Analysis of Ryanair: The Economics of Low Cost Discounters Report

This report provides a comprehensive analysis of Ryanair, a prominent low-cost airline. It examines Ryanair's business model, market position, and financial performance. The analysis employs various strategic tools, including SWOT, PESTEL, and Porter's Five Forces, to evaluate the airline's internal and external environments. The report delves into the competitive landscape, identifying strengths, weaknesses, opportunities, and threats. Furthermore, it explores the macroeconomic factors influencing Ryanair's operations and assesses the competitive dynamics within the airline industry. The report also includes a cost-benefit analysis and cost-volume-profit relationship to understand the financial implications of Ryanair's strategic decisions. The conclusion summarizes the key findings and offers insights into Ryanair's challenges and opportunities in the European market.

Running head: THE ECONOMICS OF LOW COST DISCOUNTERS
The Economics of Low Cost Discounters
Name of the Student
Name of the University
Author note

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EXECUTIVE SUMMARY
This paper intends to analyse the growth and performance of the low cost discounter airline
Ryanair. The assessment of the Ryanair undertake on the basis of SWOT analysis, porter’s five
forces, PESTEL analysis, cost-volume-profit relationships and cost benefit analysis. Hence, it
helps in understanding the overall position of the airline including its internal and external
environment. It will assist the firm to take necessary steps to sustain in this competitive low cost
airline industry.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
SWOT..........................................................................................................................................3
PESTEL.......................................................................................................................................5
Porter’s Five Forces.....................................................................................................................6
Cost-benefit Analysis and Cost-volume-profit relationship........................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction
The Ireland based low cost airline Ryanair founded in 1984. Despite being the largest
airline of Europe in terms of scheduled passenger flown in 2016. The firm faced various
challenges in competitive market of low cost airlines (Caputo, Borbély and Dabic 2019). Thus,
inclusion of the essential tools such as SWOT, porter’s five forces, PESTEL, cost benefit
analysis and cost volume profit relationship helps to examine the present and future position of
the Ryanair. The internal and external factors can be analyzed based on SWOT. The macro
environment of the company that is influenced by the external factors can be examined with the
help of PESTEL. The competitive environment of the Ryanair is assessed based on Porter’s five
forces. In order to analyze the decision related to the business the cost benefit analysis and cost-
volume-profit relationship will be helpful.
Discussion
SWOT
The competitive position of the company is affected by the internal and external factors
(Phadermrod, Crowder and Wills 2019). Thus, SWOT analysis will prove beneficial for the
Ryanair.
Strengths
 One of the major strength of the company is operating in European market, which covers
more than 1800 routes and 200 destinations.
 The consistent shareholders returns and robust balance sheet acts in favor of the
company.
 The company get its key competitive advantage by offering low cost airlines.

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 Another strength of the Ryanair include operating within short distances locations point
to point flights.
 It is considered as the greenest and cleanest airline of the European Union.
Weakness
 In the near future, Ryanair may face the problem of overcapacity due to its aggressive
fleet expansion.
 The business of the Ryanair may affected by the change in arrangements of employee
compensation and labor relations (Gürel and Tat 2017).
Opportunities
 One of key advantage that the company may enjoy include higher ancillary revenue
generation through the myRyanair.
 It also has opportunities in declining segment of charter flight.
 Ryanair emphasizes on customer experience through programs like Always Getting
Better (AGB).
Threats
 The profitability and business model of the Ryanair may affected by the volatility in oil
prices.
 The price of the air tickets of Ryanair may pushed downward because of weaker GBP
after Brexit (Ahmed et al. 2019).
 Another important threats for the company include other regional carriers that offers low
cost airlines.

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 The surge in tax rates by the Irish Corporation may create adverse impact on the
company.
 Another major threat that prevails in airline industry of the Europe include strikes and
ATC staff shortages.
PESTEL
To understand the broader environment in which Ryanair operates, the PESTLE analysis
will be helpful.
Political
 One of the vital challenge for the business environment is the uncertainty over Brexit.
 The demand for the air travel will also impacted by the threats like terrorists attacks and
other vulnerabilities.
Economical
 The operational margin of the company will be supported by the expected oil price of
around %50 per barrel.
 The fair price of the low airline may affected by the weaker GBP after Brexit.
Social
 The preference of the consumers of high speed rail over low cost airlines for short haul
routes (Madar 2018).
 In case of lower cost of tickets, the consumer prefers to spend more on ancillaries.
Technological

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 The customers’ experience can be improved in Ryanair with the help of enhancement in
digital platforms through websites and mobile applications. Hence, the technological
improvements acted in favor of the company.
Legal
 The European Union brought lawsuit against Ryanair due to receiving state aid at some
European airports (Sammut‐Bonnici and Galea 2015).
 Another constraint for Ryanair include dual compliance such as EU and UK regulations
post Brexit.
Environmental
 The costs of Ryanair may scale up due to the EU regulation related to the emissions.
 The Ryanair has lowest emissions record amongst the peers because of operating young
fleet of Boeing 737-800NG aircraft with age of the fleet below six years (Ryanair.com
2020).
Porter’s Five Forces
The main factors under the Porter’s five forces affects the growth and survival of the
company.
Competitive rivalry
The presence of the low cost airlines such as Go, Easy jet and Wiz Air in the same route
of Ryanair increased the competitive rivalry of the firm. To minimize the cost, all airlines tried to
lower the airport outlay costs and onboard passenger facilities (Piludis, Jones and Hansen 2018).

