Rayn Air Strategy Analyses

Table 1 2 3 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3 4.4 5 5.1 5.2 6 6.1 6.2 6.3 6.4 7 1. of Abstract: Introduction: Environmental Social Legal Economical Political Technological five and Threats to EasyJet: European SWOT Strengths Weaknesses Threats Opportunities Conclusion: railways: analysis: Power: of entry: Rivalry: Analysis: Contents 3 4 5 5 6 6 7 7 8 8 8 9 9 9 9 10 11 11 11 12 13 13 Abstract:

External

analysis

Porter's Buyer Supplier Power Barriers Industry Competitor

forces: Substitutes:

The purpose of the report is to critically analyze Ryanair strategy of lowering ticket prices in the era marked with global credit crisis and recession and strategy of massive future expansion. The analysis part of the report starts with the analysis of the external environment by using SLEPT model and the analysis of the airline industry by using Porters five forces model. In order to distinguish principal competitors, Competitors analysis has been utilized. All information gather in aforementioned models is been used to assemble the SWOT analysis. To conclude this report, we have presented our views about Ryanair strategy of lower ticket prices and future expansion. The SLEPT analysis revealed that recent credit crisis and the recession in the European countries has brought social change towards using cheaper alternative. The Porters Five Forces model showed a clear picture of Ryanair having the bargaining power over suppliers and presence of two major rivals in the commuting industry. Moreover, this model showed that due to the lack of liquidity in the credit market and lack of margins in the Low-cost airline industry makes it difficult for the new companies to be profitable. The competitor analysis helped us to recognize the strategically and financial situation of the principal rivals namely easyJet and European railway services. The similarity in the business models of EasyJet and Ryanair makes it easy for both airlines to adapt to each others strategy but intimidation of future European high speed train network is a threat to both. The SWOT analysis illustrated some strengths of Ryanair that are young aircraft fleet with efficient fuel

consumption ratio, impressive cash reserves and an ability to offer lowest ticket price in Europe. The opportunities are the recent social trends toward cheaper alternatives, forecasts of lower oil prices and discount on future aircraft deals. Taking these factors into consideration, we believe that the strategy of lowering ticket prices may assist in attracting more customers in the short run. A wise use of available resources in the expansion process and constant screening of competitors strategies will result in higher market share in the long run 2. Introduction: Aim: The aim of this report is to evaluate Ryanairs strategy of lowering fares and massive expansion in the times when Europe in facing a global credit crisis and recession. Rationale: This report will consider and analyze the following factor: the external environment of the Ryanair by using SLEPT analysis the industry forces by using Porters five force model. the Ryanair fare and expansion strategy

Methodology: For the purpose of achieving the above goal, the report will make use of relevant academic material, industry reports and reviews of the recent developments. The report will not accommodate for any primary research on the topic. Background: The recent global credit crisis and recession in the main European economies are affecting the behavior of public and business towards cost reduction and efficiency (Wilder, R. 2008). In order to capitalize on this trend and further strengthen its market share, Ryanair has launched a strategy of lowering ticket prices in the short run and expansion plan in the long run. In anticipation of the success of these plans, Ryanair has forecasted to carry 90 million passengers a year by 2012 (Mulligan, J. 2008). The market environment Definition: A low-cost airline (also known as a no-frills or discount carrier or airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services (Wikipedia). Growth and market share: The European airline industry achieved its finest financial results in the year 2007. The high fuel price and the global credit crisis are expected to have an adverse effect on the industrys growth in 2008 (AEA. 2008). Albeit the overall growth in the European airline industry is expected to fall short of its targets, the low-cost airlines such as Ryanair and easyJet have shown improvement in their performance in August, 2008. The amount of seat sold per flight (load factor) in August was 90%, a 15% increase compared to the same period in the previous year for easyJet. Correspondingly, Ryanairs load factor was 91%, a 19% increase compare to the same period in the previous year. Consequently, Ryanair and easyJet experienced the growth in the passenger numbers in the same month with 5.9 million and 4.6 million respectively (Milmo, D. 2008a). With 55.12 million annual (from August 2007 till August 2008) passengers, Ryanair is the market leader in the European Low-cost airline industry (Ryanair news, 2008) 3. External Environmental analysis

The macro environmental analysis of Ryanair helps organization to identify the main factors affecting the operation of Ryanair. In order to analyze macro environmental factors the SLEPT model (Johnson el, 2006) is used. 1. Consumer attitudes and Social Opinions

Besides of the economic slowdown, there is a huge increment of passengers. The group carried almost 5.8 million passengers in August, an increase of 19% on a year earlier, while it filled 90% of available seats. Passenger's numbers are increasing rapidly every month of this year, taking the total for 12 months to August to 55 million( Victoria Thomoson,2008). The growing number of consumers shows the positive impact on Consumer attitudes. Moreover, due to the effects of the credit crunch, a huge number of people are moving towards cheaper alternatives rather than expensive; In order to acquire more customers, Ryanair has pledged to cut down prices up to 20 % by this winter (Robertson David, 2008). Law Changes factors

EU Regulation 2407/92 requires that, in order to obtain and retain an operating license, an EU air carrier must be majority owned and effectively controlled by EU nationals. EU Regulation 2407/92 does not specify what level of share ownership will confer effective control on a holder or holders of shares (share capital, Ryanair.com). Ryanair keeps a separate record of the individuals, body corporate or other entitles as well put interest on referred share for Non-EU nationals. As director has to set up all ordinary shares for Non-EU nationals according to time, if consequences appeared due to rules and regulation, shares amount decreases below 40% for the Non-EU nationals (Share capital, Rynair.com). So, limitation on Shares for foreign nationals and giving more priority to EU Share holders can affect the European Market. It could affect the growing number of multinational companies, immigrants, foreign investors and others who are engaged in share holder business. Ryanair should have to create flexible environment for Non- EU nationals regarding limited shares and interest rate on shares while there is up and down on EU Regulation policy. 2. Environmental Legal Regulations

