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Ryanair:
The `Southwest' of European Airlines

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This teaching note was written b' Shirisha Regain under the direction of
Sanjib Dutta, 1CFA1 Center for Managernent Research (ICMR) . It was prepared to
accompan.p the case `Rvanair: The 'Southwest' of European Airlines' (reference
number 303-216-1) .
The case wa.s compiled from published sources.

©2003, ICI'AI Center for Management Research (ICMR) . Hyderabad, India.

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 303-216-8

TEACHING NOTE
SUMMARY:

Ryanair is one of the oldest and most successful low-cost airlines in Europe . Started in 1985 as an
independent Irish airline, Ryanair expanded to become the biggest carrier on the London-Ireland
route. By the late 1990s, it was the biggest low-cost airline in Europe . However, in 2002, rival
easyJet overtook it to the top position . Ryanair's operations were based on the operational model
of the most successful discounter of all time - the Dallas-based Southwest airlines . Ryanair
adopted most of the operational policies which made Southwest Airlines so successful. Along
with an operational model to support its strategy of cost focus, the airline also made use of
extensive -sometimes cheeky publicity, to make its brand more popular. By early 2003, the low-
cost airlines segment in Europe showed signs of consolidation. Ryanair and easyJet had emerged
as the major players in the market . The positioning of the two airlines vis-a-vis each other also
forms a part of the case.

G OBJECTIVES & TARGET AUDIENCE :

The teaching objectives of this case are:

" To analyze the business model and operating strategies adopted by a successful low-cost
airline in order to emerge as the leader in a highly competitive market .
" To examine the role of publicity as adopted by the airline and analyze its efficacy in creating
higher brand awareness.
" To analyze the positioning of the airline vis-A-vis competitors operating in the same market
segment, and understand the competitive advantages enjoyed by the airline against rivals .
" To study the sustainability of the airline's competitive and operational advantages in the long
run in the light of new competition and the stage of evolution of the industry in which it
operates .

The case is meant for MBAIPGDBM students and is intended to be a part of the Strategy and
General Management curriculum .

TEACHING APPROACH & STRATEGY :

This case can be used effectively in classroom discussions as well as distance learning programs .
The moderator can initiate the discussion by asking students to comment on the growth of low-
cost airlines which were based on the Southwest model. The students can then discuss the growth
of Ryanair from a small Irish upstart to the biggest low-cost airline in Europe. The moderator can
ask students to discuss the operational model of Ryanair and how it compared to the model of
Southwest Airlines . Students can also discuss the publicity initiatives of Ryanair and how they
helped increase brand awareness. The moderator can conclude the discussion by asking the
students to comment on the position of Ryanair in the low-cost market and the future prospects of
the airline in the light of the stage in the industry's evolution and the threat of new competition .

ANALYSIS:

Ryanair is the oldest low-cost airline in Europe . It was one of the first independent airlines to
succeed in Ireland. Ryanair was started in 1985 by three brothers - Cathlan, Declan and Shane
Ryan - to provide low-cost, no-frills services between Ireland and London. Soon after Ryanair
was set up, the governments of Ireland and England entered into an agreement to deregulate air
 303-216-8

traffic between England and Ireland. Ryanair obtained an early advantage by being granted a
license to operate between London and Dublin .

Over the years, the airline continued to grow and added new routes . However, it faced some
managerial problems and there were a number of changes in management . The airline also faced
heavy losses due to the intense competition that existed between the airline and the national
carrier, Act Lingus . The intensity of the competition was reduced after the Irish Government
introduced its two-airline policy and specified different international routes for the two a
This reduced the debilitating competition between the two airlines and led to greater profitabi
for both airlines.

After the deregulation of the European air services market in 1997, Ryanair was able to expand
further and increase its routes to continental Europe . It also set up two new bases in Europe .
Expansion of routes and increased profitability helped make Ryanair the biggest low-cost airline
in Europe by the mid-1990s. Ryanair remained the largest low-cost airline in Europe till 2002.
However, easyJet (set up in 1995) overtook Ryanair to the top position in 2002, after it took over
Go, the low-cost subsidiary of British Airways. The combined fleet and routes of easyJet and Go
were more than those of Ryanair. However, the CEO of Ryanair, Michael O'Leary, declared that
Ryanair would soon reclaim its number one position .

2.

