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Ryanair: the low fares airline – ‘always getting better’?
Eleanor O’Higgins
‘People say the customer is always right, but you know
what – they’re not. Sometimes they are wrong and they
need to be told so.’
Michael O’Leary, before 2014
‘If I had known that being nice to customers was going
to be so good for my business, I would have done it
years’ ago. Everyone loves a converted sinner. We have
learned humility – and that we have to keep learning
and listening to our customers.’
Michael O’Leary, November 2014
In November 2014, CEO Michael O’Leary predicted a full
year 2016 profit growth of 20 per cent. Ryanair shares
had closed at a record high of €14.66.1 Customer traffic
for the summer was over 30 million, with an average load
factor of 95 per cent and over 90 per cent punctuality.
In those 12 weeks, Ryanair had more customers than Air
France in a full year; it became the first airline to carry
over 10 million international customers in a single
month. Cost discipline was evident, with fuel down five
per cent and other costs expected to decline by one per
cent for the year. Profits, excluding exceptional items, at
€1088m for the first half exceeded the previous year by
37 per cent.
‘Always getting better’
This was almost a year after the airline had turned a new
leaf in its attitude to customers. Previously, Ryanair had
conveyed ‘The customer is usually wrong. The only time
you hear from a customer is when they’re complaining
Ryanair, the first and largest budget airline in Europe, has enjoyed remarkable growth and success, based
on a rigorously applied low-cost business model, with robust operating and financial performance even
during the financial recession. However, Ryanair’s prevous indifference to repeated complaints about its
poor standards of customer service was suddenly reversed in 2014 with the introduction of an ‘Always
Getting Better’ plan. The case illustrates how to analyse and deploy internal resources and capabilities to
add perceived value to customers, thereby delivering sustainable strategic advantage. It also explores the
difficulties of developing and extending strategic capabilities in response to changing environmental and
industry conditions.
because they want to break our rules. Why can’t I get a
refund for my non-refundable ticket? Bugger off.’2 So
proclaimed Michael O’Leary in 2010.
The carrier had attracted complaints for its inflexible
baggage policies and punitive charges, like hefty cancellation and change penalties, and charges for printing
boarding passes. However, these customer-unfriendly
practices had not appeared to daunt passengers who
continued to fly Ryanair for its low fares.
However, in autumn 2013, a series of events made
Ryanair sit up and listen. The airline was voted worst of
the 100 biggest brands in the UK in customer relations
by readers of the consumer magazine Which?. Its adversarial treatment of customers culminated in a wave of
negative publicity after its refusal to allow a passenger to
change his flight home to the UK when he learned his
This case was prepared by Eleanor O’Higgins. It is intended as a basis for class discussion and not as an illustration of good or
bad practice. © Eleanor O’Higgins 2016. Not to be reproduced or quoted without permission.
Source: Philippe Huguen/AFP/Getty Images.
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RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
entire family had died in a house fire. Faced with heightened competition from other carriers offering cheap fares
and recognising that some passengers were willing to pay
higher fares to competitors for a better customer experience, Ryanair did an about-face, changing its historic
service attitude. Perhaps the most convincing factor that
a change would be worth trying was pressure on fares
and profits.
Thus, in January 2014, Ryanair rolled out its ‘Always
Getting Better’ (AGB) three-year plan. Significantly, the
airline appointed its first Marketing Director, Kenny
Jacobs. Heretofore, Ryanair had relied on newsworthy
publicity stunts and provocative statements from Michael
O’Leary as marketing tools, on the assumption that no
publicity is bad publicity. Examples of Mr O’Leary’s
statements were that overweight people should pay extra
and that passengers should have to pay a fee to use
onboard toilets. Then, in January 2016, Ryanair hired its
first PR head, Cristian Samoilovich, former manager of
European public policy for Uber to handle relations with
European governments and institutions.