In order to meet with the EU regulations and to avoid disputes, Ryanair has spent in excess of $10 billion over the last five years in acquiring a fleet of brand new Boeing aircraft, which have reduced the fuel consumption by 45% and noise and CO2 emissions by 50 per cent per seat (cheapflights, 2007). Environmental Regulations are subject to change, its Ryanair responsibility to follow the regulations made by the government. 3. Economic Economical Trends

G20 meeting is going to held in Washington to overcome the recent global crisis due to negative report of higher unemployment comment by UK and Germany (Euractiv news, 2008).Germany, Europe's

largest economy, has now officially meet the recession as GDP fell by 0.5% in the last quarter, extending a 0.4% drop in the previous one as the German statistical office reported on 13th Nov (Euractive news, 2008). The pace of the recent downturn will also drag other Europe's economy, because Eurostat Data published on 14th Nov, 08 clearly states that 15 countries under EuroZone are also in Technical Recession (Euractiv, 2008). In United Kingdom, unemployment figures have hit their highest level, since 1997, as the UK statistical office reported an increase of 140,000 jobless in the last quarter, bringing the total to 1.825 million (Euractiv news, 2008). It clearly states that recession in Europe is in remote situation and has not totally influence the European economy. Knowing the fact that the flood of recession in Europe split over UK and Germany, this is a good opportunity for Ryanair while deducting air fare (Milmo D.2008) and primary motive for those sales is to cover demand rather than driving rivals out of business. Taxation Issues.

The recent travel tax increase in the Irish budget means Ryanair has to pay a 10 tax on average 40 fare. This increase puts an extra burden on Ryanair and on passengers (Ryanair, 2008). The introduction of "airport development fee" at Black Pool airport from 5th January 2009 will result in the closure of Ryanair's service at this airport (Sky News, 2008). 4. Political Political Trends

In the year 2009, there is a forecast of more airline bankruptcies due to the recent credit crisis and recession in the major European economies, (Traveldaily news. 2008). 5. Technological Fuel consumption

Ryanair has minimized fuel consumption by reducing fuel burn and Co2 emissions per passenger kilometer flown. Including the latest aircraft and engine technology and efficient seat configuration and high load factors, Ryanair has able to achieved fuel saving as well as passengers in commercial view by calculating maximum passenger number per flight in order to use fuel and Co2 emissions over the number of passenger (Ryanair ,2008). This technical process of combining scientific and commercial view to consume fuel will help Ryanair extensively in promoting business in different countries. 4. Porter's five forces:

In this section, we will analyze the affect of different elements e.g. suppliers' and buyers' power, barriers to entry, threat of substitutes and finally the degree of industry rivalry on Ryanair. 1. Supplier Power:

For Ryanair it is essential to have low fuel prices (Liang, I.2008) and favorable deals with the aircraft producers (Noonan, L. 2008). In previous years, Ryanair has paid the price for not hedging the fuel prices (Done K., 2008). In order to have a certainty in the fuel costs, Ryanair had fuel hedges for the first three quarters of year 2008 and negotiated 25% of fuel hedges for the 1st and 2nd quarter of year 2009 at a price of $75 a barrel of oil (Mulligan, J. 2008). The forecast for oil prices by the

International Energy Agency (IEA) is low in year 2009 due to the global economic slowdown and reduction in oil demand (Arnott, S. 2008a). Low oil price presents an opportunity for a budget airline like Ryanair to negotiate fuel hedge at lower prices. However, due to the recent credit crisis, there is illiquidity in the hedging market and the bankruptcy of Lehman Brothers resulted in the collapse of many hedging deal (Bowker, J. 2008). The lack of credit in a situation of future credit need when hedging fuel costs may result in a lost opportunity. Negotiation between Ryanair, Boeing and Airbus are in progress that may result in the delivery of 400 new aircrafts to Ryanair from 2012 (Arnott, S. 2008b). Previously, Ryanair has negotiated a discounted deal with Boeing. The reason for this discount was the decrease in air travels after the 9/11 terrorists attacks in New York (Hoskins, P. 2008). Aforementioned global economic slowdown and the recent credit crunch are carrying the same effects as the 9/11 terrorists attacks that may force Aircraft manufacturers to sell their product on discount price thus giving Ryanair the bargaining power while negotiating this deal. 2. Buyer Power and Threats of Substitutes:

The EU regulations, to protect consumers against the unfair pricing strategies of several European based airlines including Ryanair, forcing airlines to be more transparent (BTN Online. 2008). Moreover, the demand for air travel is decreasing due to recent global economic crisis. To maintain the rate of 80% seat sold/plane and prompt a reluctant flyer to fly with Ryanair and preventing consumers to use the rival budget airlines like easyJet, is resulting in price cuts (Milmo, D. 2008b). The 80% load ratio, consumer protection laws and the availability of substitute in the airline industry give consumers a buying power over Ryanair. 3. Barriers to entry:

By perusing a belligerent pricing strategy in order to increase its market share (Milmo, D. 2008); Ryanair is continuously making it difficult for a new entrant to be profitable. Adding to the misery, the recent credit crunch, low demand and rocketing oil prices (Smulian, M. 2008) proved fatal to the numerous airlines such as "Sterling". The hostility of the airline industry environment may keep the investors from investing in an airline. 4. Industry Rivalry:

European Airline industry is facing challenges in the form of recent high oil prices and global financial crisis. In these testing times, the competition among Europe's two biggest airlines i.e. Ryanair and easyJet is amplifying. These tow budget airline giant were competing over lower ticket prices (Hawkes, S. 2008) but recent Ryanair's announcement to compete head to head with easyJet for the two holiday destination will result in some drastic measures by easyJet (Woodman, P. 2008). Additionally, these airlines are not only competing with each but also with the railway services in Europe. The high speed Eurostar and TVG rail services are gaining stature and competing directly with airline on certain routs. Sensing the gains, Air France-KLM is gearing up to invest in the rail services that will have an effect on the market shares of budget airlines (Economist, 2008.). 5. Competitor 1. Analysis: EasyJet:

