Ryanair - 2008 Europe Top Ranked Low Cost Carrier Airline

A Case Study
Low Cost Carrier (LCC) or Low
Cost Airline also known as No-Frills Airline
considered by some analysts as a
break-through in the Airline Industry
within the year of 2000s. The way it
setting-up and implementing its business
strategy is an interesting discussion subject
to observe. Ryanair, an Ireland based LCC
company obviously chosen as an example.
It’s noted by the Airline Industry and among
international analysts as the preferred
Ryanair Boeing 737-800
business model for LCC airline.

Since the company establishment, all the way to the “Go Public” story, up to
becoming today Europe’s top ranked airlines, all strategic changes were neatly arranged and
executed. The changes outcome not only precisely resolves the most recent issue, but it also
provides Ryanair more strengthened market positioning.

Overview on Ryanair
Founded in 1985 supported by as small as 25 staffs. It started by only serving a single
short route, a daily flight flown from Waterford in the Southeast of Ireland to London
Gatwick using a 15-seaters Bandeirante aircraft. Win its first market “battle” against British
Airways and Aer Lingus duopoly in 1986 obtaining authority’s permission to serve
Dublin – London route. The released fares of £99 which is less than half of its competitors’
price known as the first airlines fares war in Europe.

The Corporate Restructuring

In 1990 after having successful rapid growth within its first three years of operation,
the intense fares price competition against British Airways and Aer Lingus affect the
company’s financial. Accumulated losses of £20m forced Ryanair owners to make a
substantial corporate restructuring resolution. The owners decided to inject more £20m
investment into the company together with the decision to copy the successful US carrier,
Southwest Airline, business model.

Led by its CEO, Michael O’Leary, Ryanair starts focussing only at LCC service. It
re-launched the low fares services under a new management and became the first low fares
European airline. Providing high frequency flights and offering low fares in every market
causing Ryanair to scrapped free drinks and on board expensive meals. In return a 40% fares`
cuts generated high demands on the market. It changes the regional air travellers’ mindset
enabling more people to travel any where by airplane. [1]

[1]
Above page quoted from: http://www.ryanair.com/en/about (Tuesday, 29 December 2009)

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 A few months after the restructuring Ryanair facing its first market struggle as the
Gulf War outbreaks in January 1991. Facing the war global economy impact, Ryanair decided
to lower the fares and at the same time withdraw all of the ATR 42s aircrafts from the fleet to
focus only on one type of aircraft, the BAC-111. As the consequences it has to close three
regional routes that were served by the withdrawn aircrafts and moves its home base from
London Luton Airport to the new Stansted Airport in Essex. Despite to the war effects
Ryanair closes its 1991 financial year gaining £293,000, the first time audited profit.

The strategic changes again continues. After deciding to use BAC-111 aircrafts only
in 1992, Ryanair made another step forward by upgrading its fleet to use Boeing 737-200
aircrafts in 1994. The fleet increases in to 11 units of Boeing 737-200 in 1995 makes Ryanair
overtake British Airways and Aer Lingus on the Dublin-London route. It further caused Aer
Lingus pulled off the route. Ryanair closes its 10th years of its existence by exceeding 2
million annual passenger’s traffic.

Exhibit 1 – Ryanair’s Passenger Traffics Chart 1991 – 2008

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
1991 1995 2000 2005 2008

The Go Public Decision

About a month after the European Union finally complete the deregulation of the
scheduled airline business in April 1997, Ryanair responding the “Open Skies Deregulation”
by a decision to transform the company as a public listed company on 29th May 1997. It was a
successful resolution as it made a successful flotation on the Dublin and NASDAQ Stock
Exchanges. Whereas, after the Initial Public Offering its shares are more than 20 times over
subscribed. On the first day of trading the share price surges from €11 and finally closed at
€25.5. The floatation also involved a decision to give part of the shares to all Ryanair’s
employee’s which worth on over €100m of shares at the first day closing.

