Great post Sid ! I agree with the points Shaharyar and Roger raised. It’s interesting to see how successful companies assume that a winning recipe in one geography will work in another. At the same time, Canadians were really excited to have Target open stores in their country, but, as you said, were really disappointed with what target had to offer especially in terms of product and pricing. Do you think that the high expectations of Canadians created more problems for Target than if they didn’t have high awareness in the Canadian market ? And, do you think Target suffered from the fact that Canada was already an established market ? I hope that they will remember the lessons from this failure as they try to enter other international markets !
I agree, I think it’s going to be hard for them to move from this perfect alignment between business and operating models that led them to be the “meanest airline in the sky” to being somewhat focus on customer service. I’m really looking forward to see how they will approach this change and what will be the customers’ reaction.
Really interesting company Michael ! I wrote a post on Ryanair (https://digital.hbs.edu/platform-rctom/submission/ryanair-low-prices-without-unnecessarily-pissing-people-off/) and it’s really interesting to see how their business models are different while part of their operating models are similar e.g. leveraging the secondary airports or having a single aircraft fleet. I also think it’s fascinating how, even if the target customers for these 2 airlines are totally different, the customers are looking for some similar things like punctuality, availability, practicality, and value for what they get. I wonder if Ryanair has something to learn from SurfAir and vice versa. What do you think Ryanair could leverage from SurfAir as they are trying to turn around their image of the “meanest airline in the sky” ?
Great post Betsy!
I think it’s really interesting that Shinola doesn’t only manufacture watches, but also manufactures bikes, shoe shine, and a variety of leather goods. I’m wondering what is there hedge in these other businesses and I’m struggling to find the common thread between all of these industries. Is it just that the “made in Detroit” is really popular right now or that they are able to leverage the low real estate costs and abundance of available labour in Detroit? Are they using a similar operating model all of their products and are they as successful in their other businesses as they are with the watches? And, if so, have they found the secret recipe to bring back the “Made in America” ?
Those are 2 really great points and I think this is what Ryanair now realizing and is trying to address with their new “Always Getting Better” program. As you said, Ryanair’s operating model is currently serving it well because it operates under the assumption that the key criteria for a traveller is price followed by punctuality and that the rest doesn’t really matter. This assumption definitely holds true for a lot of customers, the “very price sensitive” as you called them, but it definitely prevents them to attract higher value travellers. On top of that, you are totally right that the new middle-cost carriers are also an additional threat to Ryanair.
Ryanair is currently reacting to these threats by trying to change their image, but will they really be able to do that ? Should they just continue to play in the very low cost market ? We should have a better idea when they will announce their 2015 and then 2016 results !
I wrote a post on Ryanair (https://digital.hbs.edu/platform-rctom/submission/ryanair-low-prices-without-unnecessarily-pissing-people-off/) and I think it’s really fascinating to see how low-cost airlines managed their operations. SouthWest and Ryanair have a lot in common, but SouthWest is known to focus on customer service where Ryanair is known to be the “meanest airline in the world”. Ryanair also has better profit numbers that SouthWest. However, Ryanair just announced that it was going to stop “unnecessarily pissing people off” and I wonder how its operations will support this new focus of its operating model. How do you think Southwest has managed to be loved by its customers while maintaining really low costs and how do you think Ryanair can learn from SouthWest and vice versa ? Is it possible to have a similar profit level to Ryanair, but still have good customer service?
You’re right, the difference between US and European low-cost carrier is really interesting. As you mentionned, geography and population density plays a big role. If we take SouthWest vs. Ryanair as an example, the first big difference is that SouthWest has been focus on delivering great customer service where Ryanair had (until last year) been focus solely on cost (e.g. charging $115 to pint your boarding pass). Other factors come into play as well. Ryanair receives a lot of non-taxable sysbsidies from regional Governments to fly to secondary airports, but, in America, subsidies are regulated by the Essential Air Service (EAS). SouthWest employs more employees per customer than Ryanair, and they are unionized. It will be interesting to see how Ryanair’s new focus on customer service will come into play !
On your second question on expanding to other markets. Ryanair has announced on March of this year that they wanted to start doing transatlantic flights (http://www.economist.com/blogs/gulliver/2015/03/ryanair-0), but then denied this statement. Analysts think they will launch an transatlantic service but another a totally different brand. It will be interesting to see how it will disrupt the market if they, in fact, decide to launch this type of service.
Yes, this is a really interesting dilemma. It seems that Ryanair has been loosing customers or, at least, not growing as fast as it used to. At the same time, its reputation is good publicity because everyone is talking about it. I even read an article about a guy who changed is name instead of correcting the name on its ticket because it was cheaper !
Now, Ryanair has mentioned that part of its new customer service centric strategy is to focus on business travellers, but the question you raise it a good one: will they be able to focus on business travellers and price sensitive travellers at the same time, knowing that their needs are totally different ?
You raise a really valid point. Ryanair’s management still believe that the most important factor for an airline is price, followed by punctuality. One of the key success factors for this new “Always Getting Better” strategy will be to increase customer service without increasing fares. Ryanair still maintains that its fares were lower in 2014 than in the previous years.
The reason why they started this new customer service strategy is that their traffic numbers were stagnating (as you can see in figure 2). They’re trying to get a new segment of customers for whom price isn’t the only satisfaction factor: business travellers.
Now, as you pointed out, it will most likely be more costly for them to give better customer service so if they maintain the same fare level someone has to loose some value somewhere and this is likely to be Ryanair itself. I think Ryanair believes this strategy makes sense for 2 main reasons:
1. Some of the changes will probably also bring cost benefits to Ryanair. For example, pre-assigned seating reduces the chaos at the gate and usually increases turnaround which will allow Ryanair to operate more flights and increase its asset utilization.
2. Even if this strategy will likely be more costly, they will also have more customers by also appealing to business travellers. These customers will likely bring higher ancillary revenues as well as a higher asset utilization. Furthermore, one of Ryanair’s hypothesis is probably that business travellers are more profitable than regular travellers.
That being said, it’s not going to be easy to turnaround their image and there are definitely some competitors who are waiting for them to fail to start stealing their customers !