Ryan Air: Ups and Downs

Topics: Ryanair, Airline, Low-cost carrier Pages: 6 (1726 words) Published: August 2, 2010
Ryan Air was founded in 1985 by the Ryan family to provide scheduled passenger airline services between Ireland and the UK, as an alternative to the then state monopoly carrier, Aer Lingus. According to (2001) Ryan Air was the first low-cost, nor frills airline that had an impact on the European airline industry. When launched in 1985 targeted the Irish ethnic market between Ireland and the United Kingdom by offering a more or less traditional type of service with a two-class cabin but at significantly lower fares. It stimulated a rapid growth of passenger traffic across the Irish Sea, much of it diverted from the sea ferries. On the London-Dublin route, where traffic had been stagnant for three years, passenger numbers more or less doubled in the next three years in response to the low fares introduced by Ryanair and to the lower fares forced on Aer Lingus and British Airways. But Ryanair was not profitable. Its unit costs, though lower than those of Aer Lingus, were not low enough to sustain its low fares strategy. By 1991 its accumulated losses amounted to close on (Sterling) £18 million and the airline was facing serious cash flow problems. It had also gone through five chief executives.

After a visit to Southwest Airlines in Texas in 1991 yet another new management decided to reinforce the low-fare strategy but to abandon all frills in order to reduce costs. It also moved its London base from Luton to Stansted airport, which was new and offered high-speed access to Central London. The new strategy slowly turned the company round and it recorded a small pre-tax profit in 1992. Subsequently traffic and profits grew steadily and in summer 1997 Ryanair was successfully floated on the Dublin and New York stock exchanges. In the financial year 1997-98 alone its profits rose by 51 per cent to US$53 million. Ryanair's sparkling financial performance was an encouragement to other European entrepreneurs to assess the low-cost, no-frills model as a way of entering European aviation markets.

Ryan Air’s Strategic Intent
Strategic intent concerns the direction in which a business id headed in the long term (Proctor 2000). The strategic intent of the firm is to maintain its leadership position in the low-cost airline sector. Leadership in the Low-Cost Arena

Ryan Air is considered as the largest low-cost airline in Europe. The company carries more or less 35 million passengers on 325 low fair destinations across twenty-one countries in Europe. The airline has 12 European bases, a large fleet that has more or less 250 aircrafts and more that 2700 employees. In order to maintain its leadership position in the low-cost sector, Ryan Air renders point-to-point services, cutting airport charges. Part of the strategic intent of the company is to maintain its leadership position by acquiring other companies. According to (1980; 1985), in order for a firm to maintain a sustainable competitive advantage, it must follow one of the three generic strategies. These strategies are: 1. Low-Cost – involves the sacrifice of some quality, fashion and even product innovation in order to keep costs low – the lowest in the industry (2000). 2. Differentiation – focuses on the factors ignored by the low-cost strategy such as product variety, quality and service (2000,). 3. Focus – requires a firm to concentrate on a particular market segment rather than the overall market ( 1993). The firm exemplifies most of the characteristics of a cost focus strategy. In order to keep the costs down, the airline maintains a no frills strategy. No frills is a direct approach to low cost which removes all frills and extras from a product or service. The goal is to generate a cost advantage that is sustainable for one of two reasons. First, competitors cannot easily stop offering services that their customers expect. Second, competitors’ operations and facilities have been designed for such services and cannot...
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