Utilizing the huge amount of cash earned from the stock market Ryanair continues its
expansion to conquer the whole European Continent launching new routes and airport bases.
On March 1998, Ryanair places US$2bn orders of 45 units Boeing 737-800 aircrafts. To fund
this procurement Ryanair issue other new shares in July 1998 to raise over £110m. The
impact on operating the new aircraft type in its fleet, again enable Ryanair to lower the seat
per mile cost and lower the fares as well. Changes from carrying 130 into 189 passengers
allow Ryanair to release a much lower fares than before. From this year until today Ryanair
consistently increasing its fleet using only Boeing 737-800 aircraft.[1]
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Launching www.ryanair.com
Entering the next millennium Ryanair again shocks its competitors by launching the
www.ryanair.com website in January 2000. It noted as the largest booking website at that
time and the only source of low fares airlines in Europe. The outcome from the website not
only from the inflows of large booking, it also manages to reduce the cost of agent
commission into a range of 7.5% to 5% cuts.

Together by launching the e-commerce website Ryanair expand its services into other
ancillary businesses with similar low cost policies for car rentals, hotel accommodation, travel
insurance and rail services. Furthermore, to maintain a strong market positioning Ryanair’s
also starts its massive advertisement program. One of its well known advertisement campaign
is sponsoring the Skynews Weather reports, which makes a tremendous promotion for
Ryanair in all over Europe. [1]

A screen shot of www.ryanair.com

The Expansion
The European continent expansion proceeds in the following years. Possessing
strength within its cost effective management and marketing creativity, it continues not only
launching new bases, new routes network, and upgrading fleet. In 2003 it acquires Buzz from
KLM which enables Ryanair to expand its services to France. Following the Buzz acquisition
Ryanair launches numbers of European bases in Italy and Spain.

Next to acquiring Buzz Ryanair also make a two times attempt to takeover Aer
Lingus, in October 2006 and December 2008. Both were rejected by the Irish Government
whom owned up to 47% of Aer Lingus shares.[2] Even though the rejection could not halt
Ryanair’s expansion. By the end of 2008 financial year Ryanair accounted that it serves 26
countries with 794 network routes. Its Boeing 737-800 fleet grows into 169 aircrafts and
provide jobs for 5,986 permanent employees.[3]

[2]
http://www.telegraph.co.uk/finance/newsbysector/transport/3538108/Ryanair-makes-fresh-Aer-Lingus-offer.html
[3]
Lowfare Fares Airlines Association (ELFAA), http://www.elfaa.com/Statistics.html

Page 3 of 11
 Exhibit 2 – Ryanair Operational Performance as per December 2008

2008 2007 2006 2005 2004

Passenger (in million) 57.67 48.36 40.53 33.37 26.58

Load Factor 81% 82% 83% 83% 83%
Passenger Growth 19% 19% 21% 26% 24%

Country Served 26 27 26 23 17
Numbers Of Destination 148 139 148 120 143
Network Routes 794 606 440 362 272
Permanent Employee 5,986 5,000 3,500 3700 2559

Fleet (Aircrafts) 169 148 120 107 60

Daily Flights 1050 900 750 659 456

Recompiled from European Low Fares Airlines Association (ELFAA), http://www.elfaa.com/Statistics.html

The aforementioned overview briefly described how astonishing a small starter airline
could become an industry business model in the 2000s millennium. It summarizes numbers of
strategic changes made by the management. It’s either aimed as a resolution to respond the
actual market challenges and subsequently setting the company’s provision for future
business development.

Managing the Strategic Changes

Since its establishment, numbers of strategic changes have been made in order to
survive and farther develop its business to become a remarkable airline company as today.
Nevertheless, the decision taken by its stakeholders for restructuring the business back in
1990 is an important milestone for Ryanair. A decision that not just only taken to resolve the
financial loss situation, but also carries a future business vision for the company.

On early 1991 its CEO, Michael O’Leary urged to fly over to Dallas to meet
Southwest Airline executives to look for a lesson to resolve Ryanair situation. It was a
valuable lesson that forced Ryanair stakeholders firmly released the restructuring decision[4].
It includes a total adaptation to the LCC business model which further resulting into an
outstanding business achievement.

