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Ryanair - Strategy and Value Creation 2014


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Strategic analysis of Ryanair's new customer focused strategy

Published in: Travel, Business, Education
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Ryanair - Strategy and Value Creation 2014

  1. 1. Strategy Report Strategy and Value Creation Prof. Adriano Freire Group 3: Bruno Dias, Fábio Ferreira, Fiona O'Driscoll, Gonçalo Guerra, Paulo Correia
  2. 2. Introduction • Ryanair was founded in 1985 by Christopher Ryan, Liam Lonergan and Tony Ryan • It has grown from a single-aircraft family operation into one of the world’s leading airlines • It is currently the largest European low-fare airline or, as they like to call themselves, “Europe’s only ultra low-cost carrier.” 2
  3. 3. History 3 • Fleet expansion, now with 305 Boeing 737-800 Aircraft • 1,600 flights daily across 1,600+ routes from 57 bases • 180 destinations in 29 different countries • 9,000+ skilled professionals • 81.5 million passengers • Fleet of 2 Embraer Bandeirante turbo-prop aircraft • Initial routes: • Waterford-London Gatwick • Dublin-London Luton • Ran at a loss until 1991, when Michael O’Leary was charged with making it profitable. See Appendix for full company history
  4. 4. Vision 4 CURRENT/MATURING “Retailers Aldi, H&M and Ikea as examples Ryanair aims to follow. All started focused on low-cost then added choice and improved their service. That is the journey Ryanair is on.” ORIGINAL/CORE “Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continuous improvements and expanded offerings of its low-fares service. Ryanair aims to offer low-fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.”
  5. 5. Mission ORIGINAL/CORE “To become Europe’s most profitable airline by rolling out proven low- fare, no frills service in all markets in which we operate to the benefit of passengers, people and stakeholders.” Ryanair website 5 Narrow definition Air transportation Broad definition Work in diverse markets to the benefit of passengers, people and stakeholders CURRENT/MATURING “We’ll fix the things customers don’t like and improve the traveller experience, improve the digital experience and improve the brand.” Michael O’Leary
  6. 6. Vision & Mission • Ryanair’s core vision is evolving as the company matures, but remains objective and straight to the point • Its core mission is aligned with this vision and places the values that Ryanair strongly believes in at the center of its mission – delivering profitability, low cost and industry leading customer standards to its passengers.  Ryanair strongly believes that its mission is to provide to people a way to travel at low-cost in various markets.  This is the main added value that Ryanair provides to its customers, and strongly indicates its positioning. • Over time, its vision has evolved and more recently it has changed its focus to improving customer relations in addition to being Europe’s “only ultra low cost airline”  Its latest mission reflects a new focus on enhancing the customer experience, as it widens its definition of customer service, which it admits was previously “tightly defined”, adding: “We’re on time, offer a low fare and won’t lose your bag. Now we think that’s not enough.”  It uses brands such as Aldi, Ikea, H&M and Skoda who also started as low cost providers but over time improved customer service “They started off absolutely focused on cost, then they focused on choice and then they improved the service. That’s the line our brand will go on.”. “  Profitability remains at the core of this new mission, best summed up as follows: “We won’t lose our focus on the lowest fares, but we will improve customer service.” “We’ve been careless with passengers and staff and yet 81.5 million fly with us. Imagine how much better it will work if we stop being nasty to people and have a decent website. The opportunities are limitless.” 6
  7. 7. General Objectives Specific Measurable Achievable Relevant Timely To become Europe’s most profitable airline Low operating costs Non-financial objectives Deliver the best customer service performance in its peer group Financial Obejctives The main flaw in the financial and non-financial objectives is that they fail to meet all the SMART requirements since Ryanair does not clearly compromise itself with any deadline. However, in all other respect Ryanair’s objectives cleary set out the steps the company will focus on to deliver its mission.  To become Europe’s most profitable airline is a specific objective, certainly a relevant one, achievable since Ryanair is one of the biggest players in the market, and measurable by Annual Report information.  To compete with low operating costs is also measurable by Annual Report information, quite specific, quite relevant since it is one of the Key Success Factors in the market in which Ryanair operates, and already has achieved this.  To deliver the best customer service performance in its peer group is measurable, namely by market surveys/studies by performed by independent public or private companies, it is specific although the customer service performance concept is not totally clear, it is relevant since it can produce a significant competitive advantage (as demonstrated by its main LCC competitor EasyJet).  In recent year’s Ryanair’s claims to deliver the best service based on flight times, lost baggage numbers, etc. has failed to be backed up by consumer surveys (eg. came bottom of 100 brands in a 2013 Which Survey in the UK). However, with the launch of its “Always Getting Better” strategy in 2014 it firstly aims to fix things customers don’t like eg. cabin baggage allowance, relaunch the website and will aim to “become as liked as they are useful” by generally providing better customer service. 7 Ryanair’s aim and objectives are very clear: to be profitable; to be Europe’s leading low-fares scheduled passenger airline; to prevent further airlines’ domination in the market ; and to generate traffic numbers through low fares by continuously maintaining a focus on cost containment and operational efficiencies (Annual Report 2013)
  8. 8. Specific Objectives 8 •Grow from 81m passengers in 2013 to 90m in 2014 2014 Passenger Numbers •Starting flight from primary airports in Lisbon, Rome, Athens and Belgium in 2014 Primary Airports •Penetrating Eastern European markets, with Slovakia regarded as a priority •Create a base in Slovakia by 2015 and grow from 800,000 customers to 2m Eastern Europe •Target the business customer to grow from 19m (c.20% of passengers) currently to double that figure in the next 2 years Business Segment •Cheap long-haul flights to the US on the agenda, within 4 to 5 years Transatlantic
  9. 9. Organizational Overview • Presence in 180 airports in 29 countries in Europe and North Africa. • 57 bases, where they base their aircrafts and crew • 1611 routes spread across Europe, Eastern Europe and North Africa. 9
  10. 10. Organizational Overview • Young fleet of 305 single type aircrafts (average 4 years old, vs. 9-11 years of typical European carriers) • Advantages in terms of: – fuel efficiency, – maintenance costs, – flight training costs – customer perception. 10
  11. 11. Organizational Overview • More than 9000 employees. • Yet ratio of booked pax to staff of 8,674 in 2013 is one of lowest amongst European airlines (eg. EasyJet has 6,914 booked pax/staff member) • 50% of the flight crew are contractors - employed only when required. All are non-unionized. • Carried around 81,5 million passengers in 2013. 11
  12. 12. CEO – Michael O’Leary 12 EGOS map: E-S • Extrovert • Spontaneous • Egocentric • Risk-Taker Strongly associated with the Ryanair brand… But will this CEO’s brashness damage the brand as Ryanair seeks to win new converts through a customer charm offensive?
