from EIA (2015).

Sustainable Aviation Fuel

The commercial usage of Sustainable Aviation Fuels (SAF) was estimated to increase in
the future due to the goals of governments and airlines to reduce emissions.
Considerable efforts were already in place in order to reduce the environmental impacts
of the aviation industry, with more than 1700 commercial passenger flights planned to
fly powered by SAF in 2014. However, the high price of SAF, which were expensive
niche products that airlines could not afford, was not allowing a full deployment of
these fuels (IATA 2015c).

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5 THE NEW RYANAIR’S BUSINESS

MODEL

5.1 Ryanair’s Change of Strategy

Ryanair redesign its business model in order to improve its performance and reach the
target of 150 million passengers per annum in 2024, exploiting the socio-demographic
and cultural trends that were taking place. In fact, the population in many of its main
markets was increasing, the tourism was forecasted to grow in Europe at an average
growth rate of 2,7% till 2020, and more and more European travellers were choosing air
transportation as their favourite mean.
The airline identified two key strategies to support the transaction to the New Ryanair,
taking into consideration the weaknesses of the old business model and the main
environmental trends. The two strategies were:

Ø Targeting business passengers

Ø Enhancing customer experience

The decision of targeting the business passenger segment was due to several reasons.
First, the external analysis highlighted that the segment was more lucrative compared to
the leisure one since individuals were spending larger amount of money on flying.
Moreover, the business demand for cheap flights was increasing since companies were
trying to trim their travel expenses following the financial crisis in 2008-2009.
Then, the analysis of the industry trends and specifically the hybridization phenomenon
showed that many low-cost carriers, as EasyJet, were adapting their business models in
order to offer suitable value propositions for business passengers. Therefore, Ryanair
decided to respond to its main competitors, targeting the business segment as well.

115



Instead, the second strategy was related to the enhancement of the customer experience
that is the cognitive and affective outcome of the customer’s exposure to, or interaction
with, a company’s people, processes, technologies, products, services and other outputs
(Buttle and Maklan 2015).
Ryanair focused on that since passengers were requiring substantial improvements in
their experiences, and they were asking for reduced queuing time, more friendly
policies, higher quality customer service and new digital touchpoints.
In addition, the enhancement of the customer experience was crucial to counterattack
the increasing intensity of rivalry among competitors, but also the rising threat of
substitute products, represented particularly by high-speed trains.
For these reasons, the airline implemented the “Always Getting Better” program that
focused on the digital transformation of the company with the launch of a new easy-to-
navigate website and a new app, besides embracing social media and effectively using
Customer Relationship Management. Moreover, it introduced more customer-friendly
policies such as baggage allowances, 24 hours grace period to correct minor booking
errors and fee reductions (Ryanair 2015c).
The airline aimed to enhance considerably customer satisfaction and brand reputation
adding the elements of the new strategy to a mix that already comprised an on-going
relentless focus on lower fares and best choice of destinations.
Following, we will describe how Ryanair redesigned the content of each one of the nine
building blocks of its business model, focusing more on the right side of the canvas that
is the one related to the creation of value.

Figure 57. The business model canvas: the cost side and the value side

KP KA VP CR CS

KR CH
LEFT CANVAS RIGHT CANVAS
Efficiency Value

C$ R$

116



5.2 The New Ryanair’s Business Model Canvas

5.2.1 Customers Segments

Ryanair expanded its competitive scope in 2014 targeting business passengers that were
higher-margin customers compared to the leisure ones. Specifically, the airline focused
on Independent business passengers since they were more price-sensitive and willing to
make sacrifice in terms of product frills, therefore it could adapt its business model
more easily to satisfy their needs.

Figure 58. The New Ryanair's target customer segments

Industry Length of the Purpose of the Customer type

flight journey

VFR
Leisure
Holiday
Passenger
Short-haul
Airlines
Independent
Business
Corporate

Ryanair targeted the Deal-seeking and the Functional business passengers, considering
the five experience segments identified when we analyzed the market forces of the
general environment.
Their specific requirements are described below.

Price. Ticket-price was one of the most important drivers for the purchase.

In-flights Services. They required seating comfort with extra legroom,

“premium” seating that granted quick exit from the aircraft and on-board Wi-
Fi. However, they did not ask for separate business class cabins and they were

117



willing to make sacrifice in terms of product frills, free food and drinks,
differently from the other business passengers.

Airport Services. Being highly time-sensitive, they requested priority

boarding, separate check-in desk and expedited security and passport checks.
Instead, they did not have requirements in terms of lounges at the airport.

Airport Location and Access. Also passengers belonging to the deal-seeking

and functional segments preferred primary airports to secondary ones.

Frequency and timings. They required high frequency of flight, as well.

Punctuality of flights. On-time flights were a prerequisite.

Seat Accessibility. Deal-seeking and Functional passengers wanted to be able

to book a flight shortly before it was due to the departure, and the option to
change their flight schedule.

