A. Issue identification
Ryanair has been one of the largest low cost airlines in Europe by adapting Southwest Airline’s business model and making cost control as the top priority. However, since more and more low cost fares have appeared in the industry and the market has been shaping, whether Ryanair should change its current strategy has became a turning point for the further expansion.
B. Problem analysis
1. Cost advantage in Value Chain
Primary activities
Sourcing
Since 1991, Ryanair has replaced its planes with Boeing 737-200 jets. On 1998, 100 new Boeing 737-800s were purchased. Compared to the previous planes that Ryanair applied, Boeing 737 series were more economical. Boeing 737 series planes were suitable for middle and short air-range. The maintenance and repair cost were also relatively low. The purchase of Boeing 737 series planes helped Ryanair lower the cost.
Route design
Ryanair focused on point-to-point airlines. Point-to-point airlines were more flexible compared to hub-and-spoke airlines. Thus the replacement of one airline wouldn’t affect other airlines.
Marketing
Ryanair positioned itself the airline between continental Europe and the British Isles. Instead of flying between large cities, Ryanair always chose the secondary cities and secondary airports. Between those cities, there were no incumbent airlines to compete with. Those secondary airports were also more easily to negotiated with. Furthermore, the choice of secondary airports in large cities saved a large quantity of operating time.
Ryanair also had a slogan of “Ryanair.com, the Low Fare Airline” that is simple and distinctive.
Booking system
To weaken the reliance on agents, Ryanair reduced the agents’ commission from 9% to 7.5% and built its own call center and online bookings. By 2002, direct bookings had taken up 100% and dropped expenses on distribution nearly to 0.
The design of online booking system was simplified that passengers could book tickets within a few minutes. Compares to incumbent airlines company, the cost on design date collecting system was highly saved.
Operation
The operation of Ryanair company includes several parts. Due to the company’s low cost culture, the Check-in service is simplified to reduce cost. They outsourced maintenance service, ground service and provide less service for customers, such as no seat assignment and climb to board the aircraft. Ryanair make the process design simple and standard to reduce the cost. On the other hand, they also put less factor cost in operating. For example, about on-board service, there is no free in-flight meals and beverages, they reduced the number of employees. However, flights attendants are required to work more with higher salary. Ryanair increased aircraft frequency which is striving to minimize aircraft turnaround time so that they can maximize the aircraft utilization to reduce cost.
After-sale service
According to the case, customers are complaining about the poor service Ryanair provided. We may say, there is no after-sales service for customer, due to low factor cost.
Supportive activities
Firm infrastructure
Ryanair always reinforce low-coast strategy and it adopted most of the features of Southwest’s business model making cost control the top priority. Michael O’Leary had high efficiency in establishing guidelines to heighten staff cost consciousness. So, any strategies or activities all encompass the low cost model.
Human resource management
Because the low-fare service, only three flight attendants were needed per aircraft instead of the traditional five. Ground service were mostly outsourced and simplified to reduce cost. Flight attendants and pilots’ salaries were higher than the industry average but they were required to work much more.
In the human resource management level, Ryanair established a performance related pay structure and employee share option scheme which resulted in higher productivity
The training of employee had low cost due to