The AGB programme consisted of repositioning
Ryanair as ‘Low Fares. Made Simple’. It centred on
providing customers with more choice, an improved
travel and digital experience, while maintaining budget
fares. The buy-in of Michael O’Leary and the board, and
staff, alongside a relatively flat organisation structure and
open culture, facilitated a fast and effective execution of
the plan.
The most dramatic change was Ryanair’s attitude to
customers, asserting that ‘it starts at the top: listen to
customers’. Ryanair still maintained its cost focus to
continue to offer relatively lower fares than competitors.
Investment in capability was part of the changes, principally in digital and technology. The company asserted
that it wanted to become the leader in the industry on all
things digital, and created Ryanair Labs with a team of
over 150 working on a new digital platform.
Specifically the changes in the AGB consisted of:
• Improve the flying experience. Allowing customers to
bring two bags on board and allocating seats.
• Embrace digital. Launching a new, simpler website, a
new Ryanair app, a customer registration function
called ‘MyRyanair’ so the airline could target and
personalise its offers, communications and digital
platform, improving the selling of ancillary products
like car hire and reserved seats.
• Broaden Ryanair’s appeal. Segmenting products to
meet the needs of different groups. ‘Family Extra’ was
a new product focused on families and ‘Business Plus’
was aimed at business customers. Groups and corporate service products were also launched.
• Improve the product. Changing its previous policy of
concentrating on cheaper secondary airports, primary
airports were added to the network. These included
Brussels National, Athens, Amsterdam Schiphol,
Milan Malpensa, Lisbon, Cologne, Hamburg and
Glasgow International, alongside statements of
improved flight times and frequencies on the most
popular routes. Ryanair claimed to publish its schedules earlier than other airlines, meaning customers
could plan and book flights longer in advance.
AGB phase 2
In March 2015, to celebrate its 30th anniversary, Ryanair
unveiled the second phase of its AGB plan with an eightpoint Customer Charter, emphasising its new image:
• Always Getting Better is the way we promise to do
things.
• We promise the lowest fares.
• We promise the best choice of destinations.
• We promise to always prioritise safety.
• We promise to strive to make your travel an enjoyable
experience.
• We promise we will always be Europe’s most reliable
airline.
• We promise to be transparent and to make travel
simple for you.
• We promise to innovate to make your travel exciting.
Ryanair also announced a series of initiatives to be
rolled out over the second year of the AGB programme,
with a range of improved services, fee reductions and
exciting digital developments to be introduced over the
coming year. These included:
• New aircraft interiors, new seats with more leg room
and new cabin crew uniforms.
• Lower airport check-in fees, missed departure fees
and a new flight cancellation option.
• Real-time airline fare comparisons on Ryanair.com.
• A new destination content service, featuring customer
reviews.
• A personalised Ryanair.com website with up to 100
versions of the homepage and personalised promotional emails with customer-specific tailored offers.
• A 24-hour ‘hold the fare’ feature for €5.
• Improved in-flight menus with more healthy meal choices
and a hot breakfast pre-order service on key routes.
• Faster mobile apps, an improved Ryanair.com desktop
and an enhanced ‘My Ryanair’ customer registration
system.
However, as of December 2015, Ryanair retained its
Skytrax 2 star rating, the worst for budget airlines in
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of €1.97 in October 2008, when global equity markets
tumbled. The most dramatic share price rise had
occurred during the latter part of 2015 after stellar financial results, and expectations of even better to come.
After its flotation in 1996, Ryanair’s policy was not to
pay dividends. It retained earnings to fund its business
operations, the acquisition of additional aircraft required
for new markets, expansion of existing services and
routine fleet replacements. However, thanks to a healthy
balance sheet, the no-dividend policy changed in June
2010 when Ryanair began to pay a series of special dividends. It had also engaged in various share buybacks.
The company had thereby returned over €2.9bn to shareholders over eight years, five times the €560m originally
raised when Ryanair floated in 1997 and in two subsequent secondary issues.