  13. 13. Financial Overview • Ryanair has been growing over the past two years, driven by increased frequency of flights and new destinations. • If we look closely to the profit from 2012 to 2013, we’ll see that the company had a 13% increase in profit after tax to €569 million – it’s a decrease from the 25% profit from 2011 to 2012, but still a very good example of Ryanair’s financial health. • The airline’s aggressive strategy of cost reduction and higher ancillary revenue has been paying off, with an operating revenue increase of around 13% to €4884 million and a record high of €1064 million in ancillary revenues (a 20% increase from 2012). • And by Michael O’Leary’s words, they’re not slowing down: “Ryanair continues to look for opportunities to invest our cash wisely.” 13
  14. 14. Financial Overview 14 • Since 2009, when the company made its first annual loss during the ‘00s, earnings have been strongly seasonal, with annual profits increasingly relying on a strong summer to offset a loss making winter (cross subsidising).  In past grounded planes during the winter but in future will focus on business traveller segment to mitigate this seasonality. • Strong profitability and balance sheet with large cash balance.  Returning €1.5Bn to shareholders through buy backs and special dividends over the past 5 years. Secured a BBB+ rating to raise debt to fund new Boeing order. "We'll be grounding fewer aircraft next winter and flying more business-type flights from those major cities during the winter period" Michael O’Leary
  15. 15. Industry ≡ PEST 15 Description Impact Description Impact Deregulation Decrease in margins due to increasing competition related to deregulation Air transportation deregulation in Europe (1978-1997) allowed sharp rise in routes and competition and substantial drop in prices War Political instability in the Middle East increases oil costs People got afraid to fly after Gulf War, 9-11 and Iraq war Terrorism New security requirements increase operational costs and waiting times, making air transportation less attractive Increase in security requirements leads to increased waiting times, making air transportation less attractive EU Expansion Increasing mobility of workers and capital between countries will lead to a decrease in the cost of these two factors EU future expansion will allow new routes, and a increasing number of passengers. EU Emissions Trading Scheme Increasing taxes associated with new environmental laws On January 1, 2014 the EU ETS for airlines serving European airports was introduced. These have largely been passed onto customers through fare increases. Fuel Prices Increase in fuel prices affects significantly companies' profits. Efficient financial management of fuel reserves including trading with options and futures is getting more and more important to keep costs down Increase in fuel prices makes air travelling less attractive due to price increases Sovereign debt crisis Decrease in market opportunities Descreasing income and investment reduce ability to travel Trend to decrease government subsidies Increase in market efficiency will benefit companies that are less dependant Consumers will benefit from increasing competition associated to market efficency Business is turning global Increase in opportunities for growth in different markets Increased demand by business flyers Falling flight prices Introduction of LCCs and increased competition has put pressure on all airlines to compete on price, eroding margins Increased demand for general people Trends Impact on Supply Impact on Demand Political Factors Economic Factors
  16. 16. Industry ≡ PEST 16 Description Impact Description Impact Holiday popularity Opportunities in new markets and in a new segment Increased popularity of holidays in eastern European countries abroad led to a boom in demand Vistit relative type travel Increase in relative type travelling creates new market opportunities Increased popularity of relative type holidays in eastern increased demand Technology Technology is fast moving but is very costly Better on-board conditions increase demand Lower operating costs Modern aircrafts are more economic to run, making possible cheap air travel Lowest production costs reduce price and therefore increase demand Lower turn around times Time required for a plane from arrival to the next departure at an airport has been reduced, mainly due to advanced methods like aircraft fueling simultaneously with passengers boarding. Lower turn- around times means higher margins Decrease in turn around times makes the product more attractive to costumers Online booking Online booking lowers significantly or eliminates the intermediation costs to companies Online booking lowers significantly or eliminates the intermediation costs to customers Social Factors Technological Factors Trends Impact on Supply Impact on Demand
  17. 17. Industry ≡ Competitors 17 • In the European space, Ryanair competes with most traditional and low-cost airlines, shown in the diagram below (dimension by number of routes operated). These competitors include Lufthansa, who are the largest airline in the world by market share of air transport market. • The main low cost carriers are Easyjet, Norwegian Air Shuttle, Air Berlin, Wizz Air, Vueling • Easyjet is by far the most direct competitor but Norwegian Air Shuttle (no.3) has been competing aggressively in the LCC segment and has recently introduced trans-Atlantic flights to NY and long haul to Asia.
  18. 18. Industry ≡ Competitors 18 Analysing the European Air Passenger market by number of carriers (previous slide), the Top 5 Concentration Ratio and the HHI Index suggest a fragmented market. Region Top 5 HHI concentration ratio Index Europe 45% 524 43% 30% 26% Ryanair Easyjet Others However, if we consider uniquely the LLC segment, the market is quite concentrated, as Ryanair and Easyjet control 73% of the market by themselves. Source: Euromonitor, data of 2012Top 20 airline groups in Europe by seats: 6 to 13-May-2013
  19. 19. Industry ≡ Competitor (Easyjet) 19 Strategy • Seize the efforts and talent of people (employees) to add values to customers at low-prices • Partnerships with primary airports to get more opportunities Objectives • Delivery record profits • Growth on profit margin • Improved returns for shareholders Competencies • Low cost and high margins • Own customer proposition based on a brand with- brand has pan-European reach • Compromise with safety Assumptions • Be the best low-cost airline in the world
  20. 20. Industry ≡ Competitor (Easyjet) We analyze the main Ryanair’s main competitor, EasyJet, in order to infer what are the main threats that Ryanair faces regarding it’s competitors • EasyJet, as Ryanair, differentiates itself on its ability to deliver products with high margins and based on low costs. However, EasyJet has competencies that are not the main concern of Ryanair: its own customer proposition based on its pan–european brand and the importance given to safety. • Its strategy of leveraging employees' hard work and talent to achieve its goals is, at least on its message to the exterior, different from Ryanair’s, which is less prone to stress the importance of its employees, although its objectives are similar: deliver record profits, growth on profit margin and improve returns for shareholders • EasyJet flies to primary airports but manages to recover these costs in yields targeting business travelers, for example, aiming to be a long-term partner for airports and exploring further opportunities that may arrive with these partnerships. • Ryanair, on the other side, relies on secondary airports and tactics that may seem as aggressively confident and self-assertive. However, Ryanair seems to be shifting towards a more costumer- oriented and sophisticated strategy, improving its CRM and doubling its advertising budget. • Generally, Easyjet has roughly the same goals as Ryanair, but seems to be more worried to differentiate its services and its brand. On a market segment (low-fares airlines) with increasingly fierce competition, this is a serious threat to Ryanair, which has a more rigid approach and seems to have difficulty in adapting its strategy to the new market conditions . However, Ryanair has made recently efforts to broaden its strategy and adapt itself to a more customer-oriented market, but is, regarding this issue, behind Easyjet 20
