TOUR 161: Strategic Management in Tourism and Hospitality

ACTIVITY #1
TOUR 161: Strategic Management
in Tourism and Hospitality
Group Case Study (6 members in a group)
Read the case study analysis and answer the guided questions. The output must be
submitted in MS Word or PDF following the format (Arial, 11, 1.5 spacing, justified)
Ryanair Business Strategy Analysis
Ryanair is an Irish low cost airline headquartered in Dublin founded in 1985. It operates
181 aircrafts over 729 routes across Europe and North Africa from 31 bases. Ryanair has seen
large success over the recent years due to its low-cost business model and has become the
world’s largest airline in terms of international passenger numbers. Taking Porter’s generic
business strategies into consideration, Ryanair operates a cost-leadership strategy to drive itself
into achieving its mission of being the leading European low-cost carrier (LCC). Throughout this
essay the business strategy of Ryanair will be analysed and the sustainability of their model
evaluated.
Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled
passenger airline through continued improvements and expanded offerings of its low-fares
service. Considering their objectives and mission, Ryanair’s decision on their cost-leadership
strategy was based on a few main factors which are discussed below.
A major influence was the deregulation of the airline industry in 1978 which removed
government intervention within the European continent. Under the new rules, routes and fare
decisions were made by individual airlines which meant that they could compete on other
factors besides food, cabin crew and frequency. As a result of deregulation, a large number of
new airline start-ups emerged within the EU and competition among airlines increased

dramatically resulting in downward price pressures. Ryanair was established to take full
advantage of these market conditions. By offering low prices, Ryanair entered a huge and
virtually unlimited market.
Having seen the major success of the low cost carrier Southwest in the United States,
Ryanair decided to follow in their footsteps by establishing a LCC for the European continent
that targeted fare conscious leisure travelers and regular low cost business travelers. By doing
this Ryanair became the first low-fare airline in Europe. However, they took the Southwest
model further by offering no drinks and snacks at all and abolishing the frequent flyer program
which Southwest up to this day offers its customers.
The evaluation of Porters five forces influenced Ryanair’s choice of a cost-leadership
strategy, as the threat presented by new entrants and the threat of substitutes could hinder their
success. The threat of new entrants is high within the aviation industry which meant that low
fares would help drive away any further competition. The threat of substitutes to Ryanair had to
also be carefully examined. Their primary market, Europe, had the availability of high speed
trains and car holidays. For Ryanair to be successful, prices had to be low to attract the public,
and resist strong competition from substitutes like Eurostar.
As Europe’s largest low fare airline, Ryanair’s competitive advantage remains in their
ability to continue as cost leaders; providing the cheapest fares to its customers. This dictates
that the company must minimize its own costs to ensure that they are able to offer customers
the service at a price below their direct competitors. This leads us to consider some key
functional strategies which directly help Ryanair towards their ultimate goal to be Europe’s
leading low fares airline.
The marketing strategy is perhaps the most obvious and significant functional strategy of
Ryanair. Low fares are designed to stimulate demand, attracting fare-conscious travelers, those
who may have used alternative forms of transportation or even those who may have not
traveled at all. Penetration pricing as it is called helps gain market share and simply, more
customers equals more revenue. Tickets are almost solely sold on their website
‘www.ryanair.com’ which very importantly keeps sales costs to a minimum since very few phone
operators are employed and computers are able to cheaply handle all functions of sales. With
ever increasing accessibility of the internet globally anybody with internet access can buy airline
tickets from Ryanair, so distribution practically takes care of itself through this medium. Ryan Air
relies on low cost promotions and in recent times has concentrated on their ‘One million seats at
one pound’ which is usually advertised through their internet site, national press and bulletin