The autumn of 2015 also saw the end of Ryanair’s
29.8 per cent stake in Aer Lingus. The Aer Lingus saga
began in 2007 when, in a surprise bid, Ryanair acquired
a 25.2 per cent stake, a week after the flotation of the
Irish national carrier. It subsequently increased its
interest to 29.8 per cent, at a total aggregate cost of
€407.2m. By July 2009, the investment had been
written down to €79.7m. At the time of the initial bid,
Ryanair declared its intention to retain the Aer Lingus
brand and ‘upgrade their dated long-haul product, and
reduce their short-haul fares by 2.5 per cent per year for
a minimum of 4 years . . . one strong Irish airline group
will be rewarding for consumers and will enable both to
vigorously compete with the mega carriers in Europe.4
According to a Financial Times commentator, ‘Ryanair’s
bid for Aer Lingus was a folie de grandeur’.5 Even Michael
O’Leary admitted it was ‘a stupid investment. At the
time, it was the right strategy to go for one combined
airline but it has now proven to be a disaster.’6 Aer Lingus
rejected the Ryanair approach and two subsequent bids
in 2008 and 2012, notwithstanding blocking of its bids
from the EU and the UK Office of Fair Trade (OFT), and
orders to divest its Aer Lingus stake.
After years of rejection from Aer Lingus shareholders
and jousting with Irish, European and UK competition
authorities, the matter was finally resolved in July 2015.
International Airlines Group (IAG), led by Willie Walsh, a
former CEO of Aer Lingus, made a successful bid to buy
Aer Lingus for €1.36bn, having gained EU approval after
some concessions to give up some London airport slots.
The Irish government had already agreed to sell its 25 per
cent stake in Aer Lingus, and the Ryanair board then
agreed to dispose of its stake too. Ryanair had fully
written down the value of its Aer Lingus stake. Proceeds,
totalling €398m, were distributed to shareholders via a ‘B’
share programme at the end of 2015, bringing the amount
distributed to shareholders to over €3.3bn since 2010.
Europe. It ranked 155 out of 160 companies on a corporate empathy index, which refers to ‘being a company
that relates in a human way to all its stakeholders, or
emotional intelligence on a corporate scale.’3
Overview of Ryanair
Ryanair was founded in 1985 by the Ryan family to
provide scheduled passenger services between Ireland
and the UK, as an alternative to then state monopoly
airline, Aer Lingus. Initially, Ryanair was a full service
carrier, with two classes of seating, leasing three
different types of aircraft. Despite growth in passenger
volumes, by the end of 1990, the company had disposed
of five chief executives and accumulated losses of IR£20
million. Its fight to survive in the early 1990s saw the
airline transformed to become Europe’s first low-fares,
no frills carrier, built on the model of Southwest Airlines,
the successful US operator. A new management team,
led by Michael O’Leary, was appointed. Ryanair floated
on the Dublin Stock Exchange in 1997 and is now
quoted on the Dublin and London Stock exchanges and
on the NASDAQ-100.
After its makeover into a budget airline, Ryanair never
looked back, as it added new bases, routes and aircraft.
Despite the up-and-down cycles of the airline industry
over the decades, Ryanair continued its upward trajectory, among the world’s most profitable airlines, leaving
almost all others behind.
At its 30th birthday, as of July 2015, Ryanair offered
1600-plus flights per day from 72 bases and 190
airports across Europe, with a fleet of 315 Boeing
737-800 aircraft and six additional leased aircraft to
provide extra capacity for the summer. Year-on-year
traffic growth was 11 per cent from 81.7 million passengers in 2014 to 90.6 in 2015, expected to be 105
million by 2016. Load factor had increased from 83 per
cent to 88 per cent.
