Table of Contents
ABOUT THE COMPANY: 2
EXTERNAL ENVIRONMENT ANALYSIS: 4
MACRO ENVIRONMENTAL ANALYSIS: 4
INDUSTRY ANALYSIS: 4
PESTEL ANALYSIS OF RYAN AIR: 5
RYANAIR - PORTER’S FIVE FORCES ANALYSIS: 7
STRATEGIC EVALUATION OF MICHAEL O’LEARY’S LEADERSHIP: 10
CURRENT COMPETITIVE STRATEGIES OF RYANAIR: 11
INNOVATIVE COST CUTTING METHOD: 13
ALTERNATIVE REVENUE GENERATION METHOD: 13
CRITICAL ISSUES 14
About the company:
RyanAir is Europe’s favorite airline. Operating in more than 1,600 daily flights from 72
bases, connecting 192 destinations in 31 countries and operating a fleet of more than 300
new Boeing 737-800 aircraft. They are Europe’s only ultra-low cost carrier, and that
means they bring you the lowest fares on flights to all of our destinations. RyanAir made
air travel accessible to the masses, and they opened Europe up for tourism in a way it had
never been opened before.
RyanAir is set up by the Ryan family with a share capital of just £1, and a staff of 25.
RyanAir obtains permission from the regulatory authorities to challenge the British
Airways and Aer Lingus' high fare duopoly on the Dublin-London route. Services are
launched with two (46-seater) turbo prop BAE748 aircraft. The first flights operate in
May from Dublin to London Luton. The launch fare of £99 return is less than half the
price of the BA/Aer Lingus lowest return fare of £209. Both British Airways and Aer
Lingus slash their high prices in response to RyanAir's. RyanAir starts the first fare war
RyanAir acquires its first jet aircraft by leasing three BAC1-11 aircraft from the
Romanian state airline, Tarom. The aircraft arrive on a full wet lease with Tarom
providing all the pilots and engineers to enable RyanAir to operate the aircraft.
After three years of rapid growth in aircraft, routes and intense price competition with
Aer Lingus and British Airways, RyanAir accumulates £20m in losses and goes through a
substantial restructuring. The Ryan family invest a further £20m. in the company, and
copying the Southwest Airlines low fares model the airline is re-launched under new
management as Europe's first low fares airline.
RyanAir overtakes Aer Lingus and British Airways to become the largest passenger
airline on the Dublin-London route (the biggest international scheduled route in Europe).
RyanAir also becomes the largest Irish airline on every route they operate to/from
In January, RyanAir launches Europe's largest booking website - www.RyanAir.com.
Within three months the site is taking over 50,000 bookings a week, and becomes the
only source of the lowest airfares in Europe. In addition, RyanAir.com allows passengers
to avail of the lowest cost car hire, hotel accommodation, travel insurance and rail
RyanAir is named the most popular airline on the web for 2003 by Google, as
www.RyanAir.com continues to be the most searched travel website in Europe.
“To firmly establish itself as Europe’s low fare, schedule passenger airline through
continued improvements and expanded offerings of its low fare service”.
“To become Europe’s most profitable low cost airline by rolling-out proven low fare, no-
frills service in all markets in which we operate to the benefit of passengers, people and
External environment analysis:
External Environment analysis in conducted to analyze the nature of the environment the
firm operates in. It identifies the forces in the environment affecting the firm and its
degree of impact. It also identifies the opportunities, threats and challenges faced by the
company. The external environment analysis for RyanAir consists of a macro-
environment analysis, industry analysis and external factor analysis.
The macro environment scans and identifies the general environment factors that can
have an impact on the organization whereas the industry analysis focuses on the
competitive situation of the company.
Macro Environmental Analysis:
The macro-environment is composed of major external and uncontrollable factors that
influence an organization's decision making, and affect its performance and strategies.
These factors include the Political, Economical, Social, Technological, Environmental
and Legal forces (PESTEL). These forces do not change frequently, but when it does, it
has a major impact on the organization. The PESTEL analysis looks at the general
environment in which the organization is operating in and helps to realize the risk
associated with the market growth or decline.
The second stage of the external environmental analysis is to assess the industry
environment and the aim of this analysis is to identify those factors that could contribute
to or affect the industry profitability. To aid in the industry analysis, Porter’s Five Forces
Model will be used.