Frequent Flyer Benefits. Contrarily to the other business segments, they were
not considering frequent flyer benefits as a critical factor.

Safety. Safety was fundamental.

In addition to target business passengers, Ryanair identified two sub-segments among

the leisure passengers, each one with specific and similar needs: families travelling for
holiday and people travelling in groups.

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5.2.2 Value Propositions

Ryanair created a new value proposition in order to satisfy business passengers, offering
a value-for-money service that provided ticket flexibility and that got them to their
destination quicker, granting to stay less at the airport and more in meetings. In essence,
the airline targeted ‘time’ as the key business travellers’ requirement rather than
‘appearance’, focusing more on delivering real value rather than installing curtains
between the classes (Gleeson 2015a).
The Business Plus offer was launched in September 2014 at a starting price of €69.99
and it included priority boarding, fast track airport security, 20kg baggage allowance
and the option to change the flight time, date, destination and departure airport at no
extra cost, even on the day of travel.
Moreover, business passengers that decided to fly with Ryanair had the possibility to
select “Premium seats” that were seats from rows 1 to 5 and from 32 to 33 that granted
faster de-boarding, and seats in rows 16-17 that had extra legroom space (Linshi 2014).
Regarding the Family and Group sub-segments, the airline served them with tailored
value propositions.
The carrier proposed families travelling with Ryanair the Family EXTRA bundle
through which it offered 50% discounts on children’s seats, insurance and checked-in
bags, besides reducing the infant fee to £20. In addition, it granted a 20% discount on
the third family flight (Payne 2014).
Ryanair launched also a new group booking service in a dedicated section of the
Ryanair.com website: the service allowed travellers to book at least 20 seats on a flight,
granting flexibility since half of the names had to be submitted halfway between the
booking date and departure date with the remainder due 14 days before the departure.
Ryanair designed the bundle for matching the needs of schools, sports clubs and other
large travelling parties (Business ETC 2014).
Furthermore, the airline refined the existing value proposition through the “Always
Getting Better” program, providing a better inflight experience and introducing new
services for leisure customers that increased their perceived benefits.
The leisure and business travellers’ value propositions are represented in figure 59 with
the second one that is located in a higher position since Ryanair was offering business
passengers more services, even if it was charging a higher price.

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Figure 59. Re-positioning the value propositions

More

Low-cost carriers Legacy carriers

Maximum acceptable price

Customer-perceived benefits

passengers
Business
passengers
Leisure

APV
curve

Minimum acceptable service

Price point
Higher

Source: Adapted from Holloway (2008).

5.2.2.1 Core Air Passenger Service

Ryanair improved its core air passenger service in terms of frequency of flights,
punctuality and type of airports served in order to meet business passengers’ needs.
The airline increased the frequency of the departures on the key business routes, even
during the winter period during which the carrier was used to ground many aircrafts and
reduce the number of flights due to the lower leisure demand.
In addition, it introduced early morning and late evening services, it renewed the efforts
to deliver on-time flights achieving an average punctuality rate of 92% in 2015, but
most of all it changed its airport strategy focusing more on major city primary airports
that were preferred to secondary ones by business passengers (Ryanair 2014c; 2015c).

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5.2.2.2 Ancillary Services

Ryanair offered new services and modified the some of its policies in order to enhance
customer satisfaction.

Non-flight scheduled services. The airline gave the option to reserve

“premium seats” for additional €10 and expanded the number of legroom
seats. In the same time, it moved to fully allocated seating on all of its flights
in order to avoid the furious rush to secure the best places.
Then, it reduced the fees for carrying extra baggage and allowed customers
bringing a small second carry-on bag free of charge. It offered also a new
travel insurance product that replaced the existing one and a new 'hold the
fare' feature that made possible to hold a fare for 24 hours for €5 (Ryanair
2015c).
Finally, it extended its offer regarding hotels and accommodations through a
new partnership with Booking.com in November 2014.

In-flight services. The airline improved the in-flight menu providing more
healthy meal choices and a hot breakfast pre-order service on key routes.
Additionally, Ryanair was planning to offer on-board Wi-Fi since it was one
of the business passengers’ main requirements and the demand for in-flight
connectivity was rising.

