Ryanair Case

Ryanair

History

Ryanair was founded in 1985 by the Ryan family to provide scheduled passenger airline services between Ireland and the UK s an alternative to the then state monopoly carrier, Aer Lingus. In order to survive in the 1990s the airline restyled itself to become Europe's first low fares no frills carrier, built on the model of Southwest airlines from Texas. A new management team was appointed by Tony Ryan, headed up by Michael O'Leary. The company turned around and was floated on the Dublin Stock Exchange and NASDAQ in 1997. O'Leary was allowed to purchase significant 17.9% of the company.

David Bonderman, an entrepreneur from Texas was chairman of continental airlines and brought expertise and credibility as he was made chairman of Ryanair at Flotation. The proceeds of the flotation were used to repay loans and buy aircraft. The company placed shares on the London stock exchange in 1998. The continuation of Ryanair's licence as an EU carrier is conditional on a majority share ownership by EU nationals. This could limit trading in ordinary shares.

Ryanair had the objective of maintaining its position as Europe's leading low fares operator flying out of regional and secondary airports. The heart of the strategy was based on providing a no-frills service with low fares designed to stimulate demand, especially from budget conscious leisure and business travellers.

The company's goal was to be profitable on new routs from inception by pitching fares low enough to attract new customers but high enough to give decent margin. The entry of Ryanair into the Ireland -UK market originally dominated by Aer Lingus was followed by more competitors, which led to substantially lower fares and significantly increased traffic on Ryanair's routes. The growth of Ryanair was based largely on what was called the 'Ryanair generation' a phrase used to describe the younger educated Irish emigrant population in the UK. By 2001 however only 20% of their passengers originated from Ireland. By mid 2001 their route system now served various cities in continental Europe.

According to the company its no-frills service allowed it to prioritise features its clientele perceived as important, such as frequent departures, advance reservations, baggage handling and consistent on-time service. They eliminated services deemed non-essential to this such as advance seat assignment, meals, multi-class seating, access to frequent flyer programmes and free drinks for example. It was no perceived that these added value to the customer in the same way as the priority features did.

In 1997 Ryanair dropped its cargo service in order to speed the turnaround time of its aircraft, claiming the majority of its business travellers valued this time saving which amounted to 40 minutes.

In 2001 O'Leary declared that by 2004 at least 10% of its flights would be fare free as additional revenues from things like fee-based in flight satellite TV and internet access. Indeed in 2000 revenues from ancillary sources had increased by 38% to £42.7 million (Irish). This in part helped negate the effect of the abolition of duty free sales. At the same time its operations in Europe were helping financial predictability as fees for air traffic control began to be denominated in Euros.

In order to compete as the lowest cost provider Ryanair employed a number of cost reduction strategies. Firstly they used as few different models of aircraft as they could, limiting costs of staff training and maintenance services. Secondly they contracted out services such as ticketing, aircraft handling and baggage handling to third party service companies. Finally, a further example is their remuneration policy which is based on profit-related structures and commission for selling in-flight fee-based services. Their remuneration strategy might be affected by future legislation on cabin crew working hours expect to come from Europe.

Ancillary revenue and in-flight service

Much of Ryanair's revenue is generated from ancillary revenue, that is income from other sources than ticket fares. In 2009 ancillary revenue was at €598 million, compared to a total revenue of €2,942 million.[38]

Ryanair has been described by the consumer magazine, Holiday Which?, as being the "worst offender" for charging for optional extras.[39] As part of the low-cost business model the airline charges fees, these can be related to alternative services like using airport check-in facilities instead of the online service fee and using non-preferred methods of payment. It also charges for extra services like checked in luggage and it offers food and drinks for purchase as part of a buy on board programme.[40] Ryanair argues that it charges for a large number of optional extras in order to allow those passengers who do not require baggage, priority boarding or other premium services to travel for the lowest possible price by giving customers the flexibility to choose what they pay for.

In 2009 Ryanair abolished airport check-in and replaced it with a fast bag drop for those passengers checking in bags. The option of checking in at the airport for €10 has been discontinued and all passengers are required to check-in online and print their own boarding pass. Passengers arriving at the airport without a pre-printed online check-in will have to pay €40 for their boarding pass to be re-issued. Ryanair have also replaced the free online check-in with a €5 online check-in fee which is charged per person, per flight.[41] Although this fee is waived on "Free", "€1" and "€5" promotional fares, it has been criticised as being a non-optional extra charge which should be included in the headline fare.[42]

No-frills

New Ryanair aircraft have been delivered with leather seats which do not recline, no seat-back pockets, safety cards stuck on the