Facing the Gulf War impact Ryanair makes a precise business adjustment as the
outcome of the new corporate policy. It enables Ryanair management to swiftly responds the
impacted market situation. A decision to again lower the fares and adjusting their network
routes operation promptly rescued Ryanair. Moreover, it makes Ryanair manage to gain its
first audited profit at the end of the year.

[4]
http://money.cnn.com/magazines/business2/business2_archive/2006/04/01/8372814/index.htm

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 Remain in compliance to the low cost policy Ryanair again decides to upgrade its
fleets. Previously using the BAC-111 aircrafts only in 1992, followed by the next upgrade to
using Boeing 737-200 in 1994, and finally, using Boeing 737-800 since 1999 until today. It is
compliance to the business model’s flight commonality policy which contributes a big cut
within Ryanair’s cost structure. Along with the decision to scrap inboard free drinks and
snacks, contracting out all supporting services to third parties, and altering its staff cost. In
Overall the restructuring decision is a significant milestone to Ryanair.

Strategic Expansion
The Go Public decision in 1997 is another vital milestone to Ryanair’s strategic
changes. Become a public listed company makes Ryanair internationally transparent.
Followed by launching the e-commerce website at early 2000, another outstanding decision in
entering the new millennium. The outcome from the website produces tremendous sales
inflows for Ryanair. Along by launching its ancillary products Ryanair keep shocking its
competitors from time to time with more and more creative marketing decision.

Fast moving in expanding its routes network and airport bases is another Ryanair’s
strategic decision. Face to face market struggle with its competitors from time to time could
not halt Ryanair expansion. From serving only one short haul route in 1985, up to serving the
whole UK region in 1995, and start “conquer” Europe in 1997, finally Ryanair serving 148
destinations in 26 countries all over the continent by the end of 2008.

Exhibit 3 – Ryanair’s Financial Summary 2008 – 2004

2008 2007 2006 2005 2004

All figures in € million (Except Ratios)
Total assets 6,327.55 5,691.25 4,634.22 3,809.70 2,939.00
Non-current assets 3,940.43 3,336.97 2,580.59 2,122.73 1,621.03
Current assets 2,387.12 2,354.28 2,053.63 1,686.97 1,317.97
Shareholders’ equity 2,502.19 2,539.77 1,991.99 1,727.41 1,455.29
Retained earnings 2,000.42 1,905.21 1,467.62 1,151.98 885.24
Current liabilities 1,557.15 1,117.73 845.87 657.24 486.83
Non-current liabilities 2,268.21 2,033.74 1,796.36 1,425.05 996.88

Operating revenues 2,713.82 2,236.90 1,692.53 1,319.04 1,074.22

Cost Of Operation 2,176.74 1,765.15 1,317.48 978.30 803.37
Operating profit 537.08 471.75 375.05 340.74 270.85
Profit for the period 390.71 435.60 306.71 280.04 206.61

Net cash provided by operating activities 703.90 1,346.42 610.57 530.52 462.06
Increase/(decrease) in cash 124.43 383.98 566.75 32.50 (51.12)
Cash and cash equivalents at end of year 1,470.85 1,346.42 1,439.00 872.59 840.09

Earnings per ordinary share (in € cent) 25.84 28.20 40.00 36.85 27.28

Recompiled from Ryanair’s 2004, 2005, 2006, 2007, 2008 annual financial reports as published in
http://www.ryanair.com/en/investor/presentations, retrieved on December 27th, 2009

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Contrast
The conducted corporate restructuring process involves numbers of fundamentals
action. Re-setting up business vision; performing resources optimization; maintain cost
effective awareness; motivating staff productivity; and creative marketing urged as to the
restructuring requirement. The aforementioned business practices produce a remarkable
financial achievement. Since the first audited profit in 1991, followed by the successful
floatable stock market result in 1997 and the website launching in 2000, Ryanair manage to
close the 2008 financial gaining of €391 billion.[5]

Apart of the progressive business achievement Ryanair also accomplishes numbers of

awards and recognitions, and numbers of criticism and legal sues as well. From time to time
Ryanair expansion generates positive and negative responses. Either from those who got the
benefits of its expansion policies, or from its competitors, authorities, and customers whom
affected by the impact of its strategy.