boards. It is the simplicity of this promotion which helps keep costs low since expensive
advertising agencies can be entirely avoided and advertising can be dealt with in house.
Ryanair’s operations strategy determines how the airline will deploy its resources and
the policies it will operate by. To keep costs low they operate a ‘no frills’ service onboard
aircraft. This means the fare only includes the flight. There are however a number of other
measures directly related to a no frills service. These include ticket-less boarding, unallocated
seats, one class of travel, costs for check-in baggage, no refund policy, basic seats (to increase
aircraft capacity) and charging for any additional service. All this significantly reduces costs to
Ryanair. The Achilles heel of Ryanair is their greater aircraft utilization through super quick
turnaround times. Essentially this means the aircraft spends very little time on the ground, they
achieve this through their human resource policies and by having none or very little cargo in the
baggage hold to speed up loading and unloading of the aircraft.
Logistics strategy deals with the flow of products into and out of Ryanair. Again there is
heavy emphasis on cost saving and reducing measures. Ryanair fly to secondary airports which
are potentially much further from the City centre but accessible enough by other forms of ground
transportation. At these airports Ryanair are able to negotiate extremely aggressively and
demand the lowest landing and handling fees. Additionally Ryanair is usually able to gain
financial assistance with marketing and promotional campaigns at these airports.
As cost leader Ryanair strives to undercut all its rivals but this means very low income
per fare and requires maximum utilization of its resources. Fortunately their financial policy
ensures they are able to still profit handsomely from rock bottom fares. The aim is to break-even
on fares but to make their profits out of ancillary charges and commissions from their partners.
Ryanair has a number of affiliates such as Hertz car rental, Acumus insurance and booking.com
all of whom are advertised readily on the Ryanair website. Since the website has high website
traffic its partners are able to reach out to Ryanair’s huge client base and are prepared to pay
good commissions to the firm for this privilege. Ryanair also generate income from advertising
on board the aircraft. Ancillary revenue is generated from many of the services that traditional
airlines wouldn’t charge for, such as large baggage into the cargo hold, allocated seating,
snacks and drinks.
Ryanair’s strategy when purchasing aircraft is to buy new, uniform aircraft. This is
beneficial for a number of reasons all of which directly help cost saving measures. Firstly, by
being able to order same aircraft in bulk they are able to negotiate a better price per aircraft.
Secondly, uniform aircraft mean that there are potential savings in staff training; air stewards
being more familiar with all aircraft and maintenance will be simpler. Finally by buying new, the

company has safer, more fuel efficient planes with lower maintenance costs. Safer aircraft also
means greater consumer confidence, equating to more fare sales.
Furthermore Ryanair aggressively hedge and fix as many of their costs as possible,
such as oil and aircraft prices so they are not subject to future price fluctuations which could
adversely affect profitability.
The human resource policy is again directly related to reducing costs. Employees are
expected to pay for their own uniform and equipment. Training given is the required minimum
and staff utilization is among the highest in the airline industry. Many staff are employed on
performance contracts and those who do not meet their expectations are readily replaced. Staff
are also expected to take on a number of roles, cabin staff will also clean the aircraft prior to the
next service, check in staff assist in boarding the aircraft etc.
Ryanair has successfully experienced years of growth both in the number of its aircrafts
and passengers since its launch. However, with the global financial system recently suffering
its greatest crisis in more than 70 years, existing business models of many aviation firms are
coming under great strain. As this economic downturn bankrupts LCCs like XL and Zoom with
more expected to follow, the question is whether Ryanair’s cost-leadership strategy is
sustainable or not as it continues to offer lower fares in the face of high costs. Although Ryanair
has posted losses along with other aviation firms for the latest quarter, it is expected to emerge
from this downturn with fewer competitors because its â €š ¬1.8 billon balance sheet is one of
the strongest in the industry. Additionally, as the credit crunch takes its toll, traditional airlines
are not in a position to cut fares and the threat of new LCCs is virtually eliminated due to the
lack of financing. Although Ryanair faces competition from substitutes like Eurostar, it is at an
advantage because of Eurostar’s limited destinations.
Ryanair is sticking to its mantra, when the going gets tough, sell more seats for almost
nothing. By offering low fares, Ryanair expects passengers to trade down to the low cost airlines
rather than stop flying completely. This trend appears accurate so far based on passenger
numbers as recession forces millions of passengers to focus on price. Additionally, the latest
statistics from The European Low Fares Airline Association members show a 15.7% year-on-
year growth in the number of passengers for 2008, indicating that the LCC model is robust,
even in times of crisis. Consequently, there is no doubt that Ryanair looks poised for substantial
profits and passenger growth in the coming years. However, in order to compete with other
LCCs and maintain its continued market share growth in the future, Ryanair needs to improve
its poor customer relations.

