Ryanair: 12 June 2011 European Pioneer of Budget Airline Travel
Case Study: Read Case Study 6 in text (pp. 482-503). Prepare answers to the following questions and post them to BlackBoard by clicking on the title of this assignment. You can either type your responses directly or attached a Word document. The responses should include the title of the case, student name and e-mail address. Be sure to cite any sources used outside of the text or lecture material. 1. Carefully analyze Ryanair’s financial performance. Select two line items from the profit statement, two from the balance sheet, and two from the operating statistics and explain the relationship between these items and Ryanair’s business strategy. Profit Statement:
1. Route Charges – Ryanair’s route charges actually increased in 2006 as they ventured further into new EU markets such as Poland, Hungary, and Slovakia in addition to other former EU countries such as Marrakech in Morocco (Central Michigan University, 2010). Because their overall passenger numbers increased, this related into an overall decrease in operating expenses for this category. This falls in line with Ryanair’s desire to be the largest “low-cost, no frills” airline in Europe. Ryanair continues to expand its operations throughout the EU. This expansion comes with increased cost, but an overall lower percentage of cost because of the increase in passengers carried and thus increased revenue. 2. Airport & Handling charges – Ryanair, in its quest for low costs, chose to service airports outside of the major city hubs because the airport service fees are lower at these airports. They are also less congested and this helps Ryanair meet its take-off times more reliably, thus providing better overall customer satisfaction and value. Ryanair also continues with “point-to-point” only routing which also reduces cost by flying to fewer overall airports. Balance Sheet:
1. Accrued expenses and other liabilities – Ryanair posted accrued expenses and other liabilities of €519,835,000 for the first six months of 2007 which is an increase from last year, however, this is in line with their expansion strategy and is necessary if they are going to add the additional 138 aircraft to their fleet. Increased passenger carrying capability comes with increased costs. Ryanair also realizes that overall efficiency may be down for a few quarters until they are able to fill all of the additional seats that these new routes and additional aircraft bring. 2. Total Assets – Ryanair’s total assets for the first six months of 2007 were €4,956,478 which is €322,259 more than for the entire year in 2006. Ryanair has a current ratio of 5.6: 1 of assets to liabilities, which is a very strong position to be in. With Ryanair’s claim to be the most profitable airline in the world and with its aggressive growth plan, it will need this type of financial strength to meet these strategic goals. Operating Statistics:
1. Total aircraft – Ryanair had a total aircraft count of 103, up from 87 for 2006 which shows an 18% increase. This is right in line with its growth strategy and plans to expand by adding an additional 137 aircraft over a six year period, doubling its overall size by 2012 (Central Michigan University, 2010). 2. Operating cost per seat mile – Ryanair had a decrease of 2% in its operating cost per seat mile for 2006 over 2005. As a low cost airline, this is right in line with its long term strategy of being the leader in the no frills market of airlines. Much of this is due to their newer and more fuel efficient fleet of Boeing 737 aircraft. Also, by standardizing on one make and model of aircraft, it reduces their training and maintenance cost and reduces the number of spare parts it has to keep on hand.
2. Analyze Ryanair using the major topics discussed in Chapter 12 and explain...
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