Due to the similarities in the business models, easyJet is the principal competitor of Ryanair. EasyJet has announced its preliminary results for the three quarters of year 2008 ending on 30 September. According to these the total revenues are up 31% to 2362.8 million compare to the 1797 million in the year 2007. The passenger numbers have also shown improvement with the 17.3% rise to 43.7 million. Beside the revenue and passenger numbers, easyJet has strong liquidity with 863 million in cash on the balance sheet. EasyJet's fleet consists of 165 aircraft of which 75 are company owned (EasyJet, 2008). EasyJet's differentiate itself on the basis of it network that is consist of major and convenient airport in a bid to attract more customers. The recent integration of GB airways into easyJet has contributed significantly in the form of young fleet of 15 aircrafts in the exiting fleet of easyJet. Furthermore, with this integration, easyJet has acquired 18 new destinations and access to new bases such as Manchester thus strengthening its network and customer numbers (EasyJet, 2008b). In order to further strengthen it market share, easyJet is focusing on Italian, French and Spanish markets. In these markets new bases have been acquired and new routes have been developed. In Italy, easyJet has filled the gap on the map, which was created due to the fall of Alitalia, by including domestic route such as Naples, Bari and Palermo (EasyJet, 2008a). 2. European railways:

The development in Europe's railway sector is decreasing the travel time between destinations. Due to this fact, customers are opting for the railway travels for short haul destinations. The Eurostar service between London and Paris, operated by SNCF, carried 8.26 million passengers in 2007 that amount of 70% commuters between London and Paris. The higher numbers passengers choosing Eurostar over an airline has resulted in an increase of 15.4% in Eurostar's revenues to $1.18 billion in the year 2007. The use of railway system has ended Air service between routs such as Paris and Brussels (Matlack, C. 2008). The railway travel is expected to increase in the future. The Air France-KLM has signed a joint venture with Veolia (French transportation service-provider) to provide high speed rail service between Paris and Amsterdam and Paris and London (BusinessWeek, 2008a). The national railways of Germany, France, Switzerland, Austria, the Netherlands and Belgium along with the Eurostar are forming a partnership in order to built high speed connections between the major cities of these countries (BusinessWeek, 2008b). On the other hand, in the era of rocketing fuel prices and higher level of environmental consciousness and troublesome security and baggage checks at airports making train an attractive alternative to air travel (BusinessWeek, 2008a). 6. SWOT analysis:

SWOT analysis especially focuses on threats and opportunities created under Micro and Macro Environmental condition. Concentrating on parts like Competitors threats, Fuel increment, Government policies, Organization performance creating future opportunities and others influenced factors are mentioned. 1. Strengths

Ryanair is the first budget airline in Europe and still the Europe's largest low fare carriers. (Ryanair,

2008). Ryanair through its 14years in the Low-Cost carrier (LCC) market has developed well recognized brand name. Having a strong brand, airport charges are low which Ryanair benefited from. Ryanair create efficient way to operate in regional airport like Charleroi, another impact of having a strong brand. Ryanair always being keen on Customer welfare, is one of the reason their best performance. Punctuality, Noise reduction, Fuel emission, high rate of flight completion, low bag losses are the main factors control under customer satisfaction (Ryanair, 2008). From the technological view, Ryanair has reduced per passengers emissions through higher load factor (Ryanair, 2008). Keeping the aircraft fleet of single type airplanes with an average age of 2.8 years and with modern modification to achieve fuel efficiency has helped Ryanair to reduce maintenance and fuel costs (Ryanair, 2008). The cash reserves of 2.2 billion is assisting Ryanair in its expansion plans and talk with airline manufacturing organization are going on that may result in the delivery of 200-400 aircrafts from 2012 (The Independent, 2008). Ryanair has and continue to offer the lowest fare in Europe, to make passenger air travel affordable and accessible to the European countries (Ryanair, 2008). 2. Weaknesses

Due to poor onboard Staff service delivery, airport environment and not fulfilling the customer satisfaction resulted in lower ranks for Ryanair by SKYTRAX approved airlines (Airlinequity, 2008). In the third quarter net profits, Ryanair shares fall by 27 % which weakened the company future trading process (RTE Business, 2008). Decrease in share value could make Ryanair to lose more shares in European market, hence Ryanair performance in share market business is weak. An attempt made by Ryanair CEO to the pilots to use less fuel (Swinford Steven, 2008) is causing disputes which shows poor relation between employees. 3. Threats

This report has mentioned some certain threats of competitors, fuel increment, Government polices under Micro and Macro Environmental analysis. The recent rocketing oil prices resulted in higher fuel cost for Ryanair. Albeit, the oil prices are low and provides an opportunity to negotiate fuel hedge at lower price, but any future increase in oil prices may result in higher costs and may ultimately effect the future expansion plans (Ryanair, 2008). Limited shared issued in the European market by Ryanair (Share capital, Ryanair.com) to Non-EU nationals may affect the growing number of multinational companies, immigrants and the foreign investors. Changes in government regulations, Disputes between Mr. OLeary and Irish environmental minister in 2007 may hamper the promotional Strategy of Ryanair (Cheapflights, 2007).

Future acts of Terrorism or significant terrorist threats, mostly in London and other European market are high risk for Ryanair, and directly effect the Ryanair's financial situation which will result in low passengers numbers (Ryanair, 2008). The massive development in the European railways transport sector is a future threat for Ryanair (Matlack, C. 2008). Increment on taxes and government policies are subject to change and any drastic changes in regulations or in taxes may affect the Strategy of Ryanair. 4. Opportunities

The International Energy Agency (IEA) forecast for Oil price is low in the year 2009 due to the global economical slowdown. The low oil price provides an opportunity for Ryanair to negotiate fuel hedges at lower prices (Arnott, S. 2008). As mentioned on the micro environmental analysis, Ryanair negotiating with Airbus and Boeing for new aircrafts, this bargaining power could help Ryanair cut costs and improve revenues because the recent credit crunch and recessions are forcing these organization to sell their products on lower prices ((Arnott, S. 2008). Ryanair is successful to achieve consumer confidence and can see that consumer are much interested intentionally as well as internationally, it's easy to measure consumer expectations for their massive expansion by 2012. 7. Conclusion:

This part will be divided in tow part in order to evaluate Ryanairs strategy of Low fares and future expansion. Low fare strategy: The recent credit crisis and the recession in the major EU economies are forcing ordinary people and business to decrease cost in every aspect of their activities. Consequently, when making a decision about flying to holiday destinations or flying companys officials for business purposes, there is an emphasis on using the cheapest mode of transportation. Due to the lowest fare in the European airline industry, Ryanair may become the first choice of transportation for masses. However, Ryanairs strategy of flying to the secondary airports that in some cases are far away from the main destination may limit the benefits of this strategy. Expansion strategy: Ryanair is planning to beef up its aircraft fleet in order to meet the future growth targets of 90 million passengers per year. The steady growth in the passengers numbers over the years, presence of 2.2 billion cash on the balance sheet, higher bargaining power over aircraft manufacturers may provide strapping assistance in doing so. In order to compliment this expansion, Ryanair has to focus on its competitors such easyJet and European railway services. Intercepting the easyJets strategy of flying to convenient airports and crafting routs that decrease commuters dependency on the future railway services may bring efficiency to the price decrease and expansion strategy. Reference: 1) AEA. 2008. State of the industry. Association of European Airlines. Available from: http://files.aea.be/RIG/Economics/DL/SI_2008Maypub.pdf Accessed on 13h November 2008.

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Ryanair
Executive Summary Ryanair operates as a cost leader in the European low cost carrier segment of the airline industry. As a cost leader they aim to achieve high volume sales by attracting customers with low prices. As a result of charging some of the lowest prices in the industry, Ryanair has seen growth in traffic and reported record revenues. To remain profitable the company focuses on maintaining low costs and efficient operations. The key issues facing Ryanair include how to remain profitable in light of rising fuel prices and currency exchange risk, the ability to maintain market share and growth in a segment characterized by intense competition, and whether or not it would be profitable to expand into the growing international/emerging markets and internet retailing space. In addressing these key issues, it is recommended that Costco focuses on opportunities in the internet retailing space to grow bottom and top line growth as well as increasing market share. It is also recommended that they remain committed to their low cost high inventory turnover strategy in order to continue to offer consumers the lowest prices and achieve high inventory turnover. By taking these initiating the strategies summarized above, Costco will be able to maintain their position as market leader and continue to operate profitably in the discount membership warehouse segment of the retail industry. Business Model & Strategy Ryanair operates as a cost leader in the low cost segment of the airline industry. As a budget carrier they aim to achieve high volume sales by attracting passengers with low prices. Ryanair not only charges the lowest prices in the industry, but they also enjoy the highest margins when compared to direct competitors. To generate profitability the company focuses on maintaining low costs and efficient operations. Dominant Economic Features of the Industry The airline industry is a well established industry comprised of a large number of firms operating both regionally and globally. Many of these competitors are large companies that enjoy considerable market share and have established strong brand identity among consumers. While the industry is wellestablished, it is not mature and has continued to experience growth over the years.

Within the European airline industry is the low cost carrier segment. This segment is comprised of a large number of companies that operate regionally throughout Europe. The segments two main competitors, Ryanair and easyJet, have established strong brand identity among consumers and enjoy considerable market share; together they served 55.8% of total passengers in 2005 (see Exhibit # 1). Low cost carriers have seen growth in recent years; in 2006 the segment made up 18% of the European airline market, this is an increase of 3% from the previous year. Recently the segment has seen a large amount of new entrants; a sign that the market expects growth to continue in the near future. Low cost airlines operate in a highly competitive environment. There are approximately 19 different carriers in this space that are continuously looking for ways to increase market share and profitability. This has led to moderately differentiated service offerings as companies attempt to separate themselves on the basis of price, quality of service, variety of services, ancillary offerings, and number of destinations serviced. 5 Forces Analysis: Low Cost Carrier Airlines (Highly Competitive) Buyers Power (High): Buyers power in the low cost carrier segment of the airline industry is high. There are a large number of buyers that incur little to no costs when switching to competing brands. There are a variety of websites that allow consumers to compare prices among competitors and find the best deals available. Supplier Power (High): There are two main types of inputs for low cost airlines: planes and fuel. Suppliers of airplanes have very high power in the industry. There are only a few large companies that sell airplanes throughout the world. Airlines typically lock into long term contracts with suppliers to either purchase or lease aircraft. Taking into account contracts, the high cost of planes and considerable length of time between order and delivery makes it more difficult and more expensive to switch suppliers if airlines are unhappy with the service or products they are being provided. The second input for the industry, fuel, also increases supplier power. Fuel is a commodity product with highly volatile prices. Airlines protect themselves from these volatile prices by entering into hedging contracts. These contracts will lock them into a specific price that they forecast will allow them to beat the market in upcoming periods. If their hedging is unsuccessful, they are stuck with higher than market costs, and are unable to switch. Together, providers of airplanes and fuel make supplier power in the industry high. Threat of Entry (Moderate): High capital costs and regulations make threat of entry for the airline industry very low; however, budget airlines have seen an increase in this threat as a result of the expected growth in the segment. It is likely that new companies, as well as airlines that are not currently competing in the low cost space, will enter the market to increase profitability and gain market share in the industry. Overall, these characteristics make new entrants a moderate threat to low cost competitors. Substitutes (Moderate): Substitutes for the airline industry include cars, trains and boats. For low cost, short haul carriers, the attractiveness of alternative methods of transportation varies depending on several external factors including, the economy, perceived airline safety and the distance passengers are traveling. While the convenience of getting to a destination more quickly may be an added incentive for customers, in poor economic conditions a longer car ride that will cost less may be more favorable. Similarly, heightened terrorism alerts or recent crashes may make travailing by rail or car more attractive. Overall threat of substitutes is moderate. Rivalry (High): Rivalry in this segment is high. There are a large amount of companies competing to gain market share and increase profitability. Because price is the main driver of purchasing decisions, competitors are continually looking for new ways to decrease costs and improve efficiencies in order to offer passengers the lowest fare option. Competitors actively launch new offerings, such as new high margin ancillary services in order to increase revenues and differentiate themselves among the competition. Adding to the rivalry is the presence of excess capacity. The average load factor among major industry