Managing the Human Resources

Remuneration and Compensation
From Airline Industry point of view managing staff cost is one of the most important
aspects. Controlling staff costs and at the same time increases productivity is “a must” to
attain the most favourable level of controlled costs. In Ryanair cases numbers of employee
benefits considered more attractive than other airlines. A final salary scheme made up of a
combination of basic pay and extras based on numbers of hour’s worked or flown. The
compensation also includes pension scheme and travel concessions to its staff and their
relatives.[6]

Staff Assignment and Career Development

Avoiding aircraft to stay overnight away from their home base (unless held up by
weather or technical problems) enable its staff to always return to their home base each day.
For Pilots, the shift roster is a fixed ‘five days on, four days off’ pattern which contrast to
other airlines. To maintain skill level and expertise the company offers good training
opportunities.

Ryanair also implement swift career promotion policy. Pilots can be promoted to
Captain as early after three years of service. Cabin crew can get their promotion in around
12 – 18 months of service (after initial training). Along with additional transferable skills
policy, the overall career development policies benefits the Ryanair for a longer period of
employment.[6]

[5]
http://www.ryanair.com/en/investor/presentations
[6]
York Aviation, “EUROPEAN LOW FARES AIRLINE ASSOCIATION, (in association with the Forum of
European Regional Airports & the Assembly of European Regions), SOCIAL BENEFITS OF LOW FARES
AIRLINES IN EUROPE”, November 2007, Retrieved from www.elfaa.com on December 28th, 2009.

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Impact to Productivity
Being sensible and wise in managing its human resources is one of the vital business
practices that make Ryanair outstanding in its present position. Airline is a service oriented
business where human resources is one of the essential of quality service. The key of human
resources management is to balance employee’s remuneration and benefit next to the
employees necessity to achieve their productivity goal.

Ryanair’s known as one of the airline companies that gives the best remuneration and
compensation for employees. Although numbers of critics also arises on its human resource
business practices, a “no strike” history within its business existence considered as a genuine
proof of its employees welfare. Ryanair have set its human resources strategy base on the staff
cost and productivity awareness as addressed by the LCC business model.

Exhibit 4 - Ryanair’s Revenue versus Cost per Employee Chart

600 €
Thousands

500 €

400 €

300 €

200 €

100 €

-€
2004 2005 2006 2007 2008

Revenue per Employee Cost per Employee

Exhibit 5 - Ryanair’s Portion of Staff Cost against Cost of Operation and Revenue

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008

Revenue Cost of Operation Staff Cost

Page 7 of 11
Managing the Cost Structure

Nevertheless Ryanair’s low cost strategy stimulates a continuous increasing market

demand, as it remains in compliance to The LCC business model that stressed cost effective
awareness. Fleet Commonality, Contracting Out of Services, Airport Charges, Staff costs and
Productivity, and Marketing Costs are important components within the LCC cost structure.[7]

In regards to Fleet Commonality, Ryanair has demonstrated stipulated changes in

upgrading its fleets from time to time to finally utilize the most preferred aircraft type. When
its starts using Boeing 737-200 aircraft back in 1994 Ryanair was able to obtain optimum
provision for its fleet maintenance. It also attains costs reduction in staff training and
flexibility in scheduling aircraft and crew assignments.[7]

Contracting Out aircraft handling, ticketing, baggage handling and other functions to
third parties enable the company to retain competitive rates and obtain multi-year contracts at
fixed prices. Similar policy also applied for aircraft heavy maintenance. All contract work is
carried out under planning and supervision conducted by its owned staff. It benefits Ryanair
in retaining quality control and safety with less cost for specialised labour force.[7]

