Ryanair: the low-fares airline – future directions?
case study Ryanair: the low-fares airline – future directions?
Ryanair, the first and largest budget airline in Europe, has enjoyed remarkable growth and success. However, are Ryanair’s strategic business model and its implementation robust enough to withstand the challenges it faces in its environment, notably economic recession and uncertainty about fuel prices? The case illustrates how to analyse and deploy internal resources and capabilities to add perceived value to customers, thereby delivering sustainable strategic advantage. It also explores the difficulties that hamper achieving and retaining such advant age. The reader is invited to devise and evaluate strategic options for Ryanair, including elements of corporate strategy in relation to its attempts to take over Aer Lingus, the Irish national carrier.
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‘The worst sort of business is one that grows rapidly, requires signifi cant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down.’
Warren Buffett, annual letter to
Berkshire Hathaway shareholders, February 2008
W hile the words of Warren Buffett were generally true,
| as airlines had seen no economic profi t over a 40-year | |
| period to 2012, there were exceptions. Most noteworthy was Ryanair, the Irish budget airline, which had been consistently reporting earnings in excess of 20%. With 76 million passengers in 2012, Ryanair nominated itself as the world’s favourite airline, since it carried more international passengers than any other airline.
T he question was whether Ryanair could continue to defy industry trends that had caused so much distress to its competitors. In January 2010, CEO Michael O’Leary had observed: ‘T he environment is, from Ryanair’s perspective, great, because it is awful. We’re doing remarkably well because this is the time when the lowest-cost producer wins.’ Would this still continue to be the case? Overview of Ryanair As of July 2012, Ryanair ran more than 1,500 fl ights per day from 51 bases on 1,500 routes across 28 European |
countries, connecting over 165 destinations. It operated a fl eet of 294 new Boeing 737-800 aircraft with fi rm orders for 11 new aircraft to be delivered over the next year.
R yanair was founded in 1985 by the Ryan family to provide scheduled passenger services between Ireland and the UK, as an alternative to the then state monopoly airline, Aer Lingus. Initially, Ryanair was a full-service carrier, with two classes of seating, leasing three different types of aircraft. Despite growth in passenger volumes, by the end of 1990 the company had disposed of fi ve chief executives and accumulated losses of IR£20 million.1 Its fi ght to survive in the early 1990s saw the airline transformed to become Europe’s fi rst low-fares, no-frills carrier, built on the model of Southwest Airlines, the successful US airline. A new management team led by Michael O’Leary was appointed. Ryanair fl oated on the Dublin Stock Exchange in 1997 and is now quoted on the Dublin and London Stock Exchanges and on the NASDAQ-100. |
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