Published on April 13, 2008
RYANAIR.COMTHE LOW FARES AIRLINETHE COST CRAZY AIRLINE!: RYANAIR.COM THE LOW FARES AIRLINE THE COST CRAZY AIRLINE! PRESENTATION BY: Philip Avumegah Conall Deazley Paola Lanciani Rory McCaughan EXECUTIVE SUMMARY: EXECUTIVE SUMMARY THE INDUSTRY THE MARKET THE STRATEGY THE SUCCESS STORY INDUSTRY TRENDS: INDUSTRY TRENDS Growth rates in excess of economic activity despite: 1. Market maturity 2. Congested Airports 3. Air traffic control systems Global economic expansion Disaggregation of international trade barriers INDUSTRY TRENDS: INDUSTRY TRENDS DEREGULATION - increasing liberalisation of the world airline industry - ‘open skies’ policy within EU since 1997 - competition rules curtailed state subsidies, forcing cost-cutting programmes - development of low-cost, no-frills air services INDUSTRY TRENDS: INDUSTRY TRENDS EUROPEAN MARKET most expansive market in the world during 1990s high levels of competition passenger transport remains main market INDUSTRY TRENDS: INDUSTRY TRENDS UK MARKET - Two main market sectors: 1. Scheduled 2. Non-scheduled - Scheduled passenger services; the most important sector accounting for over 70% of generated revenue - Scheduled airline demand a result of economic activity, consumer confidence and trends in expenditure INDUSTRY TRENDS: INDUSTRY TRENDS Despite high levels of competition, UK was main target of low-cost airlines Market share of the low-cost airlines RYANAIR - 1.1 EASYJET - 0.9 VIRGIN - 0.4 GO - 0.40 BUZZ - 0.1 INDUSTRY TRENDS: INDUSTRY TRENDS Leisure improved standards of living trend towards choice and variety in leisure short vacations - the fastest growing sector of outbound holiday market Business growth in international trade value for money now extends to business travellers too even in recession, demand for domestic and international travel grows DEFINING THE BUSINESS: DEFINING THE BUSINESS THE PRODUCT Point-to-point short haul commuter and leisure flying ‘Ryanair is the best imitation of Southwest Airlines that I have seen’ Herb Kelleher, Southwest founder. DEFINING THE BUSINESS: DEFINING THE BUSINESS CUSTOMERS Initially targeting those who would fly if the price was right Incresingly targeting the expanding business community DEFINING THE BUSINESS: DEFINING THE BUSINESS THE COMPANY An unconventional airline Distinctive personality Charismatic and energetic leadership incorporated throughout company structure Inclusion of employees in company vision through their ownership DEFINING THE BUSINESS: DEFINING THE BUSINESS THE MARKET Creating new markets and growing existing ones Very competitive domestic market Potential for mainland Europe DEFINING THE BUSINESS: DEFINING THE BUSINESS Well placed to take advantage of deregulation and liberalisation Prepared to take on majors head-to-head (Lufthansa in Germany) Aggressive response to market threats and opportunities (Sept 11th) Michael O’Leary ‘The Robin Hood of the skies’ DEFINING THE BUSINESS: DEFINING THE BUSINESS THE TECHNOLOGIES Incorporation of leading cost-reducing technological capabilities establishing the youngest fleet in Europe expansion of online booking new technologies to delight customers and enhance product STRATEGY: STRATEGY Ryanair’s operating costs vs. European airlines STRATEGY: STRATEGY An experience curve Entry deterring barrier to newcomers STRATEGY: STRATEGY ‘What’s your secret?’ - ‘It’s very simple. We’re like Wal-Mart in the US -- we pile it high and sell it cheap.’ One simple formula: STRATEGY: STRATEGY Simplicity - the pervading philosophy of low-cost airlines Ryanair’s twin strategic approach: 1. Maintain industry leading low costs 2. Dramatic growth How are these objectives achieved so successfully? STRATEGY: STRATEGY 1. The low-cost position There exist a number of cost reducing policies all aimed at lowering total unit cost -- 1. Ticket-less check-in 2. Single-class cabins - Removal of business class allowing for a higher capacity onboard STRATEGY: STRATEGY 3. Direct online bookings - eliminating travel agents commission 4. Fleet commonality - reducing training and maintenance costs 5. Contracting out of services, obtaining competitive fixed rate prices 6. Airport selection and route policy - less congested; quicker turnaround STRATEGY: STRATEGY 2. Dramatic Growth Continued success for low-cost airlines relies on continued cost advantages Growth = increased overheads: beware the dangers of over-expansion Annual cap on growth of 25% STRATEGY: STRATEGY Sustainable product-cost advantage: traditional airlines have established standards difficult to abandon Poor supplier power allowed highly competitive order of aircraft STRATEGY: STRATEGY Very little individual consumer buying power Threat of substitutes - unable to depress profits given Ryanair’s low-cost base Intense rivalry among key players Likely to increase as expansion into Europe continues (region-to-region competition rather than simply point-to-point) SUCCESS: SUCCESS 1990 - losses of £20 million 2001 - net profit of £65 million 11 consecutive years of remarkable growth Europe’s largest low-fares airline 63 Routes, 12 Countries Passenger numbers up 35%; Average fares down 3% SUCCESS: SUCCESS Continues to demonstrate that low costs are the key to success in the airline industry Not only the lowest cost , but the most profitable Greatest stock market value of any airline in Europe SUCCESS: SUCCESS Awards: Best managed airline (2001,2000,1999) Irish Company of the year (2000) Market Development Award (2000) Golden Spider Award (2000) Best Value for Money Airline (1999,1998,1997,1996,1995) … to name just a few SUCCESS: SUCCESS THE FUTURE: Over 10 million passengers carried last year with the aim of 40 million by 2010 New partnership with Boeing - will revolutionise short-haul air travel all over Europe, as in the US with Southwest A winning formula: Low costs, strong balance sheet, and disciplined management CONCLUSION: CONCLUSION THE COST CRAZY STRATEGY WORKS!