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5.2.3 Channels

Ryanair was selling its flights exclusively through its website in 2013, but it decided to
adjust its distribution channel configuration in 2014 to appeal to Europe’s business
travellers that relied to travel agents to arrange their trips. In fact, travel agents had
transformed themselves from simple sales mediators to travel consultants that gave
assistance to corporate customers not only in making bookings, but also in the
negotiation of deals with the airlines and other travel suppliers. In this was, they
supported companies to get the best value-for-money from their travel expenditure by
tracking and tracing travel spending (Shaw 2007).
Therefore, Ryanair made partnerships with Travelport that was the operator of the
Galileo and Worldspan GDSs in April 2014, with Amadeus GDS in October 2014 and
with Sabre GDS in May 2015, so travel agents could have access to its fares and wide
range of ancillary services (Ryanair 2014c; 2015c).
Moreover, Ryanair launched a new mobile App in July 2014 in order to make its
propositions readily available on smartphone, tablets and laptops, which usage was
spreading as described in the Key Trends section.
In addition, the airline introduced a fare finder facility in its website considering that
customers were requiring an easy-to-use way which enabled them to find simply all the
information they needed and the lowest fares available.
Therefore, Ryanair shifted from one-channel distribution strategy to a multi-channel one
that granted to reach a larger number of customers, in fact around fifty per cent of
travellers were booking their flights through channels different from the airlines’
websites in 2014, based on the results provided by IATA as shown in figure 60 (2014a).
Also the communication channel configuration had been redesigned.
Traditionally, Ryanair had relied on media activity not directly generated by the
company, but rather by other entities such as journalists reacting to Micheal O’Leary’s
controversial initiatives and on the company website.
Instead, the new strategy defined by the CMO Kenny Jacobs focused more on paid
media. Ryanair run its first ever TV campaign in 2014 in order to raise awareness
regarding its new brand image, website, mobile app and the on-going improvements in
customer service, and it invested on display advertising and on search advertising
through an agreement with Google Flight Search to communicate its value propositions.

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However, the key point of Ryanair’s communication revolution was based on the
advertising opportunities offered by social media. The airline joined Twitter in late 2013
and built a wide presence across Facebook, Google+, Instagram, LinkedIn and
YouTube between 2014 and 2015, using them to speak to customers directly and
promote the brand in an interesting, funny and friendly way (Gleeson 2015a).
The airline created owned brand pages and accounts (owned media), but relied also on
Facebook, Twitter and LinkedIn ads (paid media).

Figure 60. Breakdown of channels used to book flights

Airline mobile Don't know 3%

app 4%

Travel
department 15%

Airline website
52%
Travel
agency(online/of
fline) 26%

Source: IATA (2014a).

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5.2.4 Customer Relationships

Ryanair shifted from a Transactional to a Relationship marketing approach in 2014,

driven by the increased customer expectations for more personal relationships and
personalized experiences.
The airline became more customer oriented focusing on enhancing customers
satisfaction since as it rises, so does customer intention to repurchase with consequent
positive impact on business performance, as explained by the “satisfaction-profit chain”
(Buttle and Maklan 2015).
First of all, the airline improved its customer service that was considered one of the
worst in the industry. It exploited the new functionalities of social media using them as
powerful platforms for distributed problem solving by “crowdsourcing” answers from
employees and consumers, besides being a great communication tool utilized for
advertising (Mckinsey Global Institute 2013b).
Therefore, Ryanair engaged in social reengineering processes making any interaction or
activity social, using Twitter and Facebook to answer customer service queries that
included questions about specific routes, flight delays and even problems with the
website.
Second, Ryanair became more committed to treat customers as individuals rather than
demographics stereotypes, listening to them and tailoring products and services based
on their specific preferences and needs that were identified through the analysis of the
great amount of data that they were leaving in the social networks, in the website and in
the other touchpoints. Moreover, Ryanair decided to exploit the advances in CRM
technologies through the creation of marketing campaigns that used customer-related
data to develop and execute targeted communications at each stage of the customers’
journey. Especially, Kenny Jacobs implemented targeted email campaigns that allowed
the airline to enhance customer experiences by sending passengers messages based on
deep understanding of their preferences at appropriate times. In this way, customers
started developing a stronger sense of emotional and behavioural identification with the
firm.
Third, Ryanair made the relation with its customers more personal changing the way it
was interacting with them and improving its touchpoints, both qualitatively and
quantitatively.

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It renewed the website in 2014, removing all the advertisements and captcha codes that
were making the online customer experience un-friendly: the new Ryanair.com made
possible to book a flight just with five clicks rather than with 17, and provided a live
web chat in its key areas to give support during the purchase process (Gleeson 2013b).
Then, the airline introduced new touchpoints at each stage of the customers’ journey:
for instance, the new mobile App enhanced the whole customer experience from
booking to stepping on the plane since passengers could “book a flight in less than 100
seconds”, keep track of their flight details and use mobile check-in.
The airline introduced also MyRyanair that was a registration service where customers
could securely store their personal details online, so they could make faster bookings
and quicker check-in online.

Figure 61. Ryanair’s touchpoints

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5.2.5 Revenue Streams

The implementation of the new strategic initiatives led to a considerable increase in the
number of passengers carried, especially during 2014. In the year ended March 31, 2015,
Ryanair carried 90,6 million people registering a 13% growth compared to the previous
year thanks to the successful mix of low fares, the new Business Plus offer and
enhanced customer experience under the “Always Getting Better” programme (Ryanair
2015c). As consequence, the total operating revenues grew as shown in the graph.

Figure 62. Scheduled Passengers and Total Operating Revenues

Scheduled Passengers Total operating revenues

5800
Scheduled passengers (million)

90

Revenues (Million €)
5600
85
5400
80

75 5200

70 5000

65 4800

60 4600
Mar 31,2013 Mar 31,2014 Mar 31,2015
Year ended

Source: Compiled by the author using data from Ryanair (2013a; 2014c; 2015c).

