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Grown Ryanair Business Strategy

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Executive Summary

Ryanair’s growth in its relative short time of existence is discussed in this report. The business and marketing strategies adopted have impacted the competition and took over a substantial share of the European market, making Ryanair the largest European airline, with higher targets to be achieved.

From its early years, Ryanair was aggressive in its strategy to penetrate the market. They were crucial to the introduction of the low-cost concept in Europe, having established themselves as the leaders thereafter. They always grew with the intention of lowering fares.

The salient points of the airline’s success were the concept, purchasing power, web-based booking system and aggressive marketing strategies used.

Recently Ryanair has increased its customer care and environmental awareness helping it to improve its image and gain the environmental inclined customer.

Introduction

Ryanair Holdings plc is Europe’s largest airline group, incorporating Ryanair, Buzz, Lauda and Malta Air. Operating from two hundred thirty nine airports of which eighty six are bases in forty countries, with over two thousand four hundred flights a day covering two thousand one hundred routes and carrying one hundred fifty three million passengers annually, with a fleet of four hundred seventy five aircraft and a further two hundred and ten on order, will enable the group to lower fares and grow traffic to two hundred million passengers per annum by financial year 2014. Over nineteen thousand highly skilled aviation professionals are employed with Ryanair Holdings delivering Europe’s number one on-time performance, and an industry leading of thirty-four years of safety record.

The Dublin based Irish, low cost airline was founded in 1985 by the Ryan family, with a share capital of one pound and twenty-five staff. Operations started in July with a daily flight on a fifteen-seater aircraft from Waterford in the southeast of Ireland to London’s Gatwick airport. Five thousand passengers were carried in the first year of operations. Thereafter, Ryanair started challenging British Airways and Air Lingus high fare duopoly with slashed prices of just ninety-nine pounds, starting the first fare war.

In 1991 Ryanair carried over seven hundred thousand passengers, but had accumulated losses of twenty million pounds, despite a three-year period of growth in aircraft and routes and intense price competition with British Airways and Air Lingus. A restructuring period commenced, and the Southwest Airlines low fares model was adopted.

The major break-through for Ryan air was in 1997 when the European Union completes the “Open Skies” deregulation of the scheduled airline business enabling airlines to compete freely throughout Europe, and in 2000 with its on-line booking system.

Numbers of passengers carried kept increasing every year and by the end of 2019 the airline was carrying over one hundred and fifty million passengers.

With the acquisition of Buzz, Lauda and Malta Air, Ryan Air plans to penetrate certain markets and benefits.

Body

Ryanair was successful in its relative short period of existence by adopting a low-cost business model Driving costs down enabled it to come out with cheaper prices and filling up its available seats, becoming the world’s sixth airline, and Europe’s second, in the number of passengers carried in 2018.

The graph hereunder depicts the passengers carried from financial year ending March 2000 to March 2019, showing the steady growth experienced by the airline, from five million passengers in financial year ending March 2000 to one hundred and thirty-nine million in financial year ending March 2019.

In the 1980’s heavy restrictions were in place by countries to protect their national airlines. The completion of the deregulation of the airline industry by removing government intervention in the European market in April 1997, were airlines decided routes and fares led to the introduction of several low-cost carriers, resulting in lower air fares.

Following on the footsteps of the successful low-cost American Southend Airline, Ryanair adopted the low-cost carrier model in Europe, targeting the conscious leisure traveller and frequent flyer low cost businessmen, even going a step further when it started to sell food and drink instead of providing them for free.

In 2000 Ryanair launched Europe’s largest online booking system which within three months was taking some fifty thousand bookings a week. Bookings are taken through the website with no need of booking offices and their related costs and commissions paid to travel agents. Hotel accommodation, car hire and insurances are also now being sold through the website. Affiliates place adverts on the website since they can reach a large client base and will readily pay high commissions for such service.

Suppliers can be referred to as those that supply the company with what they need to produce their products and services (Johnson et al 2008). From a technical view, Ryanair strategy is to purchase aircraft, through the same supplier, Boeing. Purchases are made in large numbers so better prices are negotiated throughout the delivery period of the aircraft ordered. These are either to increase the fleet or replace the older ones. Having the same type of aircraft gives flexibility in deploying staff, since they would know how to operate them without much training and simpler maintenance. Newer aircraft with latest technology will be fuel efficient and safer. The fuel expense in financial year March 2019 was 32% of Ryanair’s turnover, however this expense is controlled by world trade, dominated by the Middle East. Hedging agreements are in place giving stability in price for a period, in which the airline will keep its fares stable. Fuel efficient aircraft reduces costs, whilst having safe planes gives confidence and safe minds for clients. The grounding of the Boeing 737 Max has derailed projections for 2021 by some 5 million guests, and noise, emissions and fuel efficiency targets. These aircraft are of the latest technology in fuel consumption and environmental friendly but were banned from flying after two of these planes crashed.