  21. 21. Industry ≡ Segments 21 • The European airline industry has 2 main segments: – Cargo – Passengers • Our analysis will focus on the passenger airline segment, given that Ryanair doesn’t operate on cargo • The main factors used to segment the this market are: – Distance: Short or Long-haul (usually LCC’s only operate short-haul flights) – Fare Pricing – Customer Intention (which is a segmentation that can be applied to each Fare Pricing category) Customer Intention Fare Pricing DistanceIndustry Passenger Airlines Short-haul Low Cost Leisure Business Traditional Carriers Leisure Business Charter Leisure Business Long-haul Traditional Carriers Leisure Business Charter Leisure Business Cargo
  22. 22. Industry ≡ Segments • Low cost carriers customers are usually more price-sensitive than the traditional carriers customers • Punctuality and reliability are also key factors, especially for business customers • They’re usually more interested in short-haul, usually direct flights (no stopovers) both for leisure or for business 22 Fare Pricing Low Cost Traditional Charter Customer Intention Leisure Price sensitive; seat only product; point-to-point; secondary airports Differentiation of product by service (eg. first class, loyalty schemes, lounge); point-to-point and network; primary airports Customer insensitive to brand; reliance on tour operators; largely unscheduled service; point to point; different airport destinations Business Price sensitive; seat only but some options eg. seat allocation; point-to-point; primary as well as secondary airports Differentiation of product by service (eg. business class, lounges, ticket flexibility); point-to-point and network; primary airports Customer insensitive to brand; reliance on tour/agency bookings; largely unscheduled service; point to point; limited routes (eg. Egypt, Caribbean)
  23. 23. Industry ≡ Passengers by Segment 23 • Leisure travellers make up the biggest class of passengers on the majority of flights • The vast majority of passengers are leisure customers, on both internal and external routes • Within leisure on flights to Europe, approx. 50% are holiday makers while a further ~20% are Visiting Friends & Relatives • Business travellers are c.20% of passengers in this market and growing as economic growth recovers "At the major airports, there is a higher proportion of business travellers, politicians, bureaucrats (and) consultants... We have a major growth opportunity in the next 12 to 24 months.“ Michael O’Leary (Based on UK Data, 2002 - 12)
  24. 24. Industry ≡ Business Segment Requirements 24 (Based on PWC Global Survey “Lessons Learned From the Airline Industry” 2013)
  25. 25. (Based on PWC Global Survey “Lessons Learned From the Airline Industry” 2013) Industry ≡ Business Segment Requirements 25
  26. 26. Industry ≡ Business Booking Channels PhoCusWright-Travelport White Paper (2013):  In 2014, European companies will book 41 billion of travel through the online tools of large agencies…representing a 29% spike in online gross bookings over 4 years.  2/3 will go through the largest, pan-European travel management companies (TMCs)—Carlson Wagonlit Travel, American Express, Hogg Robinson Group (HRG), BCD, and Expedia’s Egencia.  Local TMCs are also predicted to see a solid growth rate of 18% between 2010 and 2014  In 2014, TMCs, including corporate booking tools, hotel booking aggregators, and online travel management companies, will book 13.1 billion euro in online managed travel bookings  But 7.7 billion euro in online managed travel bookings will be done through supplier websites, such as those run by railway company agencies and low-cost carriers like Easyjet. Online channels for managed travel seem to be blossoming in popularity because automation has been found to be cheaper, more time efficient, and provides easier accounting  Companies are switching to agencies because they can help keep business travel expenditures under budget by restricting the type of travel that employees can purchase  TMCs may have access to discounted airline, hotel and car rental rates, unlike small businesses that cannot individually negotiate such discounts because their volume is comparatively small. Three recent studies found that airfares booked through TMCs cost between 9 and 24% less than fares found on the open market.  Studies also show that nearly half of bookings done through TMCs have to be edited or changed at some point prior to departure. So companies may like having TMCs for their ability to quickly cope with changes to itineraries. HRG Airtrends Survey (2013): Still a focus on cost by our clients and an increase in the use of economy fares, particularly on short-haul destinations Business class transactions have declined dramatically across domestic and short-haul destinations in mainland Europe with drops of 22% and 45% respectively.  Economy and low-cost carrier transactions on short-haul destinations in Europe rose by 1% and 4% respectively, suggesting a widespread shift in travel policy on these routes. 26
  27. 27. Industry ≡ Porter’s 5 Forces 27 Medium Strong Weak StrongWeak Weak Intensity of rivalry Threat of Substitute Products Power of Buyers Power of Suppliers Power of New Entrants According to the Porter’s 5 Forces Model, there is a Medium overall expected impact on Margins.
  28. 28. Industry ≡ Attractiveness 28 SOURCE: Value, Growth (to 2017) and Risk - Euromonitor (Passport statistics and “Low Cost Carriers Exploring New Territories”) * Margin - CAPA data for 2012 industry values of Low Cost Airline companies were used based on EasyJet, Norwegian, Ryanair and Vueling Airlines; for traditional an average of the CAPA value (-1%) and Lufthansa (3%) was used. For charter data for Monarch, Tui Travel, Thomson Airways and Tomas Cook was used ** Risk - Measured from 2007 to 2012 based on the standard deviation of annual growth in market values • The Low Cost Carrier segment of the European passenger airline industry is the most attractive of the 3 segments analysed. This is due to higher forecast CAGR (2x other segments), higher margins (by a factor of 8x times) and relatively low volatility, despite economic weakness in recent years. Value (in $US) Carriers Value (Mkt Share) Growth Margin* Risk** Attractiveness Traditional 65.316.985 0,71 0,04 0,01 0,05 0,15 Low Cost 16.154.474 0,18 0,08 0,08 0,02 0,67 Charter 10.831.102 0,12 0,04 0,01 0,01 0,15 Value Growth Margin Risk Attractiveness Index Traditional LCC Charter
  29. 29. Industry ≡ Lifecycle 29 DeclineMaturityGrowthIntroduction • Until 2017, LCC segment is expected to grow on average by 7-9%, compared to 4% of traditional carriers • In Europe, CAGR difference is even higher, being on average 7,5% , compared to 2% of traditional carriers • (see PEST analysis for factors affecting the segment) Charter Low Cost Traditional
  30. 30. Industry ≡ Key Success Factors • Ryanair only operates in short-haul, mainly within the EU. • In this segment, price is key for both business and leisure travelers, while features such as comfort are not as important. • Currently approximately 20 - 25% of customers (c.19m) are business. 30 Segment Description Key buying factors Competition factors Key success factors Passenger, Short-haul, Low fare Leisure travelers Travelers that consider low prices the most important factor Low price Low-cost Cost effective services Routes Advertising Availability through internet Smart routing Low fares Brand awareness Safety Online booking Basic service quality Passenger, Short- haul, Low fare Business travelers Price is not the most important factor but is valued Interested in optimize time, comfort and money Low price Punctuality Flight reliability Low-cost Cost effective services Routes Advertising Availability through internet Customer service Smart routing Low fares Brand awareness Safety Online booking Basic service quality Added Customer Service
  31. 31. Resources 31 Human Resources • More than 9,000 employees • Expanding workforce – 500 new pilots, engineers and cabin crew in 2014 • Number of employees per plane lower than the industry’s average (around 8,700 passengers per staff member) • Highly trained (graduated) pilots and cabin crew with low training costs • Staff multi-task and paid by performance (eg. concessions on sales, etc.) • Non-unionized staff Organizational Resources •Fleet of 305 aircrafts (Boeings 737-800’s) - standardised fleet with low maintenance & training costs •Young, efficient fleet – on average with less than 5 years •Maximum aircraft utilization •Headquarters in Dublin Airport – benefits from lower tax and labour conditions •Largest penetration across Europe - 57 bases and 1,611 routes across 29 countries and a presence in 180 airports •Internet booking only - reduces costs. Relaunch of website in 2014. •Partnerships with hotels, car rental companies and other ancillary service providers •Airline reputation - punctual and reliable flights (93% flights on time), clean safety record and fewer baggage losses Financial Resources •Strong operating margins, cash generation and balance sheet •Stock market listing allows access to equity capital for investment – currently utilizing cash balances to buy back stock and pay dividends •Recent S&P rating will allow access to capital markets to fund Boeing purchase •No/low agent commissions and innovative monetization of ancillary revenues (eg. advertising on internet, boarding cards and planes) •Access to attractive airport subsidies, particularly from secondary airports •No legacy pension plan issues (which many traditional carriers have to manage)
