RYANAIR CASE. To Analyse the Low Fares Model

RYANAIR CASE
To analyse the low fares model adopted by Ryanair, it is necessary to start by
identifying the company's target market:
"Ryanair's low fares concept was designed to stimulate demand in particular from
tourists and young people who otherwise would have used other means of
transport or would not have travelled at all"
The positioning of the company therefore seems to be very targeted: the reference
market is made up of those who would be willing to take advantage of alternative
means of transport to the plane if not enticed by particularly advantageous rates.
It is therefore a volume driven market, with a very elastic demand with respect to
price. The adoption of the low fares model is therefore functional to the satisfaction
of the client-target of the company which, being "budget conscious" is willing to
give up some of the services offered by traditional "full service" airlines, to obtain
advantageous fares.
It is the CEO himself, Michael O'Leary, who firmly affirms that Ryanair does not seek
its competitors among the large flag carriers, as these serve a target of customers
with very different needs, who seek a certain level of customer care. and
demonstrates lower price sensitivity: “We promise to give you the cheapest rate.
You have a safe flight. You have a flight usually on time, this is the package.
We do not give you and we will not give you anything else. We think about our
customers in the most fundamental way: we don't peel them every time we fly
them. I don't want to have anything to do with those big airlines that say they think
about their customers and then pay you six or seven hundred pounds every time
you fly ".
Ryanair's therefore appears to be a focus strategy based on cost leadership, which
identifies as its objective a specific market segment characterized by a target
clientele made up of tourists, young people and, in general, those who show greater
sensitivity to price rather than to complementary services.
To be able to offer highly competitive rates and at the same time obtain good profit
margins, the top management directs its efforts in the implementation of an
efficiency policy and attention to costs, contributing to the success of the Irish
company's strategy is the advantage of the first mover, having been the first in
Europe to use a low-fares business model.

The differences emerge starting from the customer service: Ryanair, and in
particular the CEO Michael O’Leary, has never made a secret of focusing everything
on the price, putting the sphere of services and attention to the customer in the
background.
The Irish company has also been subjected to sharp criticism regarding the use of
misleading advertising campaigns in which plane tickets were offered at bargain
prices for the most soughtafter routes, when the number of tickets on promotion
was small and the landing was carried out at a secondary airport very distant from
the city presented in advertising.
To analyse the sustainability of the competitive advantage achieved by Ryanair, it
must be borne in mind that, in general, it is a function of four elements:
Numerous sources on which the competitive advantage is based: if the latter were
based on a single source, the risk of erosion in the event of imitation by competitors
would be greater.
• Low imitability of these sources: internally generated intangible resources are
difficult to imitate and generate causal ambiguity.
• The company's ability to strengthen these sources: the development of
peripheral innovations, alongside the main ones, strengthens the competitive
advantage.
• Presence of disruptive and permanent changes in the "rules of the
competitive game": in the case of Ryanair, the current decision by the United
Kingdom to leave the Union.
To carry out an exhaustive analysis of the company's performance, we will first
analyse the reference environment and the forces acting on the profitability of the
sector, using Michael Porter's five forces model.
There are five fundamental competitive forces that affect the profitability of the
company. For an airline, and specifically for Ryanair, they are:
1) Power of suppliers:

• Airport access managers: the choice to operate only on secondary
airports, has made it possible to greatly reduce the impact of
bargaining power of this category of "suppliers", thus obtaining
advantageous conditions and strong discounts on airport taxes.
• Fuel suppliers: although the fluctuations in the price of oil allow little
room for manoeuvre, the company has managed to obtain a large
discount by agreeing a price annually and in advance fixed to cover a
large part of the annual requirement.
2) Power of buyers: the bargaining power of the company's target customers is
very low as, being extremely price sensitive, they search for the most
convenient fares (almost always offered by Ryanair), accepting conditions (in
terms of services and customer care) a lot.
disadvantageous compared to other airlines.
3) Substitute products: the low-cost segment served by Ryanair (unlike the larger
air market) demonstrates some substitutability on the demand side, since
these are short-medium distance routes, the means of transport that are
taken into consideration, as substitutes, during the purchase choice are:
• high-speed trains.
• road vehicles (such as buses and car-sharing).
• ships.
4) New entrants: following the liberalization of the air market in Europe, that of
new entrants represents a threat that should not be underestimated.
Although it is difficult to set up a low-cost company from scratch, since it is a
highly capital-intensive sector, it is nevertheless possible that a "full service"
company could create a low-cost subsidiary, exploiting economies (of scale
and scope) as well as crossfertilization effects.
5) Competitors in the sector: Ryanair has managed to obtain and maintain an
advantage over its competitors thanks to two main factors: the adoption of
the no frills model and the advantage of the first mover.