Impact of Low Cost Model on Ryanair's Performance

This report examines the impact of Ryanair's low cost model on its performance and identifies issues such as declining net profit. It recommends measures to address these issues, including managing fuel costs, improving customer service, and reducing operational expenses.

Foundation of business
communication

Table of Contents
INTRODUCTION...........................................................................................................................1
SUMMARY OF CASE STUDY.....................................................................................................1
EXPLORATION OF BUSINESS PROBLEM................................................................................2
IMPACT OF POTENTIAL STRATEGIC SOLUTION.................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business communication plays a crucial role in performing operations toward the
accomplishment of main goals and objective of a company as it support in circulating the crucial
information and strategical planning among the customers in effective manner. The current
report is based on Ryanair which is a airlines company headquartered in Dublin and offer the
travel related services throughout the world (Thomas and Thomas, 2015). This report is based on
a case study of Ryanair which is related with the implementation of low cost model within the
airlines industry that has supported it in becoming the largest airlines company in Europe in
context of customer base. This report contains a summary of case study, exploration of business
problem, impact of potential strategical solution to determine the actions to be taken for
overcoming issues.
SUMMARY OF CASE STUDY
Ryanair is an Aviation company which is headquartered in Dublin which operates around
181 aircraft by maintaining around the 729 routes across the North Africa and Europe from
around 31 bases. It has experienced a greater success in recent years due to its implication of low
cost business model and as a result of which it become world' larger airline which operates
maximum of passenger numbers. This happen after the deregulation of airline industry in year
1978 which removed the government intervention within the European continent and as a result
of which majority of airline started emerged with the EU which also increased the competition.
This results into downward price pressure and by taking advantage of this market condition it
started offering low prices leisure travelling services by entering into a huge and virtual
unlimited market (DaSilva and Trkman, 2014). The company has get first mover advantage as it
has applied the budget model by the first time within European market by negotiating over the
best possible rates with secondary airports. For implementing this effectively Ryanair has
established a single type of aircraft fleet which saves the training cost of the company. In
addition to this it also started working over point to point flights which enabled the turn-around
time and flights to secondary airports which also support in saving the airport fee costs (Case
Study on Ryanair, the biggest low-cost European Airline, 2014). These all are the factors which
enabled Ryanair in keeping its internal operations extremely efficient so that appropriate profit
can be generated even after it work over the budget model.
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EXPLORATION OF BUSINESS PROBLEM
The low cost business model has support Ryanair in achieving greater success in
marketplace by attracting and serving larger number of customers with the help of this model.
But apart from this, model also creates several issues for the Ryanair but the biggest issues which
is affecting the performance of the company is that its net profit is dropping down. From the
report published in year 2007 it has been identified that 27% of net profit get down which used
to be 48 million per year earlier. Because of this it has faced a poor market condition where the
fuel cost is increasing and also there is a recession period within UK and there is not any future
profit expectation (Fageda, Suau-Sanchez and Mason, 2015). Despite of this the the average
winter fares get dropped up to 5% of its underlying net profit within three months to end
December which get fell down to 35 million euro. This also increases the issues like doubling of
airport charges combined with the reduction in capacity of winter which signifies the increase in
cost of Dublin, increase in staff cost. Despite of this, Ryanair increase the cost of snacks or food
which it provide to its passengers which also affect its image in marketplace as customers started
considering it a business with bad customer support services. These all are affecting the
operations performed by Ryanair which are required to be rectified in order to improve the
performance of the company and maintaining the quality of services.