  32. 32. Economy Type Potential Scale High fleet turnarounds Increase of cabin crew per flight Staff payment structure linked with performance Experience Bargaining power with airports acquired along the years Decrease in maintenance costs Optimization of spare parts Optimization of seat occupation Scope Partnerships created with hotels and car rental services Ryanair-branded credit card Airport parking and bus and train transfers 32 • Strong market position, with significant scale advantages in Ryanair's key airports, as well as a limited amount of competition on the company's route networks. • Ryanair is one of the best companies in the world when it comes to resource utilization. The usage rate is very high (high load factors and high numbers of passengers served / member of staff) due of the optimization of resource utilization. • Connected to that, is also the company’s payment structure. There’s a link between staff performance and remuneration, usually, that comes with a higher productivity and lower waste of resources. Scale, experience and scope economies
  33. 33. Economy Type Potential Scale High fleet turnarounds Increase of cabin crew per flight Staff payment structure linked with performance Experience Bargaining power with airports acquired along the years Decrease in maintenance costs Optimization of spare parts Optimization of seat occupation Scope Partnerships created with hotels and car rental services Ryanair-branded credit card Airport parking and bus and train transfers 33 • Due to the amount of business that Ryanair can attract to the airports where it operates (usually secondary ones), it has gaining great bargaining power with them. That is very useful for their time optimization strategy, hangar placement and even in terms of subsidies received. This bargaining power has also been used very effective in its deals with Boeing over the years. • Maintenance has been very stable through time, largely due to the use of a standarised fleet. Spare parts are optimized due to the purchase of aircrafts from a single manufacturer, leading to a very standardized process. • Generally Ryanair has achieved high operating efficiency due to its focus on costs , allowing it to operate at a significantly lower cost per passenger than its peers. Seat occupation has gone up due to the company’s high punctuality, low fares policy and also due to the special discounts given to passengers to occupy otherwise unsold seats. Scale, experience and scope economies
  34. 34. 34 • Over the years Ryanair has proven to be very attentive to other possibilities of revenue and attracting new clients. With that in mind, the airline has developed strategic partnerships with other companies that could improve even further the travel experience of their customers, making it a whole package, key-in-hand kind of deal. This is often achieved through strategic alliances with car rental companies, hotels, bus and trains transfers, airport parking lots and credit card companies. • Ryanair also takes advantage of its well defined processes to extract additional revenue from different services, such as in-flight sales. Currently, ancillary revenues account for 20% of Ryanair’s total revenues. Scale, experience and scope economies Economy Type Potential Scale High fleet turnarounds Increase of cabin crew per flight Staff payment structure linked with performance Experience Bargaining power with airports acquired along the years Decrease in maintenance costs Optimization of spare parts Optimization of seat occupation Scope Partnerships created with hotels and car rental services Ryanair-branded credit card Airport parking and bus and train transfers
  35. 35. Competencies & Strategic Fit 35 Strengths Value Creation Difficult to Imitate Rare to find in the market Organizational Support Core Competency Low fares Cost effectiveness Innovation in Ancillary services Largest European network Active route management Fleet management – standardized, modern and utilization rate Staff management – use of contracts and non- unionized Reliability – punctuality and baggage handling Rapid turnaround Internet booking Bargaining power – airlines, airports, etc.
  36. 36. Competencies ≡ Cost Effectiveness • Ryanair’s superior cost effectiveness is attributed to the following  Airport Access & Handling Costs  Aircraft Equipment Costs  Personnel Costs  Customer Service Costs  Fuel Costs reduced through “flying slow” policy 36
  37. 37. Competencies ≡ Other • Ryanair’s high number of routes provided in Europe and North of Africa (1611) gives the company some bargaining power over the airports in which it operates. Because they’re usually secondary airports, having an airline with a high turnaround rate like Ryanair is a huge boost in revenue. • The effective management of these routes is paramount. Ryanair is looking for profitable routes. If they don’t have a high occupancy rate in the flights of those routes, they are closed shortly (a good example was the short life of the Lisbon-Faro route than was only up for a couple of weeks). • Ancillary Revenues are some of the most important sources of revenue for LCC. In Ryanair’s case, that basically unbundles its service, is a way to find new services for which customers can be charged besides ticketing. On-flight sales and baggage fees account for most part of them. • A high standardized and young fleet also helps Ryanair minimize its maintenance and spare parts costs. This has a huge weight in the airline’s operating margins. Once again, having a fleet comprised of the same airplane is a way to maximize one of Ryanair’s focus points, cost effectiveness. 37
  38. 38. Brand ≡ Strength or Weakness? 38 Despite being one of the few airlines in Europe to successfully delink itself from its country of origin and therefore build a truly international brand, Ryanair’s brand image is poor as it has always been considered as a not so customer friendly brand. It has had to defend itself in the UK due to customer related charges and that, obviously, took its toll in the already not so friendly image Ryanair had. The CEO, Michael O’Leary, has often labeled customers as “idiots”, called those who forget to print their boarding pass “stupid” and told anyone looking for a refund to “**** off”. Which might not be the best way to treat your customers. Kenny Jacobs, the recently appointed chief marketing officer looks to move the airline into a friendlier direction, towards the customers and their needs and not treat them like an inconvenience that must be dealt with. But know it’s taking a turn towards the other direction, assuming that profit and low costs are not the only important things in the world when you’re providing services. By the ending of 2013, Ryanair felt the impact of not regarding their customers as they should in their profits. Shareholders also wanted the company to turn in another direction in response to its poor customer image (in addition to its poor legal image eg. received an 8m euro fine for labour contracts in France in 2013 and has been the subject of several court and EU investigations, over airport subsidies, Aer Lingus takeover, etc.) Simon Carter, marketing director at Fujitsu, recently stated that it’s “interesting that Ryanair has finally concluded that the textbooks were right, that customers do have a choice and that customer respect is necessary”. According to YouGov’s BrandIndex, Ryanair’s ratings have been going up since they adopted this new strategy. Reputation, Brand Impression, Quality and Buzz have all gone up ate least half a point. To top it all, Ryanair’s Index score (the average of all perception measures including impression, quality, value, reputation, satisfaction and recommendation) rose more than five points. Despite all these rises, Ryanair’s values are still negative. Than is one of the main reasons why they’re trying a different approach, to try and capture a slice of the market that doesn’t care just about the price, but is also conscious of the service quality they should receive and demand it.
