The strategy of the 'Ryanair', the pioneer of low cost airlines (2007)

Résumé du document

In 2006-2007, Ryanair has become the world's most profitable airline on the basis of its operating and net profit margins and on a per-airplane and per-passenger basis. Indeed, the profits expected for the first half of fiscal 2007 were 329 million euros, which is a record for the Irish budget airline company. In addition to that, the air traffic grew by 23 percent to 22.1 million passengers, and yields increased by 9 percent and the total revenues have been improved by 33 percent to 1.256 billion euros. Companies can use five different generic competitive strategies. The one that best matches the competitive strategy that Ryanair is employing is a "Low-cost provider strategy". Ryanair strives to be the industry's overall low-cost provider, which is a powerful competitive approach in markets, such as the airline market, which has many price-sensitive buyers. Ryanair is the low cost provider because it is the company that provides the lowest cost on the European airline industry and not one of the companies that provide the lowest cost. This strategy is very difficult to copy for rivals which have high operating costs. Even other European budget airlines do not try to copy the Ryanair strategy. Moreover the brand image of big national carriers will be damaged if they choose to adopt a low cost strategy. Ryanair's success in matching this strategy is possible the firm is doing a better job, than rivals, of managing value chain activities cost-effectively and finding innovative ways to bypass high operating costs. This strategy works well because in the airline industry there are not many ways to offer high value to consumers.

Extraits

[...] Why did the strategic vision change? Is the company's strategic vision likely to undergo further evolution? Ryanair was born in 1985 by the Ryan family. Tony Ryan headed the company which was created as an alternative to the state monopoly carrier Lingus”. At this period, Ryanair provided “scheduled passenger airline services between Ireland and the Thus, at the beginning this company was not a budget airline carrier. Indeed, Ryanair was a full-service conventional airline, proposing two classes of seating and three kind of airplane. [...]

[...] The strategic vision changed because of the original vision failure. Indeed, in 1990 even if the passenger volume was growing the company was not able to make benefit and to make the company profitable. On the contrary, Ryanair was accumulating huge losses of 20 million and the five different chief executives did not succeed to reverse the trend. Then to avoid a bankrupt of Ryanair it was necessary to find another CEO, and management team, that were able to make the firm profitable. [...]

[...] This charismatic man with a strong character was awarded the European businessman of the year by “fortune” magazine. Then, it is very important and interesting to understand how he has proceeded and how well he has performed the five tasks of strategic management. - Developing a strategic vision: When arriving in 1990, O'Leary idea to make Ryanair profitable was already make. He knew already what path the company should take and what changes in the company's strategy would improve its market position and future prospects. [...]

[...] As seen in the first case US airline industry in 2002” the deregulation entailed the submission of the airline industry to the market regulation and to the economic liberalism which implies a total competition between the airlines companies. Another example of the driving changes that regulatory influences and government policy changes can force is the “Rome treaty” which establishes the freedom of circulation in European countries for the people and for the goods. This treaty has also improved the rivalry among competitors. Moreover, the European Union is also very strict on the securities conditions. Indeed, European Union forces companies to respect some security standard. [...]

[...] Thus, budget airline will play on their low prices and the rapidity the check-in and boarding, whereas big companies will play on the aircraft seating space, class of service offerings or the aircraft type. - An effective management of the fleet: It is essential to manage in an effective way the aircrafts utilization. To maximise the profit making, airline companies must fill their aircrafts with the most passengers the airplane capacity allows. The best is to fill all the airplane seats at every fly. But this ideal is impossible. [...]