The airline has developed ancillary revenue through related services, and this made up 32% of total revenue in financial year 2019. This is derived from snacks and beverages sold on board, priority charges, baggage and commissions from website sales. Staff are trained on up selling and have commissions onboard sales generated.

External forces, happenings in the world are detrimental to the airline industry. Economic downturn, war, disease outbreaks, terrorist attacks all bear their mark on the industry. Despite the gulf war which ended in February 1991, Ryanair managed to make a profit for the first time in its financial year ending March 1991. In times of recession people tend to refrain from travelling as they tend to cut on leisure, likewise war and terrorist attacks will discourage travelling.

Human resources are what keeps companies going. As at March 2019, Ryanair employed over sixteen thousand professional employees, being mainly pilots (5,446) and cabin crew (9,095). The company believes that its existing conditions for its staff are industry leading in the low-cost operators, with competitive pay, advantageous fixed rosters, outstanding promotional opportunities and a wide choice of base locations across Europe. All staff undergo continuous training, mainly in safety procedures. Cabin crew are required to undergo annual evacuation drills. Incentive schemes, sales bonuses, pay increases regulated by unionised collective agreements are in place, whilst also share option plans are approved. Through this the airline tries to keep a motivated workforce with the least amount of staff turnover.

Competition in the airline industry comes in the form of national airlines, independent airlines, franchise of major airlines and charter airlines. The independent airlines in the form of low-cost carriers charge the lower of fares than national airlines, who respond with the franchise airlines they control. Though no barriers exist, setting up an airline requires heavy investment, which is a barrier to entry. Experience gathered gives Ryanair a cost advantage over any new aspirants vying to enter the low-cost market.

Substitute products in the form of trains are an alternative means of transportation. This is especially critical to the short-haul and low fare airlines because evolutionary train technology is continually making train travel faster and more comfortable, and its price/performance ratio (Johnson et al, 2008) are perceived to be higher.

Marketing Strategy Analysis

The product is the core element of a company as it determines what it is going to offer. It must be tailored to the need and want of the customer as well as derives their satisfaction. Ryanair is offering its low cost, no frill airline as the product. This has been offered to the public who accepted and sought the product, helping the airline grow to establish itself as one of the largest in the world.

The fast turnaround of Ryanair’s aircraft, reputed as the fastest in Europe and low cost, no frill approach has helped define it as a strong brand.

The positioning of the product had been consistent throughout since adopting the Southwestern Airlines model, that of offering low cost flights. Consistent adverts and messages broadcasted daily helped the airline gain a foothold on the market. Ryanair is always on the lookout in reducing costs to enable them to reduce fairs.

The clarity of their slogans in marketing the low-cost fares with “The Low Fares Airline”, “Ryanair, Fly Cheaper”, “Low Fares, Made Simple” are made simple to understand in delivering their low fares concept.

It’s important that the concept is credible in customers mind. Ryanair is confirmed to be the largest low-cost carrier in Europe.

Ryanair’s competitive advantage is in delivering low cost fares over their competition. This is a guarantee offered, that if one finds a cheaper flight the airline will pay double the difference.

Ryanair’s primarily targets leisure tourists, who plan and book their holidays in advance and take full advantage of the cheap booking fares. The business traveller who books closer to his travelling dates will pay the higher rates, leaving surplus revenue to the airline.

The Ryanair lifecycle commenced with its introduction way back in 1985 with the Waterford to Gatwick route and the targeting the Ireland to England market and European expansion thereafter. Growth continued with a steady and rapid pace in the early 2000’s with passengers and revenues growing annually, reaching profits which were the envy of other airlines. Over the past ten years, with intensified promotional activities, maturity levels have been reached as sales are stabilized with growth rates in the region of 10%. Businesses start the decline stage when they start experiencing sharp declines in sales. Many airlines felt the recession of the 2008, but Ryanair strategies of cutting costs and lowering fares, kept it going, even though patronising customers were feeling the credit crunch.