rivals is 76% (see exhibit 2). Due to high fixed costs, it is extremely important for airlines to max out their capacity and fly full planes on every route. In order to do this, competitors have to fight for passengers by offering low prices and additional services that will attract customers when they make their purchasing decisions. Finally, adding to the rivalry is the absence of switching costs for consumers when deciding which airline to fly with. Insulation from Competitive Forces As a cost leader in a highly competitive market, it is essential that Ryanair operates on a low cost strategy in order to maintain growth and profitability. The company enjoys several competitive advantages that help to minimize costs and operate efficiently in order to insulate themselves from the competitive forces in the industry. Lowest Fares among Low Cost Carriers: Ryanair has the lowest fares in the industry. They have achieved this consistently over the years despite steep rises in fuel costs and unsuccessful hedging. This is a sustainable competitive advantage as price is the most important purchasing decision for passengers when selecting an airline carrier. Aircraft Commonality: Ryanair uses one type of aircraft across their fleet which helps them minimize training and maintenance costs. This is a sustainable competitive advantage in the near term over carriers that have mixed fleets, such as Air Berlin. Even if these competitors plan to move to a more common fleet, this could take several years considering the high cost and lengthy time table of obtaining additional aircraft. Youngest Fleet among European Carriers: By having the youngest fleet in the industry, Ryanair benefits from having more fuel efficient and environmentally friendly planes that significantly reduce costs and allow them to offer the lowest fares in the market. This competitive advantage will diminish over time as companies with older planes begin to update their fleets while Ryanairs planes become older. Passenger Check-in and Luggage Handling: Ryanair recently instituted web based and priority check-in services to minimize the need for check-in personnel. They also began to charge customers for checking in bags. This has the benefit of adding an additional revenue stream, as well as, encouraging passengers to travel with fewer bags; a lighter airplane load increases travel speed and decreases fuel burn per trip. These measures help Ryanair insulate themselves against the competition as they are able to cut down on costs and be more efficient. This is not a sustainable competitive advantage as other airlines are likely to adopt similar measures and processes that will give them the same benefits. Airport Charges and Route Policy: Ryanair services point to point only routes and chooses hubs that are typically based in less congested airports; this is a significant factor in their ability to minimize costs and maintain profitability. This is a competitive advantage over carriers such as Air Berlin who offers connecting flights, and easyJet who uses hubs in more centrally based airports. While Air Berlin and easyJet may offer more convenience, a portion of the additional cost gets passed on to passengers in the form of higher air fare. Ancillary Revenues: Ancillary revenues for Ryanair are an important competitive advantage. Non scheduled services provide the company with a high margin revenue stream that directly affects their ability to provide the lowest air fare in the industry. Non Union Employees: Ryanair is the only airline in the industry to do operate with a non-unionized work force. This insulating factor allows them to save significantly on costs. This is a sustainable competitive advantage as it gives them a significant cost savings and allows them to under price the competition. While there has been criticism and negative results from not allowing their work force to unionize it has yet to be detrimental to their performance. FORCES OF CHANGE The expected growth in the low cost airline industry will increase rivalry as competitors continue to fight for market share and profitability. The intense rivalry will cause companies to continue to differentiate themselves by offering new services and finding new innovative ways to attract customers.

Intense competition will continue to be a primary driver of change in the industry. Another force of change in the industry will result from new regulations and taxes that are currently being introduced. The new passenger assistant regulations that went into effect in 2005 have led to a dramatic increase in costs. Some budget airlines have said that fees are out of proportion to the fares actually paid by passengers. In order to maintain profitability and growth in this new regulatory environment, airlines will be forced to look for ways to improve operations in order to avoid increased operating costs and minimize the impact of costs that cannot be avoided. Terrorist activities would be another force of change in the industry. Recent incidents that have occurred have lead to higher insurance costs, longer check-in processes and heightened security measures. Any future incidents will have similar affects and may lead to decreased demand for air travel and higher costs for the airline. Increased costs would force the industry to improve operating efficiencies and minimize costs in other areas to remain profitable. There is evidence of a trend toward consolidation in the market as many airlines have been overtaken or have merged with competitors to try and better position themselves. If this trend continues, the operating environment will become dominated by a few very large players. Smaller companies may find it harder to compete as larger companies may benefit from economies of scale that will allow them to charge lower prices while maintaining profitability. Finally, changing economic conditions will be a force of change in the industry. While short-haul budget carriers are less effected by economic downturns than more expensive airlines, poor economic conditions will still have an impact on the industry as a whole. In recessionary times, people will travel less, making it more difficult for airlines to operate on full capacity. Airlines may consider parking planes and pulling back on the amount of routes offered in order to keep capacity at a profitable level. Market positions of key competitors Buyers in the low cost carrier segment of the airline industry make purchasing decision based on several factors including, price, destinations served, convenience and additional services offered; airlines in the industry differentiate themselves based on these 4 factors. Of these factors, the two that are most important to purchasing decisions are price and destination. Passengers have shown that price far outweighs any other deciding factor; this has been illustrated by Ryanairs ability to achieve record profits despite a perception that they are the worlds least favorite airline. Destination is the second most important factor as a passenger will not choose an airline if that airline doesnt service routes to their desired destination. The strategic group map below shows competitors market positions in terms of price and number of destinations serviced. As the maps depicts, Lufthansa and British Airways service the most destinations and charge the highest fares compared to their competitors in the industry. These two companies do not operate on a pure low cost model; they offer connecting flights and operate beyond a regional level. Air Berlin and Aer Lingus are located in the low right hand side of the map; they have slightly lower fares and service much fewer destinations. Both airlines offer connections and operate long haul routes. FlyBE and easyJet service a similar amount of locales, but have much lower price points. All these competitors service more centrally located airports in addition to less congested ones. The final competitor on the map is Ryanair; as illustrated above, they offer the lowest fares in the industry. While they dont service as many locales as Lufthansa and British Airways, they fill a gap in the industry by operating out of many more airports than their low price rivals. Ryanairs operations are focused out of less congested airports; this is a strategic element of their low cost business model as it helps to minimize costs and improve operational efficiencies. Another important factor that determines competitors market positions are the additional non-scheduled services that airlines offer. Ryanair offers web based check-in and priority boarding. These services help minimize costs as it reduces staffing needs, airport costs and streamlines operations. The