The new Ryanair’s strategy aimed to boost ancillary revenues tracking habits and
offering customized bundles of services designed to solicit further spending, such as
personalized in-flight experiences. These initiative had to offset the reduction in
ancillary revenues caused by some of the new strategic decisions such as the
introduction of a free second carry-on bag, the reduction of penalty fees, and renewal of
the website that reduced the number of minimum clicks to book a flight, decreasing the
exposure of many add-ons offered and sold during the purchase process.

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Figure 63. Effect of the new strategy on Ancillary Revenues

Customization of services
through the exploitation of
Big Data
“Premium” seats
“Hold the fare” option
New insurance product UP DOWN
New healthy in-flight meals
New website
Fees reduction
Second carry-on bag

Ryanair reached its goal since ancillary revenues increased both in absolute and relative
terms with their growth mainly driven by the rise of non-flight scheduled revenues.
Ancillary revenues grew from €1064 million in 2013 to €1394 in 2015, becoming a
more relevant revenue stream for Ryanair since they accounted for almost 25% of the
total airline’s revenues in 2015, compared to 21,79% in 2013 (Ryanair 2015c).

Figure 64. Ryanair's Revenue streams, 2013-2015

Scheduled revenues Ancillary revenues

80%

78%

76% 78,21%

74% 75,24% 75,35%

72%

70%
Mar 31,2013 Mar 31,2014 Mar 31,2015

Source: Compiled by the author using data from Ryanair (2013a; 2014c; 2015c).

Regarding the pricing mechanisms, Ryanair’s partially adjusted its strategy raising
forward booking to drive higher load factors and increase yields on close in bookings
(Ryanair 2014a).

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5.2.6 Key Resources

5.2.6.1 Physical

Fleet
Ryanair entered into a new agreement with Boeing on September 8, 2014 to purchase
up to 200 Boeing 737 MAX 200 aircrafts over the period from 2019 to 2024 in order to
sustain its growth plan, but also to improve the in-flight customer experience and realize
cost savings (Ryanair 2014a). The 737 MAX 200 guaranteed higher level of passenger
comfort thanks to the new Boeing Sky Interior and the new seats that provided more
legroom. Moreover, it was considered a “gamechanger” aircraft as it allowed the carrier
to reduce its operating expenses, especially for jet fuel. In fact, its new engines LEAP-
1B and other enhancements as less weight and upgraded aerodynamics reduced
considerably the fuel-consumption. Finally, the 737 MAX 200 had 8 more seats
compared to the Boeing 737-800 NG that led to an estimated generation of about $1
million additional revenue per plane per year, with only minimal additional costs
(Boeing 2014b).
The graph below shows the new projected evolution of the Ryanair’s fleet till 2024.

Figure 65. Evolution of the fleet based on the 2014 Boeing contract

Boeing 737-800 NG Boeing 737 MAX 200

39 81
420 130
402 412 175
387 200
368 359
340 334
308 320

Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: Compiled by the author using data from Ryanair (2014a).

128


Location of the Airports

Ryanair scheduled more flights to major city primary airports in order to satisfy
business passengers’ preferences, as stated when we analysed the characteristics of the
new value propositions.
The airline added primary airports to the network such as Athens, Bratislava, Brussels,
Cologne, Fiumicino, Gdansk, Glasgow, Lisbon, Modlin, Rome, Thessaloniki, Warsaw
and Zaventem between 2014 and 2015, encouraged by the fact that they were offering
convenient deals to make up for traffic declines by incumbent carriers that were
reporting losses and restructuring (Ryanair 2014c; 2015c).

5.2.6.2 Financial

Borrowing Capacity
The credit rating agency Standard & Poor's assigned its 'BBB+' long-term corporate
credit rating to Ryanair on 20 March 2014, assessing the airline as having "satisfactory"
and "minimal" business risk profile, besides strong liquidity (Standard & Poor’s 2014).
The positive credit rating strengthened the airline’s borrowing capacity enhancing its
chances of being approved for loans, receiving more favourable terms and lower interest
rates.

5.2.6.3 Intellectual

Customer Database
Big data became a crucial resource for the new Ryanair that was more committed to
capture, store, extract, integrate, process, interpret, use and report customer-related data
in order to enhance both customer and company value.
Big data allowed the airline to create more specific segmentations and tailor products
and services to meet individual’s needs, besides targeting promotions and advertising,
enhancing customer experience.

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Brand
Ryanair planned to enhance the brand perception through the new strategic initiatives
implemented under the “Always Getting Better” programme, making the Ryanair brand
a more beneficial resource for the airline.
The carrier’s effort to improve customer experience had positive effects on consumers’
judgments since customers started to consider more enthusiastically the sensitiveness of
the company to their interests, and also on their sensations with passengers that were not
feeling anymore unheard or uncomfortable to travel with the Irish airline as in the past.
The result was that Ryanair’s Brand Responses and Brand Resonance were improving,
with customers that were more in synchrony with the brand.