Porter developed a technique analyzing five forces that affect industry profitability
known as “Five Forces Model”. These forces shape the industry and increase the intensity
of competitiveness, and therefore, the profitability and attractiveness of the industry. This
model helps to identify the dynamic factors of the industry and the market to compete
PESTEL Analysis of Ryan Air:
RyanAir PESTEL analyses are those external factors that could hinder their operation
which would be analyzed based on the case study.
Political: As a big political factor European Union expansion affect the direction and
strategy planning of RyanAir. The enlargement is positive as it increases the flow of
migration, thus increasing the company passengers. Also, the tighten security may have
increased their security system. This could increase costs because it has to be regularly
monitored and maintained.
Economical: For Economic factors, there is unstable fuel price that could affect the
company operating costs. It can be said that, the biggest costs for any airline is fuel. The
rise in fuel prices means that operation costs would increase therefore pushing prices to
increase and relatively affecting the company growth and profitability. This situation was
badly affected to the Ryan air while they are run for least price. Also the depreciation of
US Dollar, availability of efficient substitute transport methods and also reduction in
distribution costs from customers adapting to online check-ins where identified as the
factors that has high influence regarding the economical influence.
Social: Social factors link with political and economic in terms of stable development
that would allow a more sociable lifestyle. The enlargement of EU for instance has
increase the number of people moving from region-region to work, for graduation trips,
backpackers, or leisure. The enlargement (EU expansion) has affected RyanAir by
providing the bases to attract a wide demographic of prospect. The effect of this capacity
on RyanAir is that, it could increase their operating market, segmentation and
productivity. Also, the company low-fares strategy means they can fly frequently because
there is demand.
Technological: Technology expansion has enabled the company change their market
focus from third-party agents to on-line bookings. This has increased the competition
level between airlines, consequently driving RyanAir to further reduce costs in order to
remain competitive in the aviation industry. RyanAir admitted that in order to keep costs
down all aircraft are made by Beoing. Availability of satellite Television and Internet
services on flights for a fee increased their revenue in order to enhancing the revenue
through ancillary services.
Environmental: Environmental factors for RyanAir include noise level controls, global
warming, green house gas effects and corporate social responsibility policies and
environmental protection laws. There is evidence of the company implementing certain
policies to reduce pollution. Despite their environmentally friendly strategy, the company
has been diminished by bad publicity. Thus RyanAir should adhere to good business
practice for sustainability and high performance.
Legal: Legal factors can affect the company's image and reputation. In August 2003,
RyanAir ceased operations at Strasbourg after losing a court case brought by Air France.
Also the EU had devised new rules to cover overbooking that result in boarding denials
to passengers by airlines. Before to the EU decision at the Central London Country Court,
a disable man won a landmark case against RyanAir after it charged him €18 for a
wheelchair he needed at Standsted to get from the check-in desk to the aircraft. The
passenger awarded €1,336 in compensation from RyanAir.
RyanAir - Porter’s Five Forces Analysis:
Porter’s Five Forces analytical tool assists in analyzing competitive environment for
Figure 1: Porter's five forces model
Bargaining power of suppliers:
Boeing has been traditionally RyanAir’s main supplier, as well as increased level of
efficiency associated with energy consumption. This fact signals about RyanAir’s
increasing bargaining power towards its main supplier, Boeing.
Supplier Existing Customer
Power Competitive Bargaining Power
However, the supplier switching costs for RyanAir is extremely high due significant
amount of expenses involved associated with pilot retraining needs. Because there is no
abundant supply of highly qualified and experienced pilots. Nevertheless, RyanAir enjoys
rapidly increasing power towards a different category of its suppliers.
Bargaining power of customers:
RyanAir customers enjoy high bargaining power because switching to another airline is
simple and not associated with additional expenses. Increased level of price sensitivity of
RyanAir customers is another factor that contributes to their bargaining power.
The competitive rivalry in RyanAir is increasing due to deregulation, more competitors
on more routes creating overcapacity and growing power of buyers. Potential trend
among some competitors to add some „frills’ and flexibility, e.g. Virgin Express adds
comfort, Easy Jet adds flexibility.
Threat of substitute products and services:
A substitute is a product or service of another industry, which creates an equivalent value
for the customer. The threat of substitute products or services is a major factor upon the
level of profitability of an industry. Substitute services for airline industry in general and
RyanAir in particular include railway networks, sea transports, coach transport, as well
as, car rental firms. The threat of main substitute, trains are occasionally addressed by
RyanAir in a proactive manner through providing price comparison prices of RyanAir
services with train services on the company website and other sources. Nevertheless, it is
fair to state that the threat of substitute products and services for RyanAir is insignificant
compared to many other industries in the marketplace.