ancillary services that airlines offer not only allow competitors to differentiate themselves, but they are also an important source of high margin revenue. Air Berlin deviates from this low cost model and provides customers with free in-flight drinks, snacks and newspapers. This may differentiate them in the market place; however, the additional cost associated with this has a direct effect on their profitability. While Ryanair has intentionally positioned themselves in the industry as a profitable low cost airline, they have also been positioned, less intentionally, as having poor customer service, poor employee relations and untactful leadership. Poor customer service and employee relations are a direct result of their strict focus on decreasing costs. Ryanairs CEO, Michael OLeary has continually fought to keep costs low. His unwavering commitment of executing strategies that are closely aligned with the companys business model has stirred controversy and contributed to a poor brand image in the industry; high fees for wheelchairs, fighting to maintain a non-unionized work force and high insurance fees are some of the strategies that have led to poor brand perception by the general public. Additionally, the high number of law suits filed by and against the company are a direct result of OLearys conduct; this calls into question his leadership skills and as a result the brands poor in terms of public perception. Strategic Moves Rivals are likely to try and differentiate themselves among competitors in the industry in order to increase market share and fuel growth. To improve profitability, companies will focus on decreasing costs, increasing ancillary revenues, and launching new service offerings. EasyJet, for example, has recently struggled in terms of profitability; they reported a pretax loss of 60 million in 2006. Their poor performance is mostly due to high costs associated with operating out of congested airports; this is part of their strategy of catering to business customers. In order to return to profitability, and remain a low cost provider the company will likely focus on decreasing costs and increasing ancillary revenues to improve profitability. Another likely strategic move is the expansion of operations by increasing capacity and moving into new markets. There are regions in Europe that are underserved with considerable demand; offering the companies the opportunity to gain market share and increase profitability. The low cost airlines that will most likely expand into these spaces are the ones that have been operating successfully and have access to the capital necessary to make the investment. Low cost airlines are also likely to enhance web site capabilities and take advantage of the revenue opportunities in the ecommerce market. Ad revenue is an extremely attractive possibility for companies as the revenue associated with this has virtually no costs yielding an extremely high margin. Competitors such as Ryanair will likely take advantage of this; considering that their brand is the 5th most recognized brand on Google and that they have the largest travel website in Europe, they are well positioned to increase profitability by moving into this space. Other likely strategic moves include the takeover of smaller budget airlines by larger airlines, and the merging of two airlines in the industry. As the airline industry operates on high fixed costs it is likely that some companies will see benefit from merging operations, to help expand in a cheaper more efficient way, as well as create synergies by combining operations. This move is likely as the considering the expected growth in the segment; current airlines that are not in the low cost space may make a strategic move to buy a smaller low cost carrier as a way to enter the industry and increase market share. Moves to consolidate in the industry are likely, particularly considering the rising fuel costs, and increase costs stemming from newly introduced regulations. Industry Success Factors A key success factor in the airline industry is the ability to offer low prices, one of the most important factors for passengers when choosing which airline to travel. Many passengers who have a poor perception of the company will continue to fly with them as long as they continue to offer the lowest prices in the industry. In order to offer low such low prices, airlines must continue to focus on

decreasing costs and streamlining operations in order to be profitable. This is particularly important when it comes to highly volatile fuel costs. It is essential that a company be able to successfully hedge fuel so that they do not get burned in times of both rising and declining oil prices. A second key success factor in the low cost segment of the airline industry is load factor. It is extremely important that airlines fly routes as close to full capacity as possible. With such high fixed costs, a low load factor leads to a decrease in revenues, while operating costs remain flat. In order to be profitable, it is essential that airlines focus on maintaining full capacity. ``````````````````` investment. These revenues will help them to absorb costs stemming from new regulations in the industry, as well as, the impact of decreasing demand stemming from external factors beyond their control, such as poor economic conditions, terrorism and airline crashes. A final key success factor is offering routes to destinations that are convenient for customers and in popular geographic areas where there is high demand for travel. While purchasing decisions in the industry are largely based on price, destination is also a major factor. To be successful budget airlines must be able to offer flights to destinations where customers want to go; these locales must also have a high demand for travel so that the airlines are able to maximize capacity, a crucial factor in being able to operate profitably. Key Financial Ratios (See Exhibit 3 for complete analysis) Gross Margin: A margin analysis reveals that Ryanair is the one of the most profitable airlines among industry competitors (see exhibit 4). In the first half of 2007 they had a gross margin of 41.7%, an increase of more than 5% compared to the end of 2006. In 2005 Ryanairs gross margin was 41.5%, significantly higher than their competitors who operated on gross margins ranging between 20% and 30% that same year. The company also outperforms competitors on an operating and net margin basis; in 2005 their net margin of 21% was more than 10% higher than any other competitor. The company generates enough revenue to cover all operating and business costs allowing them the ability to finance future growth. Revenue/Employee: Exhibit 5 shows that Ryanair operates much more efficiently compared to competitors in terms of revenues per employee. In 2005 revenue/employee was 506,543; compared to Lufthansas 487,690 and 384,801. By operating more efficiently and having more productivity per employee, Ryanair is able to minimize costs, a key factor in the ability to remain profitable as a cost leader. Revenues: In 2006, Ryanair saw revenue growth of 27% over the previous year, a direct result of an increase in passenger traffic over that same time period. The first half of 2007 saw revenues of 1.1 billion, more than 75% of 2006s full year revenue, making it likely that Ryanair will see an increase in revenues for the full year. Return on Equity: ROE has decreased from 16.5% in 2006 to 15.5% in the first half of 2007. ROE is above average and indicates that investors are earning a healthy return on their investments; however if the ratio continues to decrease over time the trend would be concerning. Return on Assets: Return on assets has decreased from 7.3% in 2005 to 6.86% in the first half of 2007 revealing a declining trend for return on total investments. As a cost leader, a decreasing ROA is concerning as it suggests that the their operations are not being managed in accordance with their strategy; however recent growth initiatives may be the culprit behind the declining trend. There is a large time lag between airplane purchases and delivery, so while new assets maybe on the books, they may not be in use and generating revenue for the company. Current Ratio: Ryanairs current ratio has decreased from 2.55x in 2005 2.46x in the first half of 2007. While the decreasing trend is not positive, ratios above 2.00x reveals that the firm is liquid enough to pay all short term liabilities. Debt-to-Assets Ratio: Ryanairs debt to assets ratio is strong as it has decreased from .57x in 2006 to . 54x in the first half of 2007. The company is not very reliant on borrowed funds to finance the firms operations considering their debt-to-assets are well below 1.00x.

