Ryanair is a low-cost airline headquartered in Dublin, Ireland. It is the largest airline in Europe, serving 185 destinations. In the last fiscal year Ryanair flew over 90M passengers on its 308 aircraft. It serves destinations across Europe, as well as in North Africa and Middle East. Its main hubs are located in London and Dublin. The airline has 76 smaller bases across Europe.
The airline may serve as a great example of alignment between business and operating model. Its strategy is to offer low cost, no frills, yet accessible and dependable service. Ryanair has successfully implemented a range of operational measures that helped the airline implement this strategy.
Ryanair offers low cost air transportation throughout Europe. It appeals to cost conscious passengers, looking to travel mainly for non-business purposes. Its service is simply seat on the plane flying between two points. Ryanair benefits from easy travel regulations between European countries which stimulate leisure traffic. It also benefits from the enlargement of the European Union into Eastern European countries. Their migrant workers and increasingly affluent societies generate growing demand for international air travel.
Ryanair has used a number of ways to successfully implement this model. These measures may be divided into two categories:
i) keeping costs down
ii) generating high volume of passengers and additional (ancillary) revenue.
– Low costs
The airline flies only one aircraft type – Boeing 737. This gives Ryanair a stronger negotiating position when it comes to aircraft purchases. It also results in cheaper maintenance and faster turnaround times.
The airline has been successful in keeping airport costs in check. Passengers have to check in online, which saves Ryanair expenses on check-in kiosks at airports. Furthermore, the airline mainly flies to second-tier airports, which typically charge airlines lower fees. Ryanair has been known for its tough approach to negotiations with airports. In fact, the airline decided to withdraw in a few cases where it could not reach an agreement, e.g. from Budapest or Verona.
Another measure that helps Ryanair keep costs in check is its fuel policy. Ryanair’s aircraft run on minimal amount of fuel needed to cover their route. This saves costs as planes are lighter and therefore burn less fuel. However, it also resulted in a few emergency landings when flights had to be redirected. Nevertheless, Ryanair was able to handle the media coverage of these emergency landings effectively.
– High volume, and extra revenues
Ryanair uses its aircraft very efficiently, keeping them in the air on average for 9.5 hours per day. A key driver of this is turnaround time at only about 25 minutes. One key driver of that is low levels of hold baggage. These are a result of hold baggage fees at levels that increase travel price by a significant percentage, thereby incentivizing passengers to stick to hand-baggage.
As a no-frills airline, Ryanair derives substantial portion of its revenues from ancillary sources. Apart from checked-in bags, key examples include food on board as well as mobile phone texting service, priority boarding, preferred seat bookings and others.
The airline made a significant effort in terms of careful expansion of its routes into Eastern Europe. Many Eastern Europeans migrated to UK and Ireland following EU enlargement in 2004. In the light of this, Ryanair started flights from numerous airports in the region to UK and Ireland, often offering fares lower than long distance bus services. This enabled Ryanair to grow volume by penetrating entirely new market segments.
A very powerful feature of Ryanair’s model is its apparent flexibility.
As passengers gradually grew tired with the airline’s ruthless emphasis on low frills, the airline implemented a set of carefully selected measures which included:
- Free additional carry-on bag
- Allocated seating
- Mobile app
- Improved website
These improved passenger experience, broadly without compromising Ryanair’s low cost model.
Another sign of flexibility is Ryanair’s offer to business travellers. As businesses emerged from the recession with additional degree of cost consciousness, Ryanair started offering bundled “Business Plus” fares. These include priority boarding, fast security lane and preferred seating, offering an experience somewhat resembling a regular business class flight, yet at a significantly lower cost.
All the above resulted in a formidable growth trajectory. Ryanair’s passenger numbers grew from c.60M in 2009 to c.90M in 2015, with revenue growing steadily from 3B Euro to almost 6B. The airline has remained profitable with the most recent profit margins at c.20%. Ryanair continues to lead the European low cost airline space and is likely to leverage to successful short-haul model launch intercontinental flights in the coming years.
Image source: Aviation Week