Figure 66. The New Ryanair’s Customer-Based Brand Equity Pyramid

Brand BRAND RELATIONSHIPS

Resonance

Consumer Consumer BRAND RESPONSES

Judgments Feelings

Brand Brand BRAND

Performance Imagery MEANING

Brand BRAND
Salience IDENTITY

Source: Adapted from Keller (2001).

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5.2.6.4 Human Resources

Management team
The Ryanair’s management team did not have the necessary knowledge and experience
in 2013 to lead the digital revolution of the company and exploit the emerging
disruptive technologies.
Therefore, the airline appointed Kenny Jacobs as Chief Marketing Officer in January
2014 that had the goal of defining the new vision and roadmap, besides driving the
development of the new digital services.
Moreover, it appointed John Hurley as Chief Technology Officer in September 2014
that helped Ryanair to identify, examine and apply the new emerging technologies to
the business (Ryanair 2015c).

Ryanair Labs
Ryanair developed Ryanair Labs team in 2014 to enhance its presence on all digital
platforms, matching its competitors and realizing the cultural transformation that aimed
to make the airline more customer-friendly.
About 200 people that included analysts, data scientists, designers and software
developers composed the team in 2015, which goal was building and marketing the best
digital travel products for web and mobile devices through the developments of a easy-
to-navigate website and mobile App, and the launch of personalized home pages that
differentiate between customers (Barrett and Wild 2014; Ryanair 2016b).
Ryanair Labs team allowed the airline improving its customers’ digital experience and
therefore, it contributed to achieve the strategic goal of improving the overall customer
experience.

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5.2.7 Key Activities

The activities performed during the Process Phase and especially Operations still
constituted the core ones of the new business model, however the New Ryanair was
focusing more on some stages of the potential and results phases, and on some support
activities.

Figure 67. The New Ryanair: focus on more activities

FIRM INFRASTRUCTURE
Support activities

HUMAN RESOURCE MANAGEMENT

TECHNOLOGICAL DEVELOPMENT

PROCUREMENT

NETWORK PLANNING

YIELD MANAGEMENT

POTENTIAL PHASE PROCESS PHASE RESULTS

PHASE
Primary activities

POST-
PRE-FLIGHT FLIGHT
FLIGHT

FLIGHT
MARKETING INBOUND Follow-up
OPERATIONS Ground Ground
AND SALES LOGISTICS contact
PREPARATION handling at handling at
Operations
location of location of
departure arrival

Marketing and sales activities. Ryanair increased substantially its marketing

activities in order to emphasize its new focus on customers under the
“Always Getting Better” program and to advertise the new Business Plus,
Family EXTRA and Group offers.
Moreover, the airline changed its distribution and communication channel
configurations, it shifted to a relationship marketing approach and introduced
new touchpoints with the customers.

Follow-up activities. Ryanair amplified its effort on follow-up activities in

order to build stronger relationships with its customers. Therefore, it became
more committed to perform Customer Relationship Management and
complaint management, to carry out customer satisfaction surveys and to send
direct email to customers offering personalized promotions based on their
previous purchases. Moreover, also social media were contributing to keep in
touch with customers after the flight (Gleeson 2015b).

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Human resource management. Ryanair trained its employees encouraging
them to deliver high-quality customer care, making sure that they were able to
listen to customers more and to handle complaints more effectively. The new
Ryanair staff had to apologize, be sympathetic and able to support the
company to build strong customer relationships.

Technological development. Technological development became a core

activity since the transition to the New Ryanair was led by the digital
revolution of the airline. That is the reason why the airline appointed Kenny
Jacobs and John Hurley, and created Ryanair Labs.

Network planning. The new strategy required a redefinition of the network

operated through the identification of the most convenient deals for major city
primary airports, focusing particularly on those that facilitated a quick
turnaround and were attractive to both business and leisure customers.