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In some routes Ryanair got the advantage due to large fleet size and experience. However, there
exists intense competition in some routes.
Threat of new entrants
The huge initial cost create an obstacle for the new firms to enter the airline industry. The
higher costs of leasing or purchasing jets, getting slots in airports, inventory of spares creates
barriers to entry. The new firms need to incur high marketing costs, which is also a burden.
Bargaining power of suppliers
The presence of only two manufactures in airlines industry such as Airbus and Boeing
induces the bargaining power of the suppliers. However, Ryanair purchased a large numbers of
aircraft from Boeing, which in turn helps the company to avail the standard market rates. As the
fuel price is regulated by the world trade it aggravates the bargaining power of the suppliers in
case of Ryanair.
Bargaining power of buyers
There exists lack n brand loyalty or customer loyalty in low cost airline industry.
Therefore, the customers can be easily attracted by only offering low fares by other carriers. The
switching cost is almost zero in such case for the customers. Thus, it increases the bargaining
power of the buyers in case of Ryanair.
Threats of substitutes
The threats of substitutes is comparatively low in case of Ryanair. Though, there prevails
other means of transportation for the short haul routes such as cars, buses and train (Caputo and
Borbely 2016). However, it takes relatively longer time for the journey and the costs of

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transportation also remains higher. Thus, it enables the Ryanair to mitigate the adverse effects of
the threats of substitutes.
Cost-benefit Analysis and Cost-volume-profit relationship
Cost-benefit analysis is considered as a process that the businesses use for analysing
decisions. This requires the companies in assessing the benefits and the costs involved or
negatives for taking any decisions (Mishan 2015). The same is applicable in case of Ryanair
which is an Irish low-cost carrier.
In case of benefits, it needs to be mentioned that the low-cost business model of Ryanair
has helped it to become a pioneer to offer lowest fares to the passengers and it has made it the
toughest competitor for the new entrants to the market. Providing the lowest fares is considered
as the unique selling proposition of the company with increased frequencies for short point to
point routes. The operations of the airline can be seen in the European market that covers more
than 200 destinations and 1800 routes. The low cost base is the main competitive advantage of
Ryanair. Innovation can be considered as another crucial aspect that provides the company with
major benefits as innovative services in lowest cost play a large role in satisfying the needs of the
passengers. All these aspects have helped Ryanair in registering strong financial performance
over the years which has improved its financial performance as well as financial position. Big
size and increased number of fleets also provide the company is many benefits (Barrett 2016).
In case of costs, it can be seen that the earnings of Ryanair is highly seasonal where the
profit the airline is highly dependent on a strong hemisphere summer, particularly July to
September for offsetting a loss-making winter. This particular pattern of seasonality has become
more pronounced when Ryanair registered consistent losses as compared to the profit of previous
ten years. At the same time, the presence of the strategy of aggressive fleet expansion can be

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seen in the company which can lead to overcapacity in the coming years. Ryanair has to face the
heat of increased competition the market of low cost carrier.
Therefore, it can be seen that the business model of Ryanair provide it with both the costs
and benefits. It is needed for the management of the airline to consider these costs and benefits
while making any decisions on any upcoming projects or strategic initiatives. Consideration of
both the costs and benefits will assist the management in making informed decision associated
with Ryanair’s business expansion and other aspects (Zolnowski, Anke and Gudat 2017).
Conclusion
The low cost airline serves in European market, which acted in favour of the company.
However, there prevail various rivals firms in low cost airlines (Burns and Dewhurst 2016). The
fuel price that is regulated by the world trade may impact the business of the Ryanair. There may
regulatory impact on the Ryanair post Brexit due to UK and EU regulations. Moreover, the
performance of the business may also hamper because of Brexit. As the carriers got the costs and
benefits from its business model, it helps to establish the cost-volume-profit relationship of the
firm.

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References
Ahmed, J.U., Khan, M.M., Sultana, I., Ahmed, A. and Begum, F., 2019. Ryanair: A low-cost
business model in the european airline industry. SAGE Publications: SAGE Business Cases
Originals.
Barrett, S.D., 2016. Ryanair and the Low-cost Revolution. In Air Transport in the 21st
Century (pp. 163-178). Routledge.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Caputo, A. and Borbely, A., 2016. The firm’s strategy and its negotiation capability: the Ryanair
case.
Caputo, A., Borbély, A. and Dabic, M., 2019. Building theory on the negotiation capability of
the firm: evidence from Ryanair. Journal of Knowledge Management.
Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International
Social Research, 10(51).
Madar, A., 2018. RYANAIR IS LOOKING FOR NEW SOLUTIONS TO COPE WITH THE
COMPETITION. Bulletin of the Transilvania University of Brasov. Economic Sciences. Series
V, 11(2), pp.95-102.
Mishan, E.J., 2015. Elements of Cost-Benefit Analysis (Routledge Revivals). Routledge.
Phadermrod, B., Crowder, R.M. and Wills, G.B., 2019. Importance-performance analysis based
SWOT analysis. International Journal of Information Management, 44, pp.194-203.

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Piludis, K., Jones, O. and Hansen, T., 2018. Ryanair-Destination Unknown. LBMG Corporate
Brand Management and Reputation-Masters Case Series.
Ryanair.com 2020. Ryanair. [online] Available at: https://www.ryanair.com/gb/en.
Sammut‐Bonnici, T. and Galea, D., 2015. PEST analysis. Wiley Encyclopedia of management,
pp.1-1.
Zolnowski, A., Anke, J. and Gudat, J., 2017. Towards a Cost-Benefit-Analysis of Data-Driven
Business Models.