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How Does Ryan Air Maintain Competitive Advantage over Other Airlines?

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Submitted By wildthing175
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How Does Ryan air maintain Competitive Advantage over other airlines?

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Aim My aim is to investigate whether the low cost airline Ryan air (PLC) has and if so how does it maintain its competitive advantage. In my investigation I will be looking at other competing low cost airlines such as Easyjet as well as main stream international airlines such a British Airways. I will also be looking at how Ryanair has gone from nothing to being the No.1 low cost airline.

Introduction Ryanair was founded in 1985 by Tony Ryan who in 1994 past it over to his deputy chief executive Michael O’Leary who has been there to this day. They had their initial public offering in 1997 when they introduced Ryanair Holdings plc on Dublin and New York (NASDAQ) Stock exchanges. They listed on the United Kingdom a year later. Ryanair joined the NASDAQ Top 100 in December 2002, reflecting the phenomenal increase of Ryanair's value and the commitment of its 1,800 staff. There plan was to become “Europe's largest airline in the next 8 years to come.” Their basic plan to achieve this was to have “low fares and friendly, efficient service” and to do this they would have “Superb cost management” and they would land in airports “that don't rip you off.” Ryanair flies strictly to 'secondary' airports up to 60 miles from the real destination, where fees are low or the airline is even paid to fly there. Also Free seats when they were feeling generous and no frills on flights but they would sell food, drink and gifts. They also had punchy advertising that sometimes got them in trouble, and they took cheaper routes to different destinations.

What Ryanair have done over the years Over the past ten years they have increased their annual traffic from under 700,000 to over 15 million passengers. Along the way they have changed the face of air travel, broke high fare cartels, rocked airport monopolies and made it possible for millions of people to travel at cheaper prices.
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1985 – They started with a 15 seated turbo prop aircraft going from the south east of Ireland (Waterford) to London-Gatwick. They modelled themselves on the low cost carrier Southwest Airlines of Texas.
1986 – As if inspired by the story of David and Goliath, they bought two more turbo prop BA 768 planes and went after the “big guys” for a slice of the action and ended up smashing the Aer Lingus / British Airways high-fare cartel on the Dublin-London route. With two routes under their belts they carried 82,000 passengers in that year.
1990/91 – They did well at getting the passengers onto their planes but they were not as efficient managing their costs. They started to make a loss, so a new management team was brought in to improve the efficiency within the management section. They then re-launched as a “low fares / no frills” airline.
1995 – By this point they were now the biggest passenger carrier on Dublin-London route, the largest Irish airline on every route they operated and They carried 2.25 million passengers in that year.
1997 –The EU fully deregulated the air business, enabling Ryanair to open new routes to Continental Europe. They launched services to Stockholm, Oslo, Paris and Brussels. And they took time out to introduce Ryanair plc on Dublin and NASDAQ Stock exchanges.
1998 –. This is when they started to take off with a purchase of 45 new Boeing 737-800 series aircraft (US$2billion). In the same year they were voted Airline of the Year by the Irish Transport Users Committee and voted Best Managed National Airline by International Aviation Week magazine.
2000 – After much deliberation they decided to increase profits by connecting to the internet with the launch of their new online booking site: ryanair.com. Within three months the site was taking over 50,000 bookings a week.
2001 – By this year their introduction to the dot com business had sky rocketed and it accounted for 75% of overall bookings. This was the year when they started operations at their new European base in Brussels Charleroi.

2002 – They opened Frankfurt-Hahn as their second continental European base and announce a long-term partnership with Boeing which promises them acquiring up to 150 new Boeing 737-800 series aircraft over an eight year period from 2002 to 2010. If their dot com business could get any better it did and accounted for 94% of their bookings. This could be due to them opening 26 new routes around Europe.
2003 – At the start of the year they announced an additional order of 100 new Boeing 737-800 series aircraft to facilitate their rapid European growth plans. Then they announce they were taking over the low-fares airline Buzz from KLM. Buzz was losing €30m a year and Ryanair decided to turn it around. They completed the purchase in April and re-launched 13 Buzz routes during May.
February sees the opening of a new base in Italy at Milan-Bergamo. April sees the opening of our Skavsta base in Sweden, with six new routes to Aarhus, Oslo, Tampere, Glasgow, Hamburg and Paris.
Financial results released in June shows record traffic and profit growth for the year (end 31 Mar’03). Passenger traffic for the year grew by 42% to 15.7m as average load factors increased from 81% to 84%, primarily due to a 6% reduction in average fares. Total revenues in the year rose by 35%, however operating costs rose at a slower rate by 26%. Net Profit increased by 59% to €239.4m.
In August, they announced 3 new routes (Glasgow-Prestwick – Gothenburg, Frankfurt-Hahn - Venice Treviso, Bournemouth – Barcelona- Girona. Ryanair now has 127 routes that cover 84 destinations across 16 countries.