Airport charges reduction obviously applicable only for secondary and regional
airport destinations. It includes landing fees, passenger loading fees, aircraft parking fees and
noise surcharges. As in most of its continental destinations, such airport type usually far
located from the city centres. Whereas in return it provides higher rates of on-time departures,
faster turnaround times and fewer terminal delays which benefit to Ryanair quality service
advantage. [7]

Concerning Marketing Costs the launch of its e-commerce website back in 2000
enable Ryanair to reduce Marketing Costs from 9% to 7.5%. However, it does not totally free
the company from dependency on travel agents, especially when opening new routes in unfamiliar
markets. The fact is, the web-site generates a promising numbers of seats sales booked on-line. It
accounted for 65% of its overall bookings. Furthermore, three months after the website launch
Ryanair attained an average of 50,000 seats on-line booking per week.[1]

Exhibit 6 – Ryanair’s Average Portion of Cost Components Structure

17% Staff costs

13%
Fuel & oil
Maintenance
19%
Marketing
Route charges
34%
Airport charges
13%
1% 3% Others

[7]
Eleanor O’Higgins, Ryanair – the low fares airline, Cork Institute of Technology Bachelor of Business Studies
(Honours) in Information Systems – Award, Summer 2007, retrieved from
http://exams.cit.ie/PastExams/Accounting Information Systems/BBSIS4/2007 Summer/Strategic Business
Management-Case Study.pdf, retrieved on December 28th, 2009

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Nevertheless, Ryanair manage to sets and manage all of its cost structure considerably ahead
of its competitors. In addition above all facts, the strength leadership of its CEO, Michael
O’Leary plays an important role managing the company in implementing the business model.
His accountant background and professional experience benefit Ryanair in performing total
compliance to the LCC cost awareness business practice. Next to his creative marketing
vision which has been greatly influence the company market positioning in the Industry.

Exhibit 7 – Ryanair’s Revenue & Cost Summary 2008 – 2004

2008 2007 2006 2005 2004

All figures in € million (Except Ratios)
Operating revenues 2,713.82 2,236.90 1,692.53 1,319.04 1,074.22
Scheduled revenues 2,225.69 1,874.79 1,433.38 1,128.12 924.57
Ancillary revenues 488.13 362.10 259.15 190.92 149.66
Cost Of Operation 2,176.74 1,765.15 1,317.48 978.30 803.37
Staff costs 285.34 226.58 171.41 141.67 123.62
Fuel & oil 791.33 693.33 462.47 265.28 174.99
Maintenance 56.71 42.05 37.42 26.28 43.42
Marketing & distribution costs 17.17 23.80 13.91 19.62 16.14
Airport & Route Charges 655.61 472.85 380.88 314.06 257.49
Others (Combined) 370.59 306.55 251.40 211.39 187.71
Ratios
Operating Margin 19.8% 21.1% 22.2% 25.8% 25.2%
Scheduled revenues rates 82.0% 83.8% 84.7% 85.5% 86.1%
Ancillary revenues rates 18.0% 16.2% 15.3% 14.5% 13.9%
Staff costs Portion 13.1% 12.8% 13.0% 14.5% 15.4%
Fuel & oil 36.4% 39.3% 35.1% 27.1% 21.8%
Maintenance, materials & repairs 2.6% 2.4% 2.8% 2.7% 5.4%
Marketing & distribution costs 0.8% 1.3% 1.1% 2.0% 2.0%
Airport & handling charges 30.1% 26.8% 28.9% 32.1% 32.1%

Recompiled from Ryanair’s 2004, 2005, 2006, 2007, 2008 annual financial reports as published in
http://www.ryanair.com/en/investor/presentations, retrieved on December 27th, 2009

