Ryanair strategy

Ryanair strategy

Ryanair strategy

Question 1:

Both British Airways (BA) and Ryanair (RA) are successful airlines at the top of their respective markets. BA is a more traditional, long haul full service carrier, while RA is part of the new bread of short haul, low cost, low frills carriers. The aim of this report is to give an overview of the industry, and the two companies, looking briefly at their history and future strategy and then to perform a financial analysis on both companies from users perspective: long-term investment for the common shareholder, creditors, analysts and providers (www.britishairways.com).

Characteristics of low cost airlines

The low-cost model was initiated by Southwest Airlines in the US, as well as European low-cost carriers have all followed this to an extent:

high seating density and load factors

uniform aircraft types (usually the 737-300)

direct booking (internet/call centre - no sales commissions)

no frills such as “free” food/drinks, lounges or 'air miles'

simple systems of yield management (pricing)

use of secondary airports to cut charges and turnaround times

The successful low cost airlines are more profitable than established carriers

Ryanair has a market capitalisation of about £3 billion

In low cost air lines seats sold first-come first-served, so passengers get cheaper fares by booking earlier; price thus automatically responds to variations in demand

The airline can also adjust the price bands if demand is greater or less than expected. All fares are one way and there is no difference in fare conditions. No attempt to buck the market by imposing ticket conditions (return trip required or Saturday night stay) to get the best fare(thescotsman.scotsman.com).

RyanAir

Product or Service

Low cost, no frills air travel to European destinations.

There is no free food or drink onboard. Food and drink are income streams. You buy them onboard, or you don't - take your own food and drink if you like.

There are other income streams - or ancillary revenue. The company has deals with Hertz car rental, and a number of hotel businesses. So Ryanair takes a commission on 'up selling' i.e. ancillary revenue. Other examples include phone cards and bus tickets. About 16% of profit is made this way. This keeps costs lower.

Price

Ryanair has low fares.

70% of seats are sold at the lowest two fares.30% of seats are charged at higher fares. The last 6% are sold at the highest fare

Ryanair occasionally get in trouble with bodies such as the Advertising Standards Authority (ASA) in the UK over differences between advertised and actual price - in fairness to Ryanair these are rare mistakes.

Place

Ryanair does not use travel agents so it does not pay agency commissions. It uses direct marketing techniques to recruit and retain customers, and to extend products and services to them (i.e. Customer Relationship Management). This reduces costs.

We can book online over the Internet. This saves them 15% on agency fees.

They are based in Stanstead in Essex - which is known as a secondary airport. It is new and accessible. It is cheaper to fly from Stanstead than either Heathrow or Gatwick, and since it is less busy Ryanair can turn aircraft ...