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5.2.8 Key Partnerships

The New Ryanair redefined some of the relationships it had with its suppliers, for
instance with the capital ones. In fact, the airline was strongly relying on the Export-
Import Bank of the United States in the past to finance its aircraft orders, but it shifted
to more traditional forms of financing such as internally generated cash flows, debt
financing from commercial banks and capital market, commercial debt through
JOLCOs, and sale and operating leasebacks since costs associated with loan guarantees
from the export credit agency increased from 1 January 2013.
Then, new agreements were established with both primary and secondary airports to
perceive the airline’s goal of expanding further its route network, and with three
different GDSs to make its offers available to business passengers. The GDS were
Travelport, Amadeus and Sabre, as already described.
Regarding the strategic alliances between non-competitors, Ryanair established new
partnerships to enhance the ancillary services provided, its value propositions and its
brand reputation. The airline made a deal with Booking.com on 24 November, 2014
extending the number of hotels offered from 300,000 to 500,000 and announced a new
partnership with CarTrawler in September 2015. It was an online aggregator of car
rental services that allowed Ryanair’s customers to choose among a network of 1,500
car rental agents in over 30,000 airport and city locations, while the airline terminated
the car hire supply agreement with Hertz (Ryanair 2016a).Moreover, Ryanair appointed
the tech recruiting company Zartis to build the world’s best digital travel team at
Ryanair Labs and partnered with some charity organizations such as SOS Children’s
Village UK to improve its brand image.
Finally, Ryanair did not enter into any alliance with other airlines even if it was
considering cooperating with global long-haul airlines such as IAG, Aer Lingus, TAP,
Virgin Atlantic Airways and Norwegian Air Shuttle to offer interconnecting short-haul
flights around Europe (Jasper 2015). However, the potential conversion to long-haul
feeder required some time, since the airline should have redesign its business model
further. In fact, it should have enhanced ground-handling activities to manage the
baggage transfer from one flight to another, and it should have kept the 25 turnaround-
time that was one of the main source of competitive advantage, even if it would have
been difficult to maintain it considering possible delays among connections.

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5.2.9 Cost Structure

The new Ryanair based its success on the maintenance of its ultra low cost structure,
even if the new strategic initiatives such as the new airport strategy and the new
marketing approach inflated some cost items.
Airport and handling charges increased from €617.2 million in the 2014 fiscal year to
€712.8 million in the 2015 fiscal year due to the launch of the new bases and to the
primary airports added to the network (Ryanair 2015c). In fact, they charged higher fees
compared to the secondary ones. Then, marketing, distribution and other expenses grew
due to the higher marketing expense used to support the “Always Getting Better”
program, and to advertise the new offers such as the Business Plus and Family Extra
bundles.

Table 14. Ryanair’s operating expenses, 2013-2015

Mar Mar Mar
OPERATING EXPENSES
31,2013 31,2014 31,2015
Staff costs 435,600 463,600 502,900
Depreciation 329,600 351,800 377,700
Fuel and oil 1.885,600 2.013,100 1.992,100
Maintenance, materials and
120,700 116,100 134,900
repairs
Aircraft rentals 98,200 101,500 109,400
Route charges 486,600 522,000 547,400
Airport and handling charges 611,600 617,200 712,800
Marketing, distribution and other 197,900 192,800 233,900
Other 0,000 0,000 0,000
Total operating expenses 4.165,800 4.378,100 4.611,100

Table 15. Ryanair’s common-size operating expenses, 2013-2015

Mar Mar Mar
OPERATING EXPENSES
31,2013 31,2014 31,2015
Airport and handling charges 14,68% 14,10% 15,46%
Marketing, distribution and
4,75% 4,40% 5,07%
other

Source: Compiled by the author using data from Ryanair (2013a; 2014c; 2015c).

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Despite the increases of some costs, Ryanair still had the lowest Cost per Available
Seat Kilometer among all the European carriers in 2015: its CASK was equal to €
0,03595 and was almost unchanged compared to 2013.

Figure 68. Ryanair's CASK, 2013-2015

CASK excluding fuel Fuel Component

Mar 31,2015
Year ended

Mar 31,2014

Mar 31,2013

0,0000 0,0100 0,0200 0,0300 0,0400

CASK €

Source: Compiled by the author using data from Ryanair (2013a; 2014c; 2015c).

136


NEW, IMPROVED/RAISED !

Key Partners Key Activities Value Propositions Customer Relationships Customer segments

Operations!
25-minute turnaround time! Relationship Marketing!
Buyer-supplier relationships! Marketing and sales! Long-term relationships!
! Follow-up contact! High customer service!
External service providers! Core air passenger service! High commitment to customers!
Supplier of capital! HR management! Lowest fares!
Superior touchpoints! Leisure passengers!
Supplier of aircrafts! Technological development! Wide range of destinations
(short-haul)!
Airports! Network planning! across Europe!
Families!
! Yield Management! Groups!
!
Ancillary services!
Non-flight scheduled services!
Strategic alliances between Key Resources In-flight services! Channels Business passengers!
non-competitors! Internet-related services!
! (short-haul, Independent)!
Hotel and Accommodations! Deal-seeking!
Bundles!
Car Rental! Physical! Distribution channels! Functional!
Business Plus!
Bus and Rail tickets ! Fleet, Location of airports! Family ETXRA! Website!
Branded credit card! Financial! Ryanair Group! Travel Agents/GDS!
5.2.10 The New Ryanair’s Canvas in 2015

! Mobile App!
Intellectual! !

