Ryanair
From industry-based, resource-based, and institution-based views, how can we understand the drivers
behind Ryanair’s success? From an ethical standpoint, is CEO Michael O’Leary a loose cannon or an
astute strategist?
Charles M. Byles, Virginia Commonwealth University
Always in the news and not shy of adverse publicity, Ryanair has been soaring in profits for the past few
years. In November 2011, CEO Michael O’Leary announced a 20% increase in profits that in his words was
“a testament to the strength of Ryanair’s lowest fare/lowest cost model.” Ryanair did not start with this
model, however. Founded in 1985 with its headquarters in Dublin, Ireland, Ryanair began flights between
Ireland and the UK and later launched services on the lucrative Dublin-London route after challenging the
British Airways-Aer Lingus duopoly. But its initial foray into the airline business was not profitable. As a
result of severe financial losses in 1990, Ryanair changed its strategy, adopting the Southwest Airlines
business model and becoming the pioneer of low fares in Europe. The next two decades showed growth
from 745,000 passengers in 1990 to 73.5 million in 2010. Based on passengers carried, the airline is now
Europe’s largest low-cost carrier and second largest airline.
Resources and Strategy
While Ryanair competes primarily on low cost, it also differentiates (through certain aspects of customer
service) and raises revenues on non-ticket items (through ancillary services) as a means of offsetting the
lower fares. Although successful, this strategy has been controversial. The airline has been accused of
concealing its ancillary fees and offering customer services that are only available for a fee. How does
Ryanair deliver on its low-cost strategy? Five value chain activities are key to its low-cost advantage: (1)
operations, (2) human resource management, (3) customer service, (4) use of the Internet, and (5)
ancillary revenues.
Operations
Use of a single model of aircraft (the Boeing 737-800) is the primary method of cost control because it
allows minimization of training and maintenance costs, efficient management of spare parts inventory,
and more flexible scheduling of flight crews. The popularity of the 737 model also means that flight crews
are more readily available for hire. Finally, because Ryanair purchases a large number of aircraft from
Boeing it can negotiate price concessions.
Other cost savers are the use of secondary and regional airports that offer competitive prices, the use of
outdoor boarding stairs instead of jetways, having all passengers check in on the Internet, and the
introduction of a checked bag fee, which reduces the number of bags carried by passengers (hence
reducing handling costs and the number of check-in desks). Airports are chosen because of their low fees
rather than for market reasons. Some agreements with secondary and regional airports base the airline’s
fees on traffic volume.

1. From an industry-based view, assess the strength of the five forces and determine the extent to which Ryanair is positioned against those forces.

2. From a resource-based view, what explains Ryanair’s success?

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Answer rating: 100% (QA)

Answer 1 The airline industry is highly competitive and Ryanair is positioned wel... View the full answer