The sustainability of Ryanair’s cost leadership strategy also depends largely on the price
of oil and how effective the firm is in cutting costs in order to continue offering low fares.
According to the firm’s latest financial report, Ryanair will enjoy significantly lower oil costs
thanks to their recent hedging programme, when most of their competitors are already hedged
at much higher prices. These lower prices will drive Ryanair’s traffic growth, maintain high load
factors and capture market share from higher cost fuel surcharging competitors. In order to cut
costs, Ryanair close all its airport check-in desks and have passengers check-in online instead.
Other cost saving methods not yet implemented include charging customers for using toilets on
airplanes. These cost cutting ideas are not very popular among consumers and it means that
Ryanair needs to improve its already tarnished brand image in the future which it had attained
through negative press reporting and misleading advertisements.
The current strategy at Ryanair is expected to work so well that despite the recession
Ryanair’s CEO has underlined the firm’s commitment to expansion. The firm is expected to
grow at 20 percent a year because of a 180 aircraft’s on order from Boeing. These expansion
plans for the future will require the company to increase its landing slots at airports and recruit
more employees. Currently Ryanair has limited access to landing slots in major airports and the
secondary airports are long distances away from city centers which could make it less attractive
in the future. However, a remarkable cut in flights by other European airline carriers due to
recession is creating enormous opportunities for Ryanair, as many major airports compete to
reduce charges in order to attract Ryanair’s growth. Availability of skilled personnel shouldn’t be
a problem for Ryanair due to recent high unemployment levels. However, Ryanair needs to
improve its current low level of empathy for employees if it is to retain them in the future.
Even though Ryanair’s cost leadership strategy is robust and it looks set to serve them
well in the future, there are some key areas within the business that can be improved on to
enhance the firm’s profitability and brand image.
Ryanair has always been criticized for many aspects of its poor customer relations.
According to The Economist, Ryanair’s “cavalier treatment of passengers” had given Ryanair “a
deserved reputation for nastiness” and that the airline “has become a byword for appalling
customer service … and jeering rudeness towards anyone or anything that gets in its way”. If
Ryanair is to maintain its large customer base, it needs to ensure that it acknowledges its
customers’ concerns and maintains a service focused attitude at all costs. Ryanair needs to
invest in servicing customers better by providing a non-premium contact number, improving its
non user friendly website, and simplifying the terms and conditions of the flight service. Ryanair

should also create a frequent flyer program to establish a fixed customer base and encourage
customer loyalty.
Ryanair is notorious for its high staff turnover which negatively affects its reputation as
an employer. Over utilization of employees, poor remuneration package, and minimal training
are a few other critical items to be considered by Ryanair if it is to retain employees in the
future. Ryanair needs to understand that although it is currently possible to replace outgoing
employees, but with time Ryanair’s overall image will be tarnished. Resultantly, attracting new
employees could become impossible and this will hinder their expansion plans. Ryanair should
incorporate a flexible benefits package solely designed to improve employee morale such as
flexible working hours and extra holidays. To improve its image amongst employees, training at
all employee levels must include exposure to similar techniques and methods that help promote
the development of a uniform company identity.
Following huge success in Europe, Ryanair should consider introducing low cost
transatlantic flights to support its expansion plans and attain a larger customer base. With a high
demand for certain routes like London-New York and room for negotiation in airplane prices and
airport slots mainly due to the current financial climate, it is an ideal time to further reap the
rewards of the cost leadership strategy that has served Ryanair so well over the years.
Ryanair’s model looks set to survive the current industrial downturn through its lower
costs and substantial cash balances. No airline is better placed in Europe than Ryanair to trade
through this downturn. It will therefore continue to grow, by lowering fares, taking market share
from competitors, and expanding in markets where competitors either withdraw capacity or go
bust. By taking the recommended improvements into consideration, it looks like Ryanair’s cost
leadership strategy seems ideal for the future.

Case Study Questions:
1. Ryanair has been highly successful in the past with its low cost leadership strategy in
spite of poor customer service. What conditions in the market most likely facilitated this
successful strategy? Are those conditions changing? In other words, do you think
Ryanair’s strategy is likely to continue to be as successful in the future?
2. Does Ryanair possess any unique and hard-to-imitate resources that give the company
a sustainable competitive advantage over other European airlines?
3. Briefly describe the strategies of RyanAir that are mentioned in the case. Do you agree
that these strategies are the most efficient and effective? Why or why not?
4. What are the greatest risks Ryanair is facing?
5. Suppose you are an investor, would you invest in Ryanair as of the time of the case?
Why or why not?