Brand, Customer Database! Communication channels!
Human! Earned media !
O’Leary, Management Team, Owned media!
Ryanair Labs! Paid media!
Figure 69. The New Ryanair's Business Model Canvas, 2015

Cost Structure Revenue Streams

Jet Fuel!
Lowest CASK ! Scheduled passenger ! Ancillary !
Airport and handling charges!
among all the European carriers! Revenues! Revenues!
Route charges!
Yield Management! List Price!
Staff cost!
Marketing, distribution and other!
that had been introduced and improved/raised are highlighted with different colours.
The figure below represents the New Ryanair’s business model in which the elements

137


6 CONCLUSION

The thesis demonstrated through the Ryanair case that a firm has to commit to a
continuous renewal of the way it operates to build and maintain the ability of gaining
above-average returns, even when it is a market leader since no competitive advantage
is permanent. Moreover, the thesis showed that the type of the business model dynamic
depends on the stage of the business life cycle, with innovation associated to the
introduction stage, evolution to the growth stage and adaptation to the end of the
maturity stage in order to avoid decline.

Figure 70. Ryanair’s business life cycle and business model dynamics

Business Model !
Adaptation!
(2014)!

Business Model!
Evolution!
(1995-2013)!
Sales!

Business Model !
Innovation!
(1991)!

Introduction! Growth! Maturity! Renewal/Decline!

Time!

We have seen that Ryanair innovated its business model for the first time in 1991, when
it altered substantially the existing processes and disrupted many common industry
practices. It became the first carrier to offer cheap air transportation to fare-conscious

138



customers in Europe, and it unbundled the core air passenger service from the ancillary
ones that were offered for sale “à la carte”.
Then, the carrier provided a no-frills and single-class service, it flied to small secondary
airports located further away from the city centers, it adopted a Point-to-Point system as
opposed to the traditional Hub-and-Spoke that allowed reducing the turnaround-time to
25 minutes, and it used a single type of aircraft differently from legacy carriers.
The innovation of the Ryanair’s business model reshaped the European airline industry
starting the low-cost revolution in the continent.
Next, our analysis revealed that Ryanair implemented incremental and continuous
adjustments to the low-cost model between the mid of the 1990s and the 2000s,
introducing small and gradual changes to few areas that did not alter its core activities.
For instance, the carrier enhanced gradually its value proposition adding new
destinations across Europe and more ancillary services, it changed the distribution
channels relying entirely on its website in 2000 and it took some actions to cut further
its cost structure. In this way, Ryanair’s business model evolved and became very
successful, guaranteeing the airline to be the European low-cost market leader in 2013.
However, we found that the management had been forced to review once again the
model in 2014 due to the shifting market conditions, which were threatening the firm’s
competitive advantage.
Therefore, Ryanair adapted its business model altering numerous building blocks
between 2014 and 2015 with the airline that targeted price-sensitive business passengers
offering them a specific value proposition, redesigned its distribution channel structure
adding travel agents/GDS and the Mobile App, and enhanced communication relying
also on paid media.
In addition, it changed its marketing approach shifting from Transactional to
Relationship Marketing, operated a digital transformation embracing social media and
adjusted the left side of the canvas in order to have the resources, the partners and the
activities necessary to realize the new strategy.

139
APPENDIX

Appendix A: Ryanair’s consolidated Income Statement, 2009-2015 (€Million)

Mar Mar 31, Mar Mar Mar Mar Mar

31,2009 2010 31,2011 31,2012 31,2013 31,2014 31,2015
Operating revenues
Scheduled revenues 2.343,868 2.324,500 2.827,900 3.504,000 3.819,800 3.789,500 4.260,300
Ancillary revenues 598,097 663,600 801,600 886,200 1.064,200 1.247,200 1.393,700
Total operating revenues 2.941,965 2.988,100 3.629,500 4.390,200 4.884,000 5.036,700 5.654,000
Operating expenses
Staff costs 309,296 335,000 376,100 415,000 435,600 463,600 502,900
Depreciation 256,117 235,400 277,700 309,200 329,600 351,800 377,700
Fuel and oil 1.257,062 893,900 1.227,000 1.593,600 1.885,600 2.013,100 1.992,100
Maintenance, materials and repairs 66,811 86,000 93,900 104,000 120,700 116,100 134,900
Aircraft rentals 78,209 95,500 97,200 90,700 98,200 101,500 109,400
Route charges 286,559 336,300 410,600 460,500 486,600 522,000 547,400
Airport and handling charges 443,387 459,100 491,800 554,000 611,600 617,200 712,800
Marketing, distribution and other 12,753 144,800 154,600 180,000 197,900 192,800 233,900
Other 139,140 0,000 12,400 0,000 0,000 0,000 0,000
Total operating expenses 2.849,334 2.586,000 3.141,300 3.707,000 4.165,800 4.378,100 4.611,100

Operating profit 92,631 402,100 488,200 683,200 718,200 658,600 1.042,900

Other income/(expenses)
Finance income 75,522 23,500 27,200 44,300 27,400 16,500 17,900
Finance expense (130,544) (72,100) (93,900) (109,200) (99,300) (83,200) (74,200)
Foreign exchange gains / (losses) 4,441 (1,000) (0,600) 4,300 4,600 (0,500) (4,200)
Loss on impairment of available for sale
financial asset (222,537) (13,500) 0,000 0,000 0,000 0,000 0,000
Gain on disposal of property, plant and
equipment 0,000 2,000 0,000 10,400 0,000 0,000 0,000
Total other income / (expenses) (273,118) (61,100) (67,300) (50,200) (67,300) (67,200) (60,500)