  39. 39. Competencies & Strategic Fit 39 Passenger > Short-haul > Low fare > Leisure travelers Low fares Smart routing Brand awareness Safety Online booking Basic service quality Punctuality 4 2 5 3 5 Lowest fares 5 2 5 3 4 Staff specialization 5 1 2 3 2 5 Bargaining power with airports 5 5 3 2 Continuous Innovative measures to increase Ancillary services 5 1 3 Largest short-haul European network 3 3 4 1 4 Innovation 5 3 5 1 3 4 Average 4,57 2,67 3,57 2,00 2,40 3,86 Overall Score 3,18 Passenger > Short-haul > Low fare > Business travelers Low fares Smart routing Brand awareness Safety Online booking Basic service quality Added Customer Service Punctuality 4 2 5 4 5 5 Lowest fares 5 2 5 3 4 3 Staff specialization 5 1 2 3 2 5 5 Bargaining power with airports 5 5 3 2 3 Continuous Innovative measures to increase Ancillary services 5 1 3 4 Largest short-haul European network 3 3 4 1 4 5 Innovation 5 3 5 1 3 4 4 Average 4,57 2,67 3,57 2,00 2,60 3,86 4,14 Overall Score 3,34 The Core Competencies of Ryanair are highly connected to operational services, in a way they are the means to maximize time, staff work, aircraft utilization and eventually profit. When we bear in mind the Lowest Fares, Staff specialization, Punctuality, Bargaining power with airports, Continuous Innovative Measures to increase ancillary services, their short-haul European network and innovative skills, we cannot avoid connecting them to a company that has a high turnover and a high ratio of service delivery. The Core Competences of Ryanair are very well connected to the Key Success Factors of the industry in which it operates. This can be one of the best reasons why Ryanair has enjoyed such success over the last 29 years.
  40. 40. New SWOT Analysis 40 Opportunities and Time Short-medium term Medium-long term Strengths First moveradvantage in low- cost market Up-to-date fleet Excellent costmanagement and logistics Brand recognition High operating margins Specialized staff Lowest fares Network Ancillary revenues Increase frequency on existing routes Increase Brand Image Maintain lowest fares Continue investment in staff specialization Increase presence in social networks New routes in EU countries where opportunity arises Current economic outlook favorableto low fare airlines Create new routes inside and outside the EU Initiate routes that are still untapped by the low-cost carriers Lease unused fleet Long-haul Market growth and market share gains Weaknesses Seasonality Controversial advertising PoorCRM Limited landing slots in major airports High level of innovation needed Poorwebsite and social media presence Gain experience in markets outside Europe Increase CRM Create new website and increase presence in social media Add cargo efficientairplanes to its fleet More investment in R&D Increase presence in major airports Invest in the BRICs Create routes outside of Europe Maximize aircraftutilization
  41. 41. New SWOT Analysis 41 • EU Current Countries: Focus on Scandinavia and Poland (where low levels of Low Cost Carrier penetration & incumbents are being restructured); moving to more central bases (Brussels, Lisbon, Rome and Athens already); Russia as a rising opportunity. • The business segment is also seen as an area with large growth and profit potential. • Middle East is a market with significant attractiveness, explored by just a few carriers. Very interesting bet, in case their airspace opens in the coming years with Israel expected to be the first to open up first. • In the long term, in case Ryan Air develops competencies in the long-haul segment, US and Asia are markets with high levels of attractiveness. EU Current Countries Russia Middle East US Asia Strengths Weaknesses Business segment
  42. 42. Strategic Dimensions 42 Products-markets Vertical Integration Internationalization ID: Internal Development Increase routes to Europe and Northern Africa; Operating in major airports Internet booking; Mobile website and app; mobile boarding passes Increase routes to Europe and Northern Africa External: Mergers & Acquisitions Failed to takeover Aer Lingus External: Strategic Alliances Lease unused fleet Airport parking and bus and train transfers; Partnerships with car rental companies and hotel chains; Ryanair-branded credit and prepaid cards (Deutsch Bank, GE Money, Access Prepaid and Santander) Handling; Ticketing; Catering; Aircraft maintenance External: Market Transactions Sell outdated fleet Google Adsense & Global Distribution Systems (GDS)
  43. 43. Products-Markets 43 Product/Service Existing New Markets Existing Market penetration -This is a key strategy of Ryanair, that is consolidating existing routes (eg. Scandinavia, Germany, Eastern Europe) - Seeking to increase market share by moving from secondary to primary airports Product extension -Ryanair's expansion into ancillary products is an opportunity currently exploited very profitably by Ryanair, although this is not its core business New Market development -Ryanair is continuously developing new routes (eg. Norway to Canary Islands). -Increasing customer focus should increase market share by converting non-clients, particularly business travelers Products-markets diversification - Flying to new markets outside Europe (eg Russia, Israel) -Diversification into transatlantic (USA) and other long haul flights -Flying more than point-to-point flights and joining a European/global alliance
  44. 44. Products-Markets 44 • In some industries companies have adopted the bundling strategy as a way cross sell their products and make their business more attractive to consumers. • Ryanair however, chose to do the opposed strategy, as they unbundled all their services, stripping them from the basic service, and making the basic service cheaper and more attractive to their customers. • Furthermore, it has partnered with providers of complementary (add on) services and managed to generate additional revenues through monetising those activities also. Full Service Fare Basic Flight Fare Baggage Fees Seat Allocation Checkin / Boarding Pass Fees Unbundling Ancilliary Car Rentals Hotels Airport Parking ... Complementary Services