How does Ryanair maintain competitive advantage?
Ryanair at the moment is the biggest low cost carrier I will analyse how the have come to be in this position and I will compare it to Easyjet. The airline is carrying £700 million in cash. Record £112m annual pre-tax profits were made in the worst year in airline industry history - traditional carriers were pole axed, first in the UK by foot-and-mouth disease, then everywhere else by the events of September 11th.
Michael O'Leary has pledged to make Ryanair Europe's biggest airline operation within five years. Passenger numbers increased by 38 per cent last year, to 11 million. They are forecast to grow by 35 per cent a year for the next two years and then scale back to around 25 per cent. And in a year when fuel prices rose and average fares dropped 8 per cent to £33, operating margins rose from 23 per cent to 26 per cent. Costs are the lowest in the European business.
O'Leary is determined that Ryanair will stick to the template of its role model, Southwest Airlines of Texas - cheap point-to-point flying from secondary airports, rather than shadowing and undercutting the major carriers as Easyjet increasingly does. Ryanair is the only European airline that has been profitable for each of the past 13 years.
O'Leary believes that Ryanair will “wipe out” point-to-point competition in Europe within five years. He believes if Ryanair dominates the low-cost sector there will be four major carriers in the top tables - BA, Air France, Lufthansa and Easyjet, which by that time would have expanded into long-haul and airline partnerships.

Factors of competitive advantage
Competitive advantage is the sum of those attributes that differentiate your business from its competitors. This is your core competence. You develop, build and enhance it through a clear understanding of your customers' wants and needs. You implement it through a strategic plan that can help you quickly adapt to changes in their wants and needs. The main factors of competitive advantage are innovation relation and reputation. Ryanair has a lot of innovation in the their strategic plan to start off they decided to buy a small 15 seated plane and dominate only one route from Ireland (Waterford) to London-Gatwick which allowed to make a small profit with a high risk of going bust. As they developed they bought planes at strategic times when there was an excess supply which meant they got them for much below the normal price. They also in 2002 formed a partner ship with Boeing which could mean cheaper prices for the future. When booking with Ryanair they try their best to cut out the middle man i.e. Travel agents, which allows them to maximise their income and their pulling powers on the consumers. They primarily do this by using there very successful internet site which accounts for 95% of their bookings. This allows for instant transfer of money into their account because it is taken off peoples credit cards. They also do not have tickets which further increases efficiency
One of their great innovations is their advertising which is punchy but simple which can get them into trouble because some of them are classed as taboos and some can not enough information which they can be fined for. For example the anti-trust and market authority fined Ryanair Ltd 2,582 euro for publishing newspaper advert which did not include airport taxes, extra insurance charges after Sept 11, nor the cost of using a credit card. They also advertise on some of there planes which increases there status. E.g. kilkenny beer.
Another clever idea thought up but Ryanair which ads to there innovation and also 17% of their profits are their ancillaries. They have invested in Hertz which is a car hire company and the public transport (buses) which they get a cut from. The reason they have invested in these companies and has been a success is because they take people to those companies and try to encourage them to use either so they can forcefully increase there profit from their ancillaries. Recently they have also invested in some hotels which they advertise on their website along with the car hire.
Ryanair relation with the customer can be some what blunt and has been known to take the approach of “it’s the customers fault” when it came to the loss or damage of baggage this was made clear in an interview with Michael O’Leary. He is known for his ruthlessness and Ryanair’s strategy is based upon aggressive organic expansion of the business through the growth of the route network. Their status in the airline industry however can not be doubted and they are very powerful and successful. There strategy is simple. They offer low fares to customers and nothing else. For example they only have 6 people working in customer care.
Ryanair still made a large profit after September 11th and were not affected by the charges of the air marshals because they do not fly internationally. This also helps because customers are less worried about getting on a Ryanair plane because they only fly around Europe. Also airports around the world are much more expensive so there would be an added cost as well because of that and there would be hardly any cheap airports which O’Leary could weed out.