Debt-to Equity Ratio: Ryanairs debt-to-equity ratio is currently 1.16x; a ratio above 1.00x is concerning and suggests that they have excessive debt and lower credit worthiness. Low credit worthiness may make it more difficult for the company to borrow to fund growth initiatives. SWOT Analysis The situation analysis reveals that Ryanair is operating in a unique segment of the industry by offering the lowest prices, as well as a offering a large amount of destination options. They have been successful at aligning their strategies with their low cost business model by offering point-to-point only routes, avoiding congested airports and taking advantage of ancillary offerings. The SWOT analysis below summarizes the above analysis. Strengths: * Lowest fares in the market * Continuing profitability despite significantly higher fuel costs * Largest travel web site in Europe * Strong brand recognition (5th most recognized brand on Google) * No fuel surcharges passed on to customers * Focus on ever decreasing costs * Number one for punctuality among European airlines * Fleet commonality * Point-to-point service | Weaknesses: * Poor employee relations * Extra capacity creating uncertainty of success of new routes and locations * Historically unsuccessful hedging * Untactful leadership by CEO Michael OLeary * Poor brand perception: voted least favorite airline * Poor public image * Insurance fee charge through to customers is extremely high * Poor on board sales * Airports far from central locations | Opportunities: * Market growth * Route expansion * Convert web site traffic into e-commerce and advertising revenues | Threats: * High fuel costs * Intense competition * New regulations and taxes would lead to an increase in operating costs * Increased terrorist activity could lead to higher insurance premiums, and a decrease in travelers | KEY ISSUES FACING COMPANY Increasing costs as a result of unsuccessful hedging and newly adopted regulations are a key issue facing Ryanair. As a low cost airline any increases in operating costs have a large affect on their bottom line. Ryanair must give themselves leeway in defending against these external factors in order to maintain profitability and increase market share. Low load factors are a second key issue facing the company. Flying planes with excess capacity has a significant effect on their bottom line. The fact that the industry as a whole operates with excess capacity reveals excess supply. There expansion efforts have been increasing capacity and without an increase in customers the cost of the expansion will be larger than the return on investment. Ryanair has very poor perception in the industry; a direct result of poor customer service, poor employee relations and untactful leadership by CEO, Michael OLeary. While consumers in the industry have proven that they will still fly with Ryanair despite poor customer relations, it is likely that the company is missing out on additional revenue from those customers that are willing to pay an additional price to get better service. This is a key issue facing the company especially if customers perceptions evolve and service becomes more important. Poor alignment between certain ancillary services and customers needs are another key issue facing the company. They have made several poor investments for on board revenues as they are generating only 1.30 in sales per passenger. ALTERNATIVES Below are several alternatives that should be considered in order to address the key issues outlined above and position the company to obtain continued profitability and increased market share in the future. Maintaining Profitability * Hedging Poor Brand Perception * Institute a new employees training program that will instruct employees on how the company wants

all * Capacity * * Leadership

Ryanair Increase

staff a *

customers presence

at

to airports loyalty and

be and on rewards advertising

treated board program expenses

Institute Increase

passenger marketing

RECOMENDTIONS It is important that Ryanair continue to focus on decreasing costs and improving operational efficiencies in order to maintain profitability. To do this it is recommended that they continue to hedge against oil prices, as well as currency exchange risk. It is strongly recommended that Ryanair leverage their website by entering into ecommerce in order to take advantage of the high margins revenues that could be generated through ad sales. This strategy would be well aligned with their business model and allow them an additional revenue stream in order to protect against any unexpected increase in costs. Ryanair must reevaluate their on-board ancillary services to determine if they fit the needs of their passengers. In order to increase capacity, it is recommended that Ryanair design a frequent flier program to reward customers for being loyal Ryanair passengers. This strategy will be more successful than increasing advertising and marketing spending. Because they are operating in a highly competitive environment there are many times when differentiated offerings from other airlines may sway a passenger to choose the competitor if there is not a large difference in price. For example, a passenger that is looking to fly to a certain destination may have the option of flying Ryanair and arriving in a less centrally located airport or pay a slightly higher price to fly easyJet and arrive closer to their destination. Absence a reward program, the passenger may choose to pay the higher price in order to take the more convenient route; however, if Ryanair had a loyalty program the added benefit of CEO Michael OLeary needs to pick his battles CONCLUSION Costco has remained a successful competitor in the warehouse club segment of the retail industry over the years. Their success is a direct result of their commitment to maintaining low costs in order to be able to offer their customers the lowest prices and achieve a high inventory turnover. They have been able to execute this strategy profitably by insulating themselves from competitive forces in the industry by establishing strong distribution and supplier networks, maintaining strong inventory management, only offering limited varieties of product in bulk sizes and other strategies that minimize their cost of operations. Their many strengths put them in a good position to deal with forces of change in the industry as well as give them the ability to address key issues threatening their profitability. How Costco responds to intense competition, an uncertain economic environment and uncertainty surrounding how to allocate investments in expanding in growing markets will dictate their profitability and performance in the future. It is recommended that Costco allocate more resources to growing their internet retail business over expanding in international markets. Their historical success in catering to small businesses makes internet retail a more attractive and profitable endeavor over international growth prospects, especially considering the higher cost of expanding internationally. Additionally, it is crucial that Costco remains committed to their low cost strategy. Competitors are beginning to alter the fundamentals of the warehouse club segment by increasing costs to provide a more enjoyable customer experience and increase brand awareness. If Costco stays away from these strategies and maintains those core competencies that are the centerpiece of their business model, they will be able to gain advantage over the competition especially in poor economic times. EXHIBIT 1: PASSENGER SHARE (EUROPEAN LOW COST CARRIERS)