[6]
Exhibit 8 - Characteristics of Low Fares Business Model

Feature Benefits
Modern aircraft fleet, often with single Lower maintenance and training costs; fuel
Aircraft type efficiency; better crew utilisation
Point to point services Reduced complexity – no transfers
Few or no on board frills Reduced cost of on board service
Extras charged separately Cost and price transparency (e.g. reduced
hold baggage and associated costs); and
additional revenue, enabling lower fares
Direct (mainly Internet) Ticket Sales and Direct relationship with customer; reduced
no sales via travel agents cost of sales

Use of secondary airports Lower airport charges, less congestion in

the air and on the ground
Simple ground facilities No requirement for cost of premium
terminal facilities (e.g. air bridges)
Short turnaround times Higher aircraft utilisation
Highly incentivised workforce Higher employee productivity

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Impact to British Airways

“The War” between Ryanair and British airways (BA) has already started back in 1986.
Along with Aer Lingus, the Irish flag carrier, BA continuously in face to face market
confrontation with Ryanair. The market struggle once have caused an accounted loss to
Ryanair in 1990, but it turn to be an essential momentum to Ryanair as it decided to
restructure it’s business. The Gulf War in early 1991 enormously impacted the airline industry
in Europe including BA and Ryanair. Providently again Ryanair managed to survive gaining
its first time accounted profit for the year, and win many more “battle” among them within
the proceeding years.

During the years of 2000s, as other full fares airlines had, instead of its competition with LCC
airlines, numbers of world’s disaster also hit BA, especially the Middle East wars and terrorist
attacks in the last decade. Such circumstances affect not only passenger volume, as it also
raises the fuel costs. Although, in 1997 BA finally decides to involve in serving the low cost
market by launching its budget carriers. Unfortunately lack of business strategy and “late
start” are the primary reason as BA keep facing a simultaneously falling down situation while
Ryanair maintains to retain its reputation as one of the Best airline in Europe.

Exhibit 9 – Low Fares Airlines (LFA) Versus Traditional Airlines

Source: European Low Fares Airline Association (2004), Liberation of European Air Transport: The Benefit of Low
Fares Airlines to Consumer, Airports, Region, and the Environment, retrieved from http://www.elfaa.com on December
28th, 2009.

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Conclusion
Some analyst noted that LCC business model as revolutionary changes in the airline industry.
It breaks the myth that airline travelling is an expensive transport model. In fact, it opens new
market segment in the airline industry as it changes people mindset regarding air travel. More
people manage to travel by air plane, including those who might never have the similar travel
experience.

Ryanair is a perfect example of the LCC business model. It does not only performing the
business model practices, but it’s develop farther beyond the model itself by creatively
perform numbers of strategic changes. Although apart to its overall accomplishment also
harvesting lots of negative comments and criticism. In the end, Ryanair achievement as the
preferred model of LCC airline business is a genuine proof of success in managing the
business strategic changes.

*** End ****

Reference

[1] Above page quoted source taken from: http://www.ryanair.com/en/about (Tuesday, 29

December 2009)
[2] http://www.telegraph.co.uk/finance/newsbysector/transport/3538108/Ryanair-makes-
fresh-Aer-Lingus-offer.html
[3] Low fare Fares Airlines Association (ELFAA), http://www.elfaa.com/Statistics.html
[4] http://money.cnn.com/magazines/business2/business2_archive/2006/04/01/8372814/in
dex.htm
[5] http://www.ryanair.com/en/investor/presentations
[6] York Aviation, “EUROPEAN LOW FARES AIRLINE ASSOCIATION, (in
association with the Forum of European Regional Airports & the Assembly of
European Regions), SOCIAL BENEFITS OF LOW FARES AIRLINES IN
EUROPE”, November 2007, Retrieved from www.elfaa.com on December 28th,
2009.
[7] Eleanor O’Higgins, Ryanair – the low fares airline, Cork Institute of Technology
Bachelor of Business Studies (Honours) in Information Systems – Award, Summer
2007, retrieved from http://exams.cit.ie/PastExams/Accounting Information
Systems/BBSIS4/2007 Summer/Strategic Business Management-Case Study.pdf,
retrieved on December 28th, 2009

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