Ryanair adopted operational policies that supported its corporate strategy of cost-focus. The
operational model adopted by Ryanair allowed the airline to keep costs under control, enabling it
to offer low fares. Some of the components of the airline's operational policy were:
It operated a simple fleet of planes, flying only one type of plane. This allowed it to keep
operations simple and inexpensive by allowing transferability of parts, furnishings and crews
between planes .
qty The airline flew to secondary airports, which gave it better landing terms. They also had the
advantage of being less congested than the major airports which allowed the airline to turn
around planes faster .
By turning around planes faster, (in about half the time taken by major airlines), Ryanair was
able to fly its planes a larger number of times per day than its competitors, thus increasing the
productivity of the aircraft and making the more profitable.
It also employed fewer numbers of employees than its competitors, and the per-employee
productivity was higher .
Online sales of tickets simplified the ticketing process allowing the airline to save time and
money by reducing dependence on travel agents .
The airline did not serve food on its flights. This helped it save expenses on food. Selling
snacks, in fact, became a new source of revenue. In addition to this, the airline charged the
passengers for all the additional services it provided (baggage check-in, handling, etc.). This
also helped keep costs under control and increased the sources of revenue.
:w The airline flew point-to-point flights which helped keep operations simple. It also rented out
its planes, and the space in the overhead cabins and behind the seats to other companies for
advertising,
These initiatives helped the airline keep its expenses low and allowed it to charge lower fares for
its flights .
Ryanair also had a publicity program which was important in creating and increasing awareness
of its brand in the market. The airline often released advertisements which were cheeky and
controversial . The media coverage on the controversial nature of the advertisements often
generated more publicity for the firm than the advertisements themselves.

3.
 303-216-8

Ryanair and easylet were the two major low-cost airlines in Europe . After the shakeout and
consolidation in the low-cost airline industry, Ryanair and easylet emerged as the major players,
as they took over smaller airlines operating in similar markets. Ryanair was the biggest player in
the market until 2002 when it was overtaken by easylet.

Price was the primary competitive advantage that Ryanair enjoyed over easylet. Ryanair offered
fares which were approximately 60 percent lower than the fares of easylet on similar routes . This
fact was played up by Ryanair, which claimed it was the 'true' low-cost airline . Ryanair also
announced that it would lower fares by five percent every year indicating its long-term
commitment to this strategy .

A big advantage that enabled Ryanair to offer lower fares than easylet was the huge discounts it
got on its purchases from Boeing . As it was based in Ireland, where no aircraft were produced,
the US government allowed such discounts to be offered. Besides, it also flew an older fleet and
did not undertake a great deal of expenditure on new planes unlike easylet. Flying older planes
did not harm the airline as it had an unblemished safety record . Ryanair also had a better
breakeven load factor and a higher operating margin than easylet and all its other competitors.

EasyJet had certain advantages over Ryanair in terms of the convenience of the airports it flew to
and its newer fleet of planes, but Ryanairs operational model probably has greater long run
sustainability . EasyJet did not hedge its fuel costs; this could prove costly if fuel prices rose .
Besides, unlike Ryanair, easylet also competed head-on with the major carriers, since it flew to
the same airports and targeted the same customers. If the major carriers (with more funds and
greater governmental support) decided to become more aggressive in defending their turf, easylet
would find the going really tough. However, experts believed that the industry was big enough to
sustain both the low-cost airlines, as long as they did not step on each others' toes .

ADDITIONAL READINGS & REFERENCES :

I .Kerry Capell, Carlos Tromben, William Echikson, Wendy Zellner, "Renegade Ryanair",
Business Week, May 14, 2001 .
2 ."How Ryanair Keeps the Cost Down", Business Week, May 14, 2001 .
3 ."Ryanair brothers make £33.4m from shares sell-off", The Irish Examiner, July 06, 2001
4 .d'Connell Patricia, "Full-Service Airlines Are "Basket Cases" ", Business Week, September
12, 2002 .
5 .Day Julia, "Ryanair sells I m seats for less than a tenner", The Guardian Review, September
24, 2001 .
6 .Tomlinson Richard, "Europe's Businessman of the Year", Fortune, December 9, 2001 .
7"The pluck of the Irish", The Economist, January 24, 2002.
8 .Peachey Paul, "Ryanair 'misled' public over flight destinations", The Independent, March
13,2002 .
9.Eoghan Nolan, "Good product, bad brand", _Marketing 1vagazi 3, 2001
IO.Capell Kerry, "Ryanair Rising", Business Week, June 2, 2003.
I I Capell Kerry, "Suddenly, Life Is Hard for easylet", Business Week, June 2, 2003 .
12.Waehman Richard, "Can Ryanair soar higher?", The Observer, June 8, 2003 .
13 .Smith .V .Kenneth, "easylet leads low fare airline battle in Europe",
ww,w.webtravelnews .com, September 27, 1999 .
14 ."Business Profile: High flier who built a fortune on low fares", www.telegraph .co .uk.
151ee James, "Ryanair : the first ten years", www .iol .ie
16.www.thetravelinsider.info
17.gvww..eas rotest .com
18 .www.theolivehouse .
19 .www.bbc .co.uk
20 .www.legal500.com.
21 .ww1v .msnbc .com
22 .www.hoovers .com
23 .www.ryanair .com