Threat of new entrants:
The threat of new entrants is low for RyanAir due to the significant entry barriers
associated with entering airline sector that include economies of scale, capital
requirements, access to distribution channels etc.
Moreover, significant capital requirements associated with entering airline industry
include, but not limited to obtaining physical facilities, dealing with inventories, engaging
in marketing activities and attracting qualified workforce represent another significant
Difficulties associated with gaining access to distribution channels is another
considerable barrier faced by new entrants in airline industry. Local and international
airports may not be able to create additional slots in their platforms in order to serve new
entrants into the market.
Strategic Evaluation of Michael O’Leary’s leadership:
The Michael O’Leary became the CEO of Ryan air in 1993. A new management team
was appointed by the Tony Ryan. After this appointment the company entered the path of
His language is the litany of the anti-hero, the self-styled champion of no frills service
with low cost fares. His entrepreneurial model is, by his own proud admission, an
unashamed copy (of Southwest Airlines) and delivered with a culture of iconoclasm to
beat the traditional airline model. By any measure, he has succeeded and delivered wealth
to his shareholders beyond their wildest dreams.
His leadership model is a clever one. As a leader, Michael O’Leary is a risk taker, a
hands-on day-to-day decision maker. He is both an asset and liability to RyanAir. He had
pros and cons in his leadership of the company. The characteristics that have driven the
company forward – his enthusiasm and energy, his strategic insight, his determination
and mission orientation – can be carried too far. The capacity to irritate may bring about
conflict and change. Michael O’Leary’s had delivered but now the question arises if the
company now require more of a manager’ than a leader’ during a consolidation era.
Leadership style in the Michael O’Leary
o Autocratic style of leadership,
o Determining strategic direction.
o Effectively managing the firm’s resource portfolio.
o Exploiting and maintaining core competences.
o Developing human and social capital.
o Sustaining effective organizational culture
The leadership style O’Leary has instituted at RyanAir finds expression in a sort of
transition: a movement from autocratic leadership to democratic one. Thus, O’Leary’s
leadership structure as at when he joined RyanAir in 1988 as Tony Ryan’s personal
enforcer to 1994 when he became the CEO of the airline and now has undergone
variation to suit different situations. Debates could arise as whether O’Leary’s style
would work in different circumstance(s), but there is no doubt that he is a perfect
situation match for the RyanAir revolution. The remit of this study limits more
investigation in this direction.
Current Competitive Strategies of RyanAir:
RyanAir is now the biggest airline company in Europe. They are expanding to new
markets quickly and aggressively. They have a visionary and farsighted CEO Michael
O’Leary. This Irish CEO has changed the company in a whole new dimension. He
followed the Southwest Airline to restructure his company. He implemented new
strategies to compete in the industry. It was a success. RyanAir has managed to remove
the top airlines like British Airways, Aer Lingus etc. from their position.
This was possible because RyanAir followed some strategies to gain the competitive edge
I. Low Fares: They offer plane fare half than that of their competitors. They
incurred huge losses for the initial years but they were able to drive out the
competitors. For fare they have huge demands in the market. Their seats get
booked a month before the flight.
II. Expansion: RyanAir is following an aggressive expansion strategy to move
against the competitors. They are now the Europe’s fastest growing airline
company. They are starting services in many air bases around the continent.
III. Targeting discount market: RyanAir is not competing head on with the
competitors. They are targeting the discount market which are neglected by the
big airlines. They provide low fare. About 48% of their passengers are budget
conscious travelers. They emphasizes the low fare more than anything. These
budget conscious travelers move in and out of the country more frequently
because of low fare. So, multiple revenue can be derived from each customers.
IV. One Class Flight: There is no business class in RyanAir. They provide a single
class and fare for the customers. This has a good effect on the customers. They
don’t feel discriminated and that’s why the company’s sales and passengers are
growing each year.
V. Low CASM: CASM it is the cost per available seat mile. The CASM of RyanAir
is very low, about 33%. The competitors on the other hand are about 63-73%.
Low CASM has allowed to attain the break-even of each flight quite easily.
Calculation shows that Ryan air can attain break-even of each flight with only
half full flight.