Going into other innovations and reasons why they are so successful are mainly because of there low prices which attract 11.1m people a year to fly with them. There ticket service is very easy and efficient because they don’t have any. They use a number for your booking and anywhere seating seats. This meant they could take out first and business class and pack it full of economy class seats which were very cheap and maximised the frequency of the point to point service. Another aspect of competitive advantage of booking is that the earlier and quicker you booked the cheaper the seats which meant people all rushed at once and the ones who were slower than some had to pay more than the quicker ones which means an increasing income with a quick demand and output. Ryanair are a flexible company; this means that it should have the ability to change due to the customers preferences. To achieve flexibility Ryanair should be able to meet the need and wants of the market quickly and effectively. Ryanair considers customers to be responsive to price i.e. the demand for air travel is elastic. Thus if they can reduce fares it will result in a bigger percentage increase in demand. Thus it can increase reputation as a major airline while at the same time rise profits [pic]
From the above diagram it illustrates that fall in price P1-P2, will generate a bigger percentage rise in demand
Ryanair claim that 95% of all flights arrive on time and 99% if late arrived within an hour. On-Time Punctuality=85% Complaints per 1000 passengers=0.50 Baggage complaints per 1000 pax. =0.63 Complaints answered within 7 days=100%
Prices
|From London, Gatwick to: |Ryanair (Return) |British Airways (Return) |Difference in price |
|Genoa |£2.58 |£44 |£41.42 |
|Pisa |£16.29 |£53 |£36.71 |

Fleet
Ryanair operates 74 aircraft.
|Boeing-737 800 |
| Number | 41 |
| Capacity | 189 |

|Boeing-737 200 |
| Number | 21 |
| Capacity | 130 |

|Boeing-737 300 (Buzz Fleet) |
| Number | 6 |
| Capacity | 148 |

|BAE-146 (Buzz Fleet) |
| Number | 6 |
| Capacity | 110 |

Analysis of competitors
Easyjet flies to 30 destinations in Europe, and has a fleet of 27 Boeing 737’s. The PLC’s are very much like each other when it comes to bookings and there strategy which is aggressive organic expansion. Easyjet much like Ryanair takes a large number of its sales online 92% to be accurate. Where as Ryanair takes 95% of its sales online. This makes the booking and flying very efficient and easy to do. [pic]Easyjet also have a similar setup on there website for bookings. To compare the success of the two competing companies the table below states the facts.
| |Ryanair |Easyjet |Difference |
|pre-tax profits |£112m |£50m |£62m |
|Passengers |15.1m |10.2m |5.1m |

In 2003 Ryanair despite low prices had a profit margin of 30%, exceptionally high for airlines. This demonstrates their appeal and ability to instantly keep costs low
Evaluation
The information shown points to the fact that Ryanair is the most successful and competitive low cost airline on the market. Over the last few years they have increased there customers and profits by a large amount. There takeover of buzz added to there revenue as well as to there planes and it took a competitor out of the market.
At the current position Ryanair is looking to become the most powerful airline with a table of only a few competitors which would be below them. They are looking to acquire 250 new Boeing planes and increase on there 127 routes and 84 destinations. They have not yet thought about moving to international territory because of added cost and a loss in demand. Also the added cost of the airports which would be much more expensive. The problems in 2003 with grounding of international flights many of them being British Airways did not affect Ryanair because of there policy of not flying out of Europe which proved to be a money saver. Their reputation has been tarnished recently with the problems with Charleroi (illegal subsidies) as well as the £18 which the invalid had to pay for a wheel chair which he is now trying to sue them for.
Ryan air have targeted a gap in the market or a niche market with there no frills airline. They have given something to the public which can be there choice to use and the majority do. There low prices and simple strategy make them very efficient and they have large profit margins. Ryanair air have added value in some aspects such as branding, innovation, efficiency and when they first started uniqueness. These have all contributed to the company’s becoming a success.
Ryanair customer relations could improve to a higher standard which could improve there income and total revenue. Ryanair made £112m flying 15.1m passengers with 74 planes whereas Easyjet made £50m flying 10.2m passengers with 27 Boeing planes. Ryanair only does air transport whereas Easyjet does cars, internet café and exchange in money and they still cannot beat Ryanair this shows us how powerful and successful Ryanair are although they do have a few problems.

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