*OTHER Sterling/Maersk brmibaby dba Hapag Vueling Norwegian Virgin SkyEurope Wizz Wind Air Fly Jet2 Monarch Total EXHIBIT

| | | Lloyd | Air Express | | Jet Baltic Me | Scheduled | 2:

PASSENGERS | Express Shuttle | | | | |

(MILLIONS) 3.8 3.5 3 | 2.7 2.5 | 2.1 2 1.9 1.9 1 1 0.5 0.5 0.5 26.9

| | | | | | | | | | | | | | | | CAPACITY

INDUSTRY Passenger Miles | 18.8 | | 3.4 | | 111.9 | 27.4 | 108.2 | 60.2 | | 9.7 | 2.6 | STRENGTH

| Available Seat Ryanair | Aer Lingus British Airways easyJet | Lufthansa | Southwest | Air Berlin FlyBE | EXHIBIT 3:

Miles | Revenue 24.3 | | 4.6 | 147.9 32.1 | 144.2 | 85.2 | | 12.4 3.8 | COMPETITIVE

Load Factor 77.37% 73.91% 75.66% 85.36% 75.03% 70.66% 78.23% 68.42% ASSESMENT

| | | | | | | | |

KEY SUCCESS FACTORS | Weight | Ryanair | easyJet | FlyBE | Air Berlin | Aer Lingus | | | Strength | Score | Strength | Score | Strength | Score | Strength | Score | Strength | Score | Low Costs | 30% | 9.00 | 2.70 | 8.00 | 2.40 | 7.50 | 2.25 | 5.00 | 1.50 | 5.50 | 1.65 | Operational Efficiencies | 20% | 9.00 | 1.80 | 7.00 | 1.40 | 7.50 | 1.50 | 6.50 | 1.30 | 6.00 | 1.20 | Load Factor | 20% | 7.50 | 1.50 | 9.00 | 1.80 | 6.00 | 1.20 | 7.00 | 1.40 | 6.50 | 1.30 | Ancillary Revenues | 20% | 8.00 | 1.60 | 9.00 | 1.80 | 7.00 | 1.40 | 6.00 | 1.20 | 7.00 | 1.40 | Destinations | 10% | 8.00 | 0.80 | 6.50 | 0.65 | 6.00 | 0.60 | 7.00 | 0.70 | 6.50 | 0.65 | Sum of Importance Weights | 100% | 41.50 | 8.40 | 39.50 | 8.05 | 34.00 | 6.95 | 31.50 | 6.10 | 31.50 | 6.20 | Overall | Strength | Weight | Ryanair | 41.50 | 1.30 | easyJet | 39.50 | 1.40 | FlyBE | 34.00 | 1.20 | Aer Lingus | 31.50 | 0.70 | Air Berlin | 31.50 | 6.10 |

EXHIBIT

4:

KEY

FINANCIAL

RATIOS | | | | | | | | | | | | | | | | | | | | |

PROFITABILITY RATIOS | 2005 | 2006 | 1H2007 Gross Margin* | 41.71% | 35.04% | 41.49% Operating Margin | 25.83% | 22.16% | 30.71% Net Profit Margin | 21.23% | 18.12% | 26.20% ROA | 7.33% | 7.26% | 6.86% ROE | 16.10% | 16.50% | 15.30% EPS | $36.65 | $39.74 | $42.39 LIQUIDITY RATIOS Current Ratio | 2.55x | 2.43x | 2.46x Quick Ratio | 2.54x | 2.42x | 2.46x Working Capital | 1,004,119 | 1,207,755 | 1,288,252 LEVERAGE RATIOS Debt-to-Assets | 0.55x | 0.57x | 0.54x Debt-to-Equity | 1.20x | 1.33x | 1.16x LTD-Equity | 0.83x | 0.90x | 0.77x TIE Ratio | 5.91x | 5.07x | 9.34x ACTIVITY RATIOS Days of Inventory | 1.168 | 1.136 | 1.801 Inventory Turnover | 312.53 | 321.32 | 202.67 Receivable Days | 5.71x | 6.45x | 7.03x Receivables Turnover | 63.89x | 56.59x | 51.90x

EXHIBIT 5: GROSS MARGIN RECONCILLIATION (INDUSTRY) *RYANAIR | 2005 | 2006 | 1H2007 | Total Revenues | 1,319,037 | 1,692,530 | 1,256,423 | Cost of Goods Sold | | | | Staff Costs | 141,673 | 171,412 | 113,844 | Fuel & Oil | 265,276 | 462,466 | 337,042 | Maintenance, Materials & Repairs | 26,280 | 37,417 | 21,313 | Aircraft Rentals | 21,546 | 47,376 | 25,394 | Route Charges | 135,672 | 164,577 | 98,384 | Airport & Handling Charges | 178,384 | 216,301 | 139,097 | Total COGS | 768,831 | 1,099,549 | 735,074 | Gross Profit | 550,206 | 592,981 | 521,349 | Gross Margin | 41.71% | 35.04% | 41.49% | | | | | INDUSTRY (2005) | AIR LINGUS () | BRITISH AIRWAYS (GBP) | EASYJET (GBP) | Total Revenue | 1,003 | 8,515 | 1,341 | Employee Costs | 249.4 | 2,346.0 | 136.2 | Airport Charges | 178.7 | 559.0 | 230.1 | Ground Handling | 89.9 | 955.0 | 130.5 | Fuel | 134.1 | 1,632.0 | 260.2 | Maintenance | 75.3 | 559.0 | 119.2 | Lease Charges | 44.9 | 112.0 | 123.7 | COGS | 772 | 6,163 | 1,000 | Gross Profit | 230 | 2,352 | 342 | Gross Margin | 23.0% | 27.6% | 25.5% |

EXHIBIT EXHIBIT

5:

MARGIN 6:

ANALYSIS

(INDUSTRY

COMPARISON) EFFICIENCY

EXHIBIT 1: AIRPORTS SERVED