REV: MARCH 13, 2006
JAN W. RIVKIN
Dogfight over Europe: Ryanair (C)
By 1999, Ryanair was one of the most profitable airlines in the world. On the verge of bankruptcy in 1991, the company had removed absolutely all frills from its service, cut its costs to the bone, and dropped its fares to levels unheard of in Europe. Passengers flocked to the low fares, and revenue and profitability rose quickly. As Europe’s airline industry came closer to full deregulation, however, a host of new challengers—both startups and spin-offs of flag carriers—vied to mimic Ryanair’s success.
A last-minute infusion of cash from the Ryan family permitted Ryanair to make its payment to the Dublin Airport authority in January, 1991, but cash flow problems remained intense. Later in 1991, Michael O’Leary was promoted from the position of Finance Director to become Deputy Chief Executive of the struggling airline. O’Leary, then 29 years old, explained that he got the post “because no one else was left to take the position.”1 Colleagues assessed his qualifications more generously and, in particular, mentioned his ability to focus on objectives. “Michael would ignore gold on the side of the road if it distracted him from his main goal,” one commented.2 Under O’Leary, Ryanair cut its costs radically. Loss-making routes were dropped and planes redeployed on a handful of remaining routes. The company’s earlier focus on customer service gave way to an obsession with cash. Efforts to preserve and generate cash became paramount. All inflight amenities, such as free coffee and snacks, were eliminated. Freed of coffee and snack service, flight attendants began to emphasize in-flight duty-free sales more prominently; over time, duty-free items became an important source of revenue and margin. Labor contracts were renegotiated so that pay reflected productivity. Flight attendants, for instance, began to be paid in part based the number of flights they flew and in part as a function of their duty-free sales. Staff members at headquarters reported that they would bring pens from home because pens were in short supply at the office. The space behind seat-back trays was leased out to advertisers. The company no longer distributed meal vouchers to travelers whose flights were delayed by bad weather. As it eliminated amenities, Ryanair dropped its fares substantially. Passenger volumes picked up. The company soon became a low-cost, low-fare airline. To hone the business model, senior managers visited Southwest Airlines, the most successful low-cost, low-fare carrier in the United States, and sought guidance from Southwest’s legendary founder Herb Kelleher. U.S. financial ________________________________________________________________________________________________________________ Professor Jan W. Rivkin prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Dogfight over Europe: Ryanair (C)
analysts would later proclaim Ryanair “the Southwest Airlines of Europe,” and Ryanair’s top management would sometimes embrace this label themselves. Senior managers could not recall a moment, however, when they decided to mimic Southwest intentionally. Rather, cash constraints led the company to a set of decisions similar to the one that Southwest, once equally hard-pressed, had made....
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