VI. Targeting Secondary Airport: RyanAir has reduced their cost tremendously by
targeting the secondary air bases. This has allowed them to get the airports at any
terms they offer. RyanAir has acquired the secondary airports for a low cost
about $ 1.50 per passengers. Whereas the international hub costs about $ 15 to $
22 per passengers. This is a major cut off of cost. They are currently using some
of the ex NATO air bases and some old airports.
VII. Removing cost layer: RyanAir is following a certain strategy to reduce their cost
continuously. They want to remove a cost layer each year. The most notable is
launching a website in 2000 to replace their travel agent service. They now
follow the website. Passengers can book seats from websites very easily. Their
website is so popular that it is considered the most crowded one by google.com.
They have also started a no frill service. They will provide only the necessary
services. For example no free drinks, no seat back pockets, no ice etc. The no ice
strategy has allowed them to save $50,000 each year.
Ryan air Core competencies are:
Innovative cost cutting
Alternative revenue generation
Innovative cost cutting method:
The main point of RyanAir's strategy involves reduce cost at wherever possible and pass
the savings to the customer with low ticket prices. All the activities in its process are
designed to increase efficiency and reduce costs. RyanAir is continuously come up with
very Innovative Cost reduction method as a example Ryan Air doesn't have to have
personnel in by offering a very few services at the airport, like limited airport check-in
facilities or removal of baggage transfer, these areas. Lower customer service cost and
riddance of ticket agent fees by high fixation of internet to sell tickets. By having a
uniform fleet, it has helped to lower its maintenance costs and time. They also don’t
provide meals to passengers facing delay. They do not provide wheelchair services to
disable passengers. This reduces cost in maintaining only fewer inventories of aircraft
maintenance parts and training of maintenance engineers. RyanAir flies offers only point-
to-point route and flies to less expensive secondary airports which charges lower airport
fees. Since these airports are not very populous, RyanAir can attain fewer delays and
higher turnaround times.
Alternative revenue generation method:
RyanAir's ultimate goal is to offer free flights by generating revenue through other
means. It always creative in finding new sources of revenue onboard their flights. Some
examples of this are inflight advertisements, on-board shopping and gambling, pay-
preview television. All the flight attendants get commission on the items they sell
onboard. Food and beverages, airport check in, baggage checking and any other
additional passenger service is charged higher than normal charge. RyanAir will not
provide refreshments or meals to passengers facing delays. Anyone who wish to avail
themselves of such services will be asked to pay for them directly to service provider.
i) Customer service satisfaction:
o RyanAir has eliminated traditional in-flight services such as seat
allocation, complementary meals and drink and newspapers.
o RyanAir earn profit from such secondary services by charging customers
for in-flight services and other travel expenses such as travel insurance, car
o RyanAir is extremely sensitive in changing the fair value.
o RyanAir is raising its checked luggage fee from 15 to 20 per bag.
Although the RyanAir has remarkable track record for punctuality, flight
completion the perception of the softer side of its customer service has not
always been good.
ii) Risks & Challenges:
o Extra capacity building would create uncertainty about the success of
new routes and locations
iii) Fuel Prices:
o Vulnerable to rising fuel prices
iv) Industrial Relations:
o Unions were not recognized
v) Unwillingness and failure to recognize unions:
According to the study the RyanAir’s only strategy is to reduce the cost. Excellent
leadership under Michael O’Riley had led them to success so far but as the companies is
growing they need to rethink and redesign their strategy. Below list mention our
suggestion regarding the company development:
o Increase the customer service
o Increase the customer loyalty
o Recognize workers union and form strategic relationship
o Should invest on the Information Technology
o Need to update competative strategy, because competitors adapt and will copy
their core competencies, so they can’t be content with their success.
o Should do careful analysis before entering new market because every market is
different a single strategy will not work everywhere.
o Rethink their advertising strategies.
o Consolidate their business in their home country Ireland.
Under the Leadership of Michael O’Leary RyanAir have succeeded and have managed to
do that far beyond expectations. Aggressive pricing and expansion had been RyanAir’s
main strategy since inception and few company have gone to such lengths to achieve
their goals. But the thing is they are not a small growing company any more, they are
Europe’s leading brand in low cost airline service. Now they have more to lose and their
every steps is under careful observation by both competitors and shareholders. They need
to be more careful how the public perceives them as a brand. Cheesy, hurtful advertising
campaign to get easy publicity, bad relationships with workers union will only do harm in
the long haul. And further new strategy needs to be evaluated and the current strategy
should be given an overhaul because market changes and competitors adapt. Ryan’s core
competencies will be copied, so they can’t be content with their success.