  45. 45. Products-Markets • Regarding Products-Markets diversification, as we have seen before, Ryanair’s goal is to be the top Europe low-fare airline. That is Ryanair’s market, and the company is structured to respond to those markets needs. Nothing indicates that a strategic shift is going to take place for now. Therefore, products-markets diversification (for example, going further than point-to-point flights) does not seem to be an objective for Ryanair, at least in the short-term. • Regarding market penetration and market development, as we can see in the 2013 Annual report, Ryanair has opened 7 new bases and 217 new routes, opening new markets. Regarding the increase in market share, the Annual Report states that “Although Ryanair intends to compete vigorously and to assert its rights against any predatory pricing or other similar conduct, price competition among airlines could reduce the level of fares and/or passenger traffic on Ryanair‘s routes to the point where profitability may not be achievable”, which indicates that the strategy of differentiation through price may lead to an additional difficulty in increase market share through this particular strategy (due to the increasing market competition). • As to Product extension, Ryanair has been demonstrating over the years it is the most innovative and creative airline company, specially when we are talking about creating additional sources of revenues (and cutting costs). Selling space in the aircraft exterior for publicity is one example. Ryanair will surely extend its range of products (ancillary services already represent 20% of their revenues). 45
  46. 46. Products-Markets ≡ Targeting the Business Costumer 46 Ryanair targeting Business Customer… • Opening at primary airports (Brussels, Rome, Lisbon and Athens already announced) • Improved customer service – more cabin baggage, seat allocation, ticketing flexibility, group services online, website profiles,etc. • Agreement with American Express in 2013 – facilitates business travellers, travel agents and corporate travel departments • Transition to travel agents and GDS to ensure corporate visibility as well as wider distribution – announced deal with Travelport GDS for this purpose • Change in pricing model – lower longer dated prices and higher short (1-2 months ahead) pricing Changes by Traditional Changes by LCC “20 to 25% of our passengers are travelling on business, with online check-in ensuring they avoid airport queues, while the option of priority boarding and reserved seating has proven extremely popular…with business passengers, who can board and exit the aircraft first, or choose one of 45 pre-reserved seats.“ Michael O’Leary
  47. 47. Vertical Integration 47 As a way to keep its structure as costless an flexible as possible, Ryanair outsources most of the functions related to their business. For instance, because demand for their products is highly seasonal, 50% of their flight crew is outsourced and hired when needed. There are other services in which they collect money from the companies that actually provide the service, but in which Ryanair does not operate (ex: book a car or book a hotel) ENGINEERING SERVICES: •Ryanair Engineering Services •Hangar Support; Cabin Maintenance; Line Maintenance CARGO SERVICES: •Storage and Transportation services SUPLLIERS: Fleet Fuel Airport services Partially Integrated services Fully integrated services INBOUND LOGISTICS: •Route Selection •Passenger Service System •Pricing System •Flight Scheduling •Crew Scheduling •Facilities Planning OPERATIONS: •Ticket Counter Operations •Gate Operations •Aircraft Operations •On-board Service •Baggage Handling OUTBOUND LOGISTICS: •Transfer (luggage, passengers) •Baggage System SERVICE: • Lost and found offices • Complaints management • Lounges • Information services TRAVEL SERVICES: • Book a car service • Book a hotel service • Train and Bus Transfer • Rent a Car ON-LINE SALES • Mobile website • Mobile App • Mobile Boarding pass No Integrated servicesExternal suppliers SUPPLIERS Facilites, vehicles, outsourcing SUPPLIERS IT & IS
  48. 48. Vertical Integration (F-B) 48 Flight Operations Aircraft manufacturers Maintenance & Engineering Catering Advertising & Promotion After sales support Online sales Handling Jet Fuel supplier Airports Backward Integration Forward Integration Internal External
  49. 49. Internationalization 49 Ryanair has been negotiating a deal in order to fly to cities in Russia. The scandinavian market is also an appealing target for new Ryanair operations. Middle East markets, Israel in particular is an attractive market for Ryanair if “open-skies” agreements are reached Although not certain in the near/medium- term, Ryanair has expressed interest in US long-haul operations, given the market potential Current Markets
  50. 50. Internationalization 50 Attractiveness factors Weight Middle-East Asia-Pacific Europe North America South America Market factors Market value 15% 7 7 4 6 6 Market growth rate 10% 7 5 4 7 5 Average gross margin 7% 6 5 6 6 5 Other market factors 2% 5 5 5 5 5 Market evaluation 2,27 2 1,52 2,12 1,85 Operational factors Local wages level 12% 5 7 4 4 6 Operating costs 17% 5 7 4 4 6 Legal requirements 7% 5 6 6 6 5 Other operating factors 3% 5 5 5 5 5 Operational evaluation 1,95 2,6 1,73 1,73 2,24 Risk factors Exchange risk 9% 5 5 7 8 4 Political Risk 9% 4 5 8 9 4 Competitive risk 7% 6 6 5 5 6 Other risk factors 2% 5 5 5 5 5 Risk evaluation 1,33 1,42 1,8 1,98 1,24 Overall attractiveness 5,55 6,02 5,05 5,83 5,33 3 1 5 2 4 • Even though Middle East has a higher score, Ryanair is likely to see the North America market as a more appealing target due to proximity and ease of access to the market (existing “open-skies” agreements)
  51. 51. Internationalization – Integration 51 Local Adaptation Low High Global Integration High Global Company Transnational Company Low Local Company Multinational Company • Ryanair strives for the lowest cost possible, and their business-level strategy tends to be cost leadership. During initial stages, Ryanair used to do no local adaptation, being price their main competitive weapon. • We believe Ryanair is starting to evolve towards a Transnational Strategy, by starting to differentiate their services in other components rather than just price, while doing more local adaptation to successfully get into new markets. A good example is the huge bet in customer care they are doing in 2014 (its “Always Getting Better” strategy)
  52. 52. Diversification 52 • Diversification involves entering new industries as determined by the corporate strategy. • While there are a number of complementary services which generate ancillary revenues for Ryanair through contracts with other companies (eg. hotels, car rental, branded credit cards, etc.) Ryanair has not pursued a diversification strategy to date. • Rather than diversifying to reduce risk, the company is committed in sustaining their low cost competitive advantage over competitors.
