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Ryanair Low-Cost Strategy Business Model

The document analyzes Ryanair's business model, highlighting its cost structure, competitive environment, and revenue generating strategies. Key figures from 2013 indicate total expenses of EUR 4,166 million, with a focus on maintaining low fares and maximizing ancillary revenue from customers who prioritize cost over comfort. It also presents a SWOT analysis outlining strengths such as brand recognition and weaknesses like dependency on subsidies and poor service reputation.

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Related topics:
Business Model.• Low-Cost•Value Proposition Insights•
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Strategy module | Kevin Constant | Lesley Wieme Ryanair – Business Model
Key Figures
Key Figures EUR million 2013 Change vs FY2012 % of 2013 total Fuel 1,886 18,3% 45% Airport & Handling Charges 612 10,4% 15% Route Charges 487 5,7% 12% Employee 436 5,0% 10% Depreciation 330 6,6% 8% Materials, repairs 121 16,1% 3% Aircraft Rentals 98 8,3% 2% Other 198 9,9% 5% Total Expenses 4,166 12,4% 100%
Hyper-competitive environment Trends: • Consolidation among Legacy Carriers • Low-Cost subsidiaries of FSCs (e.g. Germanwings, Iberia Express) • LCCs evolving to more hybrid forms Competitive environment
Ryanair‟s business model Value Proposition What value do we create for whom? Value Architecture How do we do it? Revenue Model How do we earn money? Culture & Values What values do we pursue and communicate?
Value proposition Lowest fares = CORE of business model Target customers? • Those who compromise on comfort • all fare-conscious customers How? • Maintain focus on cost-containment • Maximise ancillary revenue
Value architecture Airport-related • Short-haul • Point-to-point • Monopoly on most of its routes • Secondary airports:  Less congestion  Lower charges  Bargaining power
Value architecture Aircraft-related costs Aircraft acquisition costs • Aircraft of a single type (Boeing 737-800) • Buy in bulk • Young fleet: lower per seat cost Aircraft usage Personnel-related costs Cost savings are more important than relationship between management and employees.
Value architecture Customer service costs • Agreements with third party contractors • Internet booking facility
Value architecture Figure: Lowest ex fuel costs at Ryanair (figures from Ryanair, FY2013)
Value architecture Figure: Ryanair’s average fare vs other airlines (Figures from Ryanair, FY2013)
Revenue model 58%22% 20% "Core" revenues Ancillary revenues Subsidies
Revenue model Compulsory fees and charges Variable amount fare based on barebone ticket structure Ticket-related fees and additional charges Ancillary revenues “We think [passengers who forget their boarding pass] should pay 60 euros for being so stupid.”
Airport Airline Deliver service Pay charges and fees Airport Ryanair Provide subsidies and support Grants its presence Revenue model
Corporate culture and values
SWOT analysis • Brand name (20 years in LCC business) • Lowest fares • Small headquarters: low on overheads • Benefits from low airport charges • Low distribution cost • O‟Leary charisma providing strong leadership and cheap marketing • Financial situation • Dependency on subsidies • Poor service, prone to bad press • Low frequencies and mid-day departure times (problem for business travellers) • Market growth • Continuing European economic crisis • Growing demand for LCCs • Growing market with EU enlargement • Untapped potential in Europe • Absence of LCC on long-haul flights • Market consolidation (LHG, AF-KLM, IAG) • Increase of airport and navigation charges • Fuel price volatility • EU regulations (e.g. on denied boarding compensation and „hidden fees‟) • EC investigations into airport subsidies Threats
Strategy module | Kevin Constant | Lesley Wieme ?