Ryanair adopted its pricing strategy of low-cost fares since its inception and has been the lowest in terms of fares in Europe. In keeping to this strategy, the airline identified its market of price sensitive customers blended with promotion. To keep up with its strategy the airline opened to new countries and introduced routes, offering low prices to stimulate the desire for travel. The filling up of seats is detrimental to the airline, as unsold seats result in losses. The concept in having its aircraft full of passengers and up in the skies, will result in lower costs and cheaper fares.

Over the last years Ryanair invested heavily in environment programmes and has been independently ranked as the cleanest airline in Europe. It has gone paperless and committed to be paperless within the next five years. The airline is investing billions in new, more efficient aircraft to carry more guests with reduced fuel consumption and noise emissions. Emissions have fallen some 20% in the last ten years and plan a further deduction of 10% in the next. €540 million have been paid in environmental contributions to European governments in FY 2019. Customers have the tendency to switch airline over environmental issues. 

Ryanair has a 34-year incident free record. Substantial investments in safety-related equipment, training and internal recording systems have been made. State of the art simulators training centres, fixed base simulators a Boeing Max simulator, full size Boeing maintenance training aircraft, a Boeing 737-700 for pilot training purposes, five day on and four day rest rosters for pilots and five days on and three days ret for cabin crew, have been introduced.

In 2019 The Always Getting Better (AGB) Customer Experience program was introduced on the basis “More Choice, Lower Fares & Great Care”. New initiatives were introduced including, credit to customers’ accounts if cheaper fares are found elsewhere, 90% punctuality or a reduction of 5% in following months fares, process within tendays of any EU261 claims and new forty-eight-hour grace period for changes to bookings. Changes of under-performing ground handling service operators in several airports was necessary to improve on-time-performance.

In 2014 Ryanair’s new chief marketing officer was given the task of turning around the public image on social media. The airline’s customer service rebirth announced as decision to “stop unnecessarily pissing people off”. Mr O’Leary had several instances of bad customer encounters and the perception was not good. He will take over CEO responsibilities at Ryanair Group. “That is a hint that after decades of revelling in negative publicity, Ryanair’s brand has become too toxic for some of the markets it now wants to expand into. Mr O’Leary used to believe that “all publicity is good publicity”. But now perhaps even he has learnt that there is a limit to which you can take any management slogan.”

Group airlines

The Group have now acquired Buzz Air, Lauda Air and Malta Air showing that its growing and competing with IAG and Lufthansa Group who both have National and Low-Cost airlines. Buzz Air was bought from KLM, with the aim of taking over its point-to-point routes. The German speaking countries were slow in taking up the low-cost concept and have loyalty to their national airlines. By taking over Lauda Air, whose founder passed away earlier on this year, Ryanair was targeting these clients. Favourable employment legislation could be the reason behind the setting up of Malta Air, where a higher number of aircraft than those used are planned to be registered. Having set up these companies which are not registered in Ireland, will be beneficial to employees who do not need to be registered for tax purposes in Ireland, and benefit from the double taxation agreements of Malta.

Conclusion

Financially, the strategy is clearly working for the airline, who not only have it increased its revenue, but have also succeeded in reducing its costs thus giving a higher profit margin year on year. Ryanair have got their strategies implemented correctly and effectively and positioned themselves well in the industry. They have experience and know the industry, and their customers, and can adopt to changes easily. Effective and continuous marketing hammering the low fares concept reaches out to the traveller. Purchasing strategies and the web-based booking system enables the airline to keep its cost to its minimum. The Ryanair low fares concept reaches out to those who prefer traveling through plane rather using cheaper alternatives. Expansion through new routes and lowering fares will enable the airline to reach its 2014 targets of carrying two hundred million passengers annually.

Reference List:

  • Annual Report 2019 (online) Available at: (Accessed 11 January 2020)
  • Mutton dressed as lamb – Ryanair is starting to hide its brand, Gulliver, The Economist, 14th June 2019 (online) Available at: < '>https://www.economist.com/gulliver/2019/06/14/ryanair-is-starting-to-hide-its-brand> (Accessed on 7 January 2020).
  • The Guardian (online) Available at: < '>https://www.theguardian.com/business/2014/may/02/ryanair-new-face-hopes-social-media-help-change-take-off> (Accessed on 11 January 2020)
  • history of Ryanair (online) Available at: < www.ryanair.com> (Accessed on 5th January)

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