  53. 53. Competitive Advantages 53 Lowest Cost Base - Sustainable Competitive Advantage Ryanair consistently presents a lower cost per passenger inferior to their competitors (Easyjet’s cost per passenger is 67% above that of Ryanair – excluding fuel costs) [3] This is only possible because Cost Reduction is deeply embedded into Ryanair’s DNA, driving all decisions. Below are listed some of the structural decisions that help Ryanair be a cost leader over the last years: Meticulous and dynamic airport/route choice: Choice of smaller and low cost airports (often tapping a whole new market in regions that previously had no convenient connection), with 25 min turnaround times, and actively route management, focused on keeping the most profitable. Ancillary revenues: Currently driving 20% of Ryanair’s revenues. These range from products to services such as travel insurance, car hire, hotels, surface transport and in-flight sales. 1. 2.
  54. 54. Competitive Advantages 54 Young single type aircraft fleet: High seat density (189 seats vs. 174 seats on A320s), high load factors (82% in 2012 against <80% for AEA carriers); less training expenses due to standardized fleet; Greater fuel efficiency, lower maintenance costs and better customer perception. Productive and flexible labour force: Not unionized; 50% of flight crews are contractors employed when required Innovation: Ryanair was pioneer in setting bases across Europe after the EU aviation liberalisation, abandoning free catering, moving away entirely from travel agents to internet sales, removing check-in desks, installing non reclining seats, putting advertising on boarding passes and overhead bins, persuading passengers not to check in hold baggage. Even though other companies follow the same strategies, Ryanair has gone further more often than any competitor. 3. 4. 5. Lowest Cost Base - Sustainable Competitive Advantage
  55. 55. Organizational Structure 55 Michael O’Leary CEO Howard Millar Deputy Chief Executive, Chief Financial Officer Kenny Jacobs Chief Marketing Officer Ray Conway Chief Pilot Caroline Green Director - Customer Service Michael Hickey Group Director - Operations David O'Brien Chief Commercial Officer Edward Wilson Director - Personnel and In- flight Juliusz Komorek Director - Legal & Regulatory Affairs, Company Secretary • Ryanair has a centralized functional structure, with the main decisions taken in Ireland. • Functional heads report directly to Michael O’Leary (CEO), as we can see in the organizational chart above. • Ryanair’s international strategy reflects its centralization, with extensive transfer of structures, systems, processes and resources from the headquarters to locations abroad (57 bases across Europe). • A deep change in strategy would, of course, require a big change in the organizational structure.
  56. 56. “We’ve changed,” he proclaimed at a press event in London. “We’re changing some of the policies I’ve held dear for many years because that’s what our customers want us to do." “Also the fact I own four per cent of the company. It’s in my interests to change the way the company communicates. I am the one that will lead the charge. And as a shareholder I expect to gain handsomely from it.” CEO Dominated Organisational Culture • Since it’s foundation, Ryanair has had a culture of being dominated by its leader at the top – originally the Ryan family and then Michael O’Leary (CEO) since his appointment • While considered the brand’s strongest asset for much of this period, more recently the CEO’s brash approach has been damaging to and a potential weakness of the brand • However, Ryanair and Michael O Leary have responded to shareholder and customer complaints and more recently have acknowledged a change is required  To date this has involved the appointment of Kenny Jacobs (head of marketing) as the new PR face of Ryanair plus a move away from free advertising generated by Michael O Leary’s controversial print ads & statements to a multiplatform ad campaign and the appointment of an advertising agency  Is this the first step in Michael O Leary’s long talked about ‘3 year exit’ plan? 56
  57. 57. Business Policies 57 Human Resources •Ryanair has two main types : Pilots which are hired as graduates and crew staff which are also largely pre- trained and required to multi-task to reduce cost. •50% of all staff are on contracts and therefore can be managed for seasonal variations. Non-unionized workforce so less staff issues to negotiate. •Recently hired new marketing head to improve brand image and 200 IT staff to address new online strategy Operations •This is one of Ryanair's crucial business policies: as a low- fare airline, the pressure on costs puts a special emphasis on control of operations and its low cost base is a core strength, allowing it to deliver on its low fare commitment to consumers. •Using a fleet of aircraft only from Boeing has allowed it to achieve a modern, efficient fleet at aggressive prices and reduces running and maintenance costs Marketing and Sales •Although Ryanair traditionally does not spend much on advertising (relying on print ads and free coverage of controversy) it is doubling its advertising budget to launch it first TV campaign and is hiring a CRM. This is part of its strategy to improve its customer image. •In addition, Ryan is moving from its model of online sales through its website only to building a presence on GDS and with agencies to reach business consumers Finance •Strong operating margins has allowed it to build up cash •This cash has allowed it return cash to shareholders (dividends and share buyback) as well as fund capex •Recently achieved a BBB+ rating which will allow it raise debt to fund capex (incl. Boeing contract) also •Efficient use of leases and hedging strategy allow it to effectively manage costs Information systems •Strong on-line presence and regulatory requirements require high robustness of IT systems. •Relaunched website to improve user experience and add features such as customer profile function, group bookings, etc. to attract business, family and other users R&D •Although Ryanair has lots of innovative products, a lot of the initiatives come from management and staff and more traditional R&D is not a crucial area of the company  Ryanair’s strategy is supported by its activities in 5 of the 6 key functional areas as follows:
  58. 58. Recommendations 58 I. Ryanair should embrace social media and extend its online presence to enhance consumer contacts Attract larger numbers of customers in the Millenials generation, increase their loyalty, create a communication channel with them and increase mouth-to-mouth advertizing  Transition already under way with website relaunch, app on way and hire of 200 new IT staff  IMMEDIATE II. Ryanair should target business customers to address low winter season and improve margins This will require adding frills (eg. flexible ticketing, seating allocation, group bookings, wifi), flying to primary airports and working with travel agents/GDS  Transition already under way to increase current 20% of customer base  IMMEDIATE-24 MONTHS
  59. 59. Recommendations 59 III. Ryanair should consolidate its position in existing and new markets (eg. Scandinavia, Germany, Poland, Slovakia) Increase LCC penetration in new and old markets - take advantage of traditional airlines undergoing restructurings in other and target markets with rising incomes and rising LCC consumer base Already underway eg. flights from Norway to Canaries, announced 3 new routes to Malmo and plans to establish a base in Slovakia in 2015 IMMEDIATE-3 YEARS IV. Ryanair should look to develop capabilities to move into the long haul sector  Attractive growth opportunities in the long term beginning with “close proximity” routes in Russia and Israel as markets open up, transAtlantic when appropriate airplane capacity becomes available and longer term the Asia Pacific as most attractive emerging market 2-5 YEARS
  60. 60. Conclusions 60 • Ryanair continuously innovates to maximize their aircraft occupancy, reduce their cost per passenger and find new sources of revenues. • Imperative to be market leader to maximize scale and scope economies and increase bargaining power with suppliers and airports. • New focus on enhanced customer service to create growth opportunities and improve margins as LCC sector matures in core market. • Having the Lowest Cost Base is Ryanair’s Sustainable competitive advantage.
