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