Ryanair Analyses

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Master’s thesis M.Sc. in EU Business & Law

An analysis of the European low fare airline industry - with focus on Ryanair

Student: Thomas C. Sørensen Student number: 256487 Academic advisor: Philipp Schröder Aarhus School of Business September 13, 2005 1

Table of contents
1. Introduction
1.1. Preface 1.2. Research problem 1.3. Problem formulation 1.4. Delimitation 6 6 7 7

2. Science and methodology approach
2.1. Approaches to science 2.1.1. Ontology 2.1.1.1. Objectivism 2.1.1.2. Constructivism 2.1.2. Epismotology 2.1.2.1. Positivism 2.1.2.2. Hermeneutics 2.2. Methodology 2.2.1. Types of research 2.2.2. Types of data 2.2.2.1. Quantitative data 2.2.2.2. Qualitative data 2.2.2.3. Primary and secondary data 2.5 Reliability and validity 9 9 9 9 10 10 10 11 12 13 13 13 14 15

3. Theoretical framework
3.1. The structure of this thesis 3.2. Theory on strategy and competitive advantage 3.2.1. The Positioning School 3.1.1.1. Theory on Porter´s Five Forces model 3.2.1.2. Theory of Generic Strategies 3.2.2. The Resource-based School 3.2.2.1. Theory on SWOT analysis 16 18 24 20 23 25 27

4. The low fare airline business model
4.1. Introduction 4.2. Differences between the LFA model and the FSA model 4.2.1. The service factor 28 29 29 2

4.2.2. Turnaround times 4.2.3. Homogenous fleet 4.2.4. Point-to-point travel vs hub-and-spoke travel 4.2.5. Higher seat density 4.2.6. Choice of airports 4.2.7. Distribution system 4.2.8. Frequent flyer programmes

30 31 31 32 32 33 34

5. Analysis of the macro environment
5.1. Introduction to the theoretical framework – PEST Analysis 5.2. Political/legal issues 5.2.1. Liberalising the European airline industry 5.2.2 State aid 5.2.3. Commision vs Ryanair/Charleroi Airport 5.2.4. Passenger rights in the EU 5.3. Economic issues 5.3.1. The world economy 5.3.2. Labour costs 5.3.3. Oil prices 5.3.3.1. Fuel-efficient aircraft 5.3.3.2. Fuel ferrying strategies 5.3.3.3. Hedging 5.3.3.4. Fuel surcharges 5.4. Socio-cultural issues 5.4.1. Change in the perception of air travel 5.5 Technological issues 5.5.1. The Internet and videoconferencing 34 35 35 38 38 41 42 42 43 44 44 44 45 45 46 46 46 46

6. An industry analysis of the European airline industry
6.1 Threat of new entrants 6.1.1. Airport slot availability 6.1.2. Predatory pricing as a barrier to entry 6.1.3. Frequent-flyer programmes 6.1.4. Economies of scale 6.1.5. Empirical study on barriers to entry 6.1.6. Summary of barriers to entry 6.2 Bargaining power of suppliers 6.2.1. Aircraft manufacturers 6.2.2. Airports 6.2.3. Summary of the bargaining power of suppliers 6.3 Threat of substitutes 6.3.1. Alternative modes of transportation 47 47 48 52 52 53 54 54 54 56 59 59 59 3

6.3.1.1. Bus service 6.3.1.2. Automobiles 6.3.1.3. Rail service 6.3.2. Videoconferencing 6.4. Bargaining power of buyers 6.5. Rivalry among existing firms

59 60 60 63 65 66

7. Ryanair – a recipe for success in the LFA industry?
7.1. Brief history of Ryanair 7.2. Financial analysis 7.2.1. Risk management 7.2.2. Key financial data 7.2.2.1. Profit margins 7.2.2.2. Operating costs 7.2.2.3. Stock price 7.2.2.4. Load factor 7.2.2.5. Break-even load factor 7.2.2.6. Ancillary revenue 7.3. Strategy and positioning 7.3.1. Efficient facilities 7.3.2. Tight cost and overhead control 7.3.3. Avidance of marginal customer accounts 7.3.4. Influence with regards to industry forces 7.3.4.1. Buyer power 7.3.4.2. Supplier power 7.3.4.3. Economies of scale 66 67 67 68 69 71 72 73 73 75 76 76 77 79 79 79 80 80

8. Competition analysis
8.1. Introduction 8.2. The full service airline sector 8.2.1. Overview 8.2.2. Strategies and positioning used by full service airlines 8.3. easyJet 8.3.1. Overview 8.3.2. Strategy and positioning 8.4. Sterling 8.4.1. Overview 8.4.2. Strategy and positioning 8.5. Maersk Air 8.5.1. Overview 81 81 81 82 84 84 84 86 86 86 87 87 4

8.5.2. Strategy and positioning 8.6. Overview of the competitive environment 8.6.1. Competition between...
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