Profit/(loss) before tax (180,487) 341,000 420,900 633,000 650,900 591,400 982,400
Tax expense on profit on ordinary
activities 11,314 (35,700) (46,300) (72,600) (81,600) (68,600) (115,700)

Profit/(loss) for the period (169,173) 305,300 374,600 560,400 569,300 522,800 866,700




Appendix B: Ryanair’s consolidated Balance Sheet, 2009-2015 (€Million)

Mar Mar Mar Mar Mar Mar Mar

31, 2009 31, 2010 31, 2011 31, 2012 31, 2013 31, 2014 31, 2015
Current assets
Inventories 2,075 2,500 2,700 2,800 2,700 2,500 2,100
Other assets
Prepayments and other current assets 85,809 74,100 94,500 60,000 64,900 121,600 133,900
Interest receivables 5,244 6,500 4,900 4,900 2,800 2,600 4,800
Current tax 0,000 0,000 0,500 9,300 0,000 1,100 0,800
Trade receivables (accounts receivables) 41,791 44,300 50,600 51,500 56,100 58,100 60,100
Derivative financial instruments 129,962 122,600 383,800 231,900 78,100 16,700 744,400
Restricted cash 291,601 67,800 42,900 35,100 24,700 13,300 6,700
Financial assets: cash > 3 months 403,401 1.267,700 869,400 772,200 2.293,400 1.498,300 3.604,600
Cash and cash equivalents 1.583,194 1.477,900 2.028,300 2.708,300 1.240,900 1.730,100 1.184,600
Total current assets 2.543,077 3.063,400 3.477,600 3.876,000 3.763,600 3.444,300 5.742,000
Non-current assets
Property, Plant and Equipment 3.644,824 4.314,200 4.933,700 4.925,200 4.906,300 5.060,300 5.471,100
Intangible assets 46,841 46,800 46,800 46,800 46,800 46,800 46,800
Available for sale financial assets 93,150 116,200 114,000 149,700 221,200 260,300 371,000
Derivative financial instruments 59,970 22,800 23,900 3,300 5,100 0,400 554,500
Total non-current assets 3.844,785 4.500,000 5.118,400 5.125,000 5.179,400 5.367,800 6.443,400

Total assets 6.387,862 7.563,400 8.596,000 9.001,000 8.943,000 8.812,100 12.185,400

Current liabilities
Trade payables (accounts payable) 132,671 154,000 150,800 181,200 138,300 150,000 196,500
Accrued expenses and other liabilities 905,715 1.088,200 1.224,300 1.237,200 1.341,400 1.561,200 1.938,200
Current maturities of debt 202,941 265,500 336,700 368,400 399,900 467,900 399,600
Current tax 0,425 0,900 0,000 0,000 0,300 0,000 0,000
Derivative financial instruments 137,439 41,000 125,400 28,200 31,800 95,400 811,700
Total current liabilities 1.379,191 1.549,600 1.837,200 1.815,000 1.911,700 2.274,500 3.346,000
Non-current liabilities
Provisions 71,964 102,900 89,600 103,200 135,900 133,900 180,800
Derivative financial instruments 54,074 35,400 8,300 53,600 50,100 43,200 73,400
Deferred tax 155,524 199,600 267,700 319,400 346,500 368,600 462,300
Other creditors 106,549 136,600 126,600 146,300 127,800 90,400 55,800
Non-current maturities of debt 2.195,499 2.690,700 3.312,700 3.256,800 3.098,400 2.615,700 4.032,000
Total non-current liabilities 2.583,610 3.165,200 3.804,900 3.879,300 3.758,700 3.251,800 4.804,300

Total liabilities 3.962,801 4.714,800 5.642,100 5.694,300 5.670,400 5.526,300 8.150,300

Shareholders' equity
Issued share capital 9,354 9,400 9,500 9,300 9,200 8,800 8,700
Share premium account 617,426 631,900 659,300 666,400 687,800 704,200 718,600
Capital redemption reserve 0,493 0,500 0,500 0,700 0,800 1,200 1,300
Retained earnings 1.777,727 2.083,500 1.967,600 2.400,100 2.418,600 2.465,100 2.706,200
Other reserves 20,061 123,300 317,000 230,200 156,200 106,500 600,300
Shareholders' equity 2.425,061 2.848,600 2.953,900 3.306,700 3.272,600 3.285,800 4.035,100

141



Appendix C: Ryanair’s Altman’s Z-score computation

Altman’s Z-score
Items 31-Mar-13
Net working capital 1.851,900
Total Assets 8.943,000
Retained earnings 2.418,600
EBIT 718,2
Book value of equity 3.272,600
Total Liabilities 5.670,400

Components
A 0,207078162
B 0,270446159
C 0,080308621
D 0,577137415

Z-score 3,38575544

142
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