  61. 61. References • IATA; “Airline Cost Performance; 2006 • IATA; Economics Reports; 2013 • Ryanair; Annual Report; 2012 and 2013 • BCG; “The New ‘Low Cost’” 2010 • BCG; Plane, Trains and Automobiles 2009 • Boeing; “Current Market Outlook, 2013-2032”; 2013 • Carlson Waganit travel; press release, 2014 • Euromonitor; Popova, N.; “New Travel and Tourism Research Helps Outline Major Trends Within the Airline Industry“; 2013 • Euromonitor; Popova, N.; “Can a Leopard Change its Spots – Makeover for Ryanair or Further Trouble in the Skies?”; 2013 • Euromonitor; “Low-Cost Carriers: Exploring New Territories”; 2014 • Euromonitor; “RYANAIR HOLDINGS PLC IN TRAVEL AND TOURISM (WORLD)”; 2013 • GBTA foundation; Press release, 2014 • ATKearney; “European Airlines: Meeting the Headwinds Head On”; 2013 • Morrell, P.; “Airline Finance – Third Edition”; 2007 • CAPA; “World airline industry in cyclical upswing - but in search of USD125 billion annually in financing”; 2014 • CAPA; “European airlines’ financial results in 2012; Net profit of biggest 13 down 72% for the year”; 2013 • IFP; “Fuels for the Aviation Industry” • • IFPEN; Fuels on the aviation industry, 2014 • • PWC, “Experience Radar 2013: lessions learned from the airline industry” • S&P Rating Report; “European Low-Cost Airline Ryanair Holdings Assigned 'BBB+' Rating; Outlook Stable”, 2014 • TravelMole; “Ryanair goes on GDS today”; 2014 • 61
  62. 62. Appendices 62
  63. 63. Global airline market 63Source: Euromonitor 2013, World Economic Forum Travel & Tourism Report 2009
  64. 64. Global airline market 64 Source: Navigating the Future (Global Market Forecast 2012 - 2031) Airbus
  65. 65. Global airline market 65
  66. 66. Global airline market 66
  67. 67. Global airline market 67
  68. 68. LCC segment 68
  69. 69. LCC segment 69
  70. 70. LCC segment 70
  71. 71. LCC segment 71 Source: Euromonitor: Low Cost Carriers Exploring New Territories
  72. 72. LCC vs Schedule 72Source: Euromonitor 2013
  73. 73. LCC vs Schedule 73
  74. 74. LCC vs Schedule 74Source: Euromonitor Ryanair is starting to adopt some characteristics of a traditional carrier as opposed to typical carriers that are starting to adopt some of the Low Cost Carriers’ best practices.
  75. 75. LCC vs Schedule 75
  76. 76. Passenger Segments 76 PhoCusWright White Paper: European Managed Travel (May 2013)
  77. 77. Passenger Segments 77 PWC: Experience Radar 2013, Lessons Learned From the Airline Industry
  78. 78. Passenger Segments 78
  79. 79. Ryanair ≡ History 79Source: Ryanair Annual Accounts 2013
  80. 80. Ryanair ≡ History 80 Source: Wikipedia, Ryanair’s first airplane
  81. 81. Ryanair ≡ Industry Data (Euromonitor) 81
  82. 82. Ryanair ≡ Outlooks 82
  83. 83. Ryanair ≡ Porter’s 5 Forces 83 Porter's Five Forces' Analysis Leisure Business Intensity of Threat Intensity of Threat Weak Medium Strong Weak Medium Strong Intensity of rivalry is high when Number of competitors is high x x Industry growth is high x x Fixed Costs are high x x Storage costs are high x x Product differentiation is low x x Switching costs are low x x Exit barriers are high x x Force Level Strong Strong • The number players in the low-fare market in Europe is relatively low • The low-fare market in Europe has been increasing • Fixed costs in both the industries are high • If a company does not sell a flight for a given day, it can’t sell that particular flight later. Its a selling opportunity that is lost forever • Product differentiation is increasing due to increased competition • Competition decreases switching costs, which applies to both segments • Costs related to layoff staff can be high, depending on the legislation
  84. 84. Ryanair ≡ Porter’s 5 Forces 84 Porter's Five Forces' Analysis Leisure Business Intensity of Threat Intensity of Threat Weak Medium Strong Weak Medium Strong Threat of substitute products is high when The substitute offers an attractive price-performance trade-off x x The buyer's cost of switching to the substitute is low x x Force Level Weak Weak • Other forms of transportation (Train) is negligible due to higher costs of those products • Passenger's ability to switch to other forms of transportation is negligible due to higher costs of those products Power of buyers is high when Concentration of buyers relative to suppliers is high x x Switching costs are low x x Product differentiation of suppliers is low x x Force Level Strong Strong • Number of consumers is very high compared to the number of suppliers, therefore consumers have high bargaining power • Increasing competition and lack of brand loyalty decreases switching costs in the market • Increase in competition is creating a bigger differentiation of products by suppliers
  85. 85. Ryanair ≡ Porter’s 5 Forces 85 Porter's Five Forces' Analysis Leisure Business Intensity of Threat Intensity of Threat Weak Medium Strong Weak Medium Strong Power of suppliers is high when Concentration relative to buyer industry is high x x Availability of substitute products is low x x Importance of customer to the supplier is low x x Differentiation of the supplier's products and services is high x x Switching costs of the buyer are high x x x Threat of forward integration by the supplier is high x x Force Level Weak Weak • Even though Comac, a Chinese jet manufacturer is growing, the market is mainly dominated by Boeing and Airbus • Other forms of transportation exist (such as high-speed train), but due to higher costs these don't represent a threat • Since the airline industry is of critical importance to some of the suppliers (oil, airports), companies in this market have high bargaining power • Number of seats and energy consumption are critical key-buying factors to the industry • Low customer switching costs due to increased competition among airlines and lack of brand loyalty
  86. 86. Ryanair ≡ Porter’s 5 Forces 86 Threat of New Entrants is high when Economies of scale are low x x Product differentiation is low x x Capital requirements are low x x Switching Costs are low x x Incumbent's control of distribution is low x x Incumbent's proprietary knowledge is low x x Force Level Weak Weak • The high fixed costs of the industries require high economies of scale • Increasing competition in the market generates more product differentiation • Airline industry has high capital costs • Competition decreases switching costs which applies to both segments • Due to the increasing importance of online sales as a distribution channel, incumbents control is low • Proprietary knowledge is not critical in both segments Overall Expected Impact on Margin 6/10 6/10 Porter's Five Forces' Analysis Leisure Business Intensity of Threat Intensity of Threat Weak Medium Strong Weak Medium Strong
  87. 87. Ryanair ≡ Cost Breakdown Comparative 87
  88. 88. Ryanair ≡ Cost Breakdown Comparative 88
  89. 89. Ryanair ≡ Cost Breakdown Comparative 89