IMPACT OF POTENTIAL STRATEGIC SOLUTION
By continuing with the low cost model, Ryanair become able to generate a customer base
with larger number of customer but on the other hand it has also affected the net profit of the
company (Gross, Lück and Schröder, 2016). This is required to be managed by Ryanair as it may
affect it market position as lower availability of fund may affect the operational efficiency due to
lack of resources or other factors. Therefore, in order to deal with this issue and improve the
profitability of Ryanair following recommendations are being provided,
 As per the suggestion provided by RAY MASSEY, 2012, the Ryanair has increased its
potential market share drastically but from its recent deal of Boeing, Ryanair must take
some measures to ensure its practices against the larger amount of cash outflow by
presenting special attention to the volatile and inflammatory nature of increasing price of
jet fuel and fragility of current European economy. This is because it has increases the
load factor of at the time of less busy winter months. But this can be maintained if they
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rent the aircraft out to the warmer regional airlines so that profit can be continued from
those plans.
 According to Jon Sindreu., 2018, in order to improve its bad public image within the
marketplace due to the controversial advertisement regarding the poor customer services
Ryanair try to communicate about this with the Union and its customers. This discussion
would be then promoted over the media channels so that customers will be clear with the
efforts which company is putting toward improving their services and experience of
customers. Additionally, Ryanair website must be equipped with an option of feedback
where customers can drop their issues or positive experience they have with Ryanair
while availing it s services so that the perception of customers toward the company and
its services get improved.
 In order to deal with the issue that Ryanair is facing i.e. increase in the cost of company it
is suggested by the Jeroen Kraaijenbrink, 2019., that further cost cutting and pricing
reduction must only be performed when it is done without affecting the two main
stakeholder that are customers and employees. If the cost cutting practices are to be
performed without worsening the employee's working condition and without making the
travel practices unpleasant then only there remains for lowering the prices and cost of
operation. These means as long as no stakeholder is suffering from the practices of
lowering the price and cost then Ryanair must do on for lower its cost to achieve higher
profit otherwise it must avoid this and try to determine another way of enhancing the
profitability.
CONCLUSION
From the above mentioned report it can be summarised that the strategical practices plays
a crucial role in improving the practices as well as performance of an organisation. From this
study it has been clear that the low cost model proves to be more effective method for Ryanair as
it become able to capture larger market share and be able to maintain greater flow of profit at the
being. But later it get affected with several issues like higher operational cost, dissatisfaction of
employees due to complexity while operation, higher fuel cost, poor custom,er services humour
etc. These issues mainly developed due to increase inadequate upgrade of strategic plan which it
has created.
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REFERENCES
Books & Journals
DaSilva, C.M. and Trkman, P., 2014. Business model: What it is and what it is not. Long range
planning. 47(6). pp.379-389.
Fageda, X., Suau-Sanchez, P. and Mason, K. J., 2015. The evolving low-cost business model:
Network implications of fare bundling and connecting flights in Europe. Journal of Air
Transport Management. 42. pp.289-296.
Gross, S., Lück, M. and Schröder, A., 2016. The Low Cost Carrier–A Worldwide
Phenomenon?!. In The Low Cost Carrier Worldwide (pp. 25-38). Routledge.
Thomas, M.M. and Thomas, M., 2015. Ryanair: success before love. Strategic Direction.
Online
Case Study on Ryanair, the biggest low-cost European Airline. 2014. [Online] Available
through: <http://www.casestudyinc.com/ryanair-low-fares-airline-case-study>./
Kraaijenbrink. J., 2019. How Low Can Low Cost Go. [Online] Available through:
<https://www.forbes.com/sites/jeroenkraaijenbrink/2019/02/01/easyjet-vs-ryanair-how-
low-can-low-cost-go/#11db93fc696a>./
MASSEY. R., 2019. Anger as Ryanair finally scrap unlawful £6 debit card fee. [Online]
Available through: <https://www.dailymail.co.uk/news/article-2240390/Anger-Ryanair-
finally-scrap-unlawful-6-debit-card-fee--introduce-6-website-admin-fee-day.html>./
Sindreu. J., 2018. Ryanair’s Latest Problem: Normality. [Online] Available through:
<https://www.wsj.com/articles/ryanairs-latest-problem-normality-1540223553>./
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