PERFORMANCE OF RYANAIR AIRLINE

Critical Appraisal of the Operating and Commercial Performance of Ryanair Airline

Critical Appraisal of the Operating and Commercial Performance of Ryanair Airline

Introduction

Ryanair Holdings plc (Ryanair Holdings), incorporated in 1996, is a holding company for Ryanair Limited (Ryanair). Ryanair operates low-fares, scheduled-passenger airline serving short-haul, point-to-point routes between Ireland, the United Kingdom, Continental Europe, and Morocco. As of June 30, 2011, the Company offered approximately 1,550 scheduled short-haul flights per day serving approximately 160 airports throughout Europe, and flying approximately 1,300 routes (Creaton, 2011, p.16).

Operational characteristics

Ryanair operates as a cost leader in the European low cost carrier segment of the airline industry. As a cost leader they aim to achieve high volume sales by attracting customers with low prices. As a result of charging some of the lowest prices in the industry, Ryanair has seen growth in traffic and reported record revenues. To remain profitable the company focuses on maintaining low costs and efficient operations. Ryanair services point to point only routes and chooses hubs that are typically based in less congested airports; this is a significant factor in their ability to minimize costs and maintain profitability (Creaton, 2011, p.16). This is a competitive advantage over carriers such as Air Berlin who offers connecting flights, and easyJet who uses hubs in more centrally based airports. While Air Berlin and easyJet may offer more convenience, a portion of the additional cost gets passed on to passengers in the form of higher air fare.

Ryanair has traditionally targeted markets which are different to other LCCs. An examination of the route networks of easyJet and Ryanair reveals that whilst easyJet has a major part of its network devoted to holiday traffic between the UK and the Mediterranean, Ryanair has been more focussed on other markets such as workers travelling abroad and the VFR (Visiting Friends and Relatives) market. For example, the extensive route network Ryanair now has between western and eastern Europe targets principally east Europeans working and living outside their home country (Creaton, 2011, p.16).

Financial performance

Ryanair operates as a cost leader in the low cost segment of the airline industry. As a budget carrier they aim to achieve high volume sales by attracting passengers with low prices. Ryanair not only charges the lowest prices in the industry, but they also enjoy the highest margins when compared to direct competitors. To generate profitability the company focuses on maintaining low costs and efficient operations (Bowers, 2010, p.34).

Gross Margin: A margin analysis reveals that Ryanair is the one of the most profitable airlines among industry competitors (see exhibit 1). In the first half of 2010 they had a gross margin of 41.7%, an increase of more than 5% compared to the end of 2009. In 2008 Ryanair's gross margin was 41.5%, significantly higher than their competitors who operated on gross margins ranging between 20% and 30% that same year. The company also outperforms competitors on an operating and net margin basis; in 2008 their net margin of 21% was more than ...