After two profit warnings in 2013–14, net profits had
recovered in its 2015 results, increasing by 66 per cent
from €523m to €867m. Average fares increased by just
one per cent from €46.40 to €47.05, whilst operating
revenue had increased by 12 per cent from €5036.7 to
€5654. Thus, much of the profit growth came from lower
operating costs, especially a reduction of 11 per cent per
passenger in fuel costs. (Ryanair’s financial data can be
viewed in the ‘Investor relations’ section of the Ryanair
website).
Investor perspectives and the Aer Lingus saga
As of December 2015, Ryanair shares were trading in the
€14.60 to €15.08 range, with a P/E ratio of 13.5. The
share price had risen steadily after plummeting to a low
RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
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RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
aircraft, each having 189 seats. In 2019, when the
Boeing 737-800 is scheduled to go out of production,
Ryanair will become the launch customer for the new
Boeing 197-seat 737-MAX-200 aircraft, designed to
replace the Boeing 737-800, and will purchase up to
200 of such aircraft. It expects to have an operating fleet
comprising approximately 520 Boeing 737s by 2024
comprising a mix of Boeing 737-800s and Boeing
737-MAX-200 aircraft. In its 2015 annual report,
Ryanair notes satisfaction with the pricing and conditions
of its aircraft purchases from Boeing.
The purchase of aircraft from a single manufacturer
enables Ryanair to limit the costs associated with personnel
training, maintenance and the acquisition and storage of
spare parts while also affording the company greater
flexibility in the scheduling of crews and equipment.
Airport costs
Up until 2013, Ryanair reduced airport charges by
avoiding congested main airports, choosing secondary
and regional destinations, eager to increase passenger
throughput. Ryanair further reduces its airport charges
by opting, when practicable, for less expensive gate locations and outdoor boarding stairs, rather than jetways.
Secondary and regional airports are significantly
further from the centres of cities they serve than the
main airports, ‘from nowhere to nowhere’ in the words of
Sir Stelios Haji-Ioannou, founder of easyJet, Ryanair’s
biggest competitor.8 For example, Ryanair uses Frankfurt
Hahn, 123 km from Frankfurt, Torp, 100 km from Oslo,
and Charleroi, 60 km from Brussels. In December 2003,
the Advertising Standards Authority rebuked Ryanair,
upholding a complaint of misleading advertising for
attaching ‘Lyon’ to its advertisements for flights to St
Etienne, 62 km from Lyon.
However, as part of its AGB programme, it added
more primary airports to its route system. Ryanair
continued to denounce charges and conditions imposed
by most governments at airports in the form of air
passenger duties. An example is its dispute with Athens
Airport (AIA) over allegedly high charges imposed for its
installations and services. Ryanair blamed pricing policy
rather than the Greek economic crisis for a decline in
traffic. Ryanair promised to bring ten million tourists to
Greece within the next three years should AIA reduce
taxes and fees from current €12 per passenger down to
€5 and reduce to zero in other peripheral airports, an
offer declined by the Greeks. Subsequently, the Greek
government withdrew plans for the tax.
In September 2013, Ryanair made a ten-year growth
agreement with Manchester Airports Group, the new
owners of London Stansted, in relation to an expansion
of capacity at Stansted in return for significant airport
Ryanair’s strategy
Ryanair designates itself as Europe’s favourite airline, as
the world’s largest international carrier by passengers.
Before its conversion moment in 2013, Ryanair had
stuck closely to the low-cost/low-fares model. It differed
in its application of the Southwest Airlines prototype
business model, and that of its main European rival,
easyJet, as these two were not so frill-cutting. One
observer described the difference between easyJet and
Ryanair as – ‘easyJet is classy cheap, rather than just
plain cheap’.7
In its 2015 annual report, Ryanair indicated various
key aspects of its strategy.
Fare and route policy
Ryanair’s key selling point has been low fares designed
to stimulate demand, particularly from fare-conscious
leisure and business travellers. Ryanair sells seats on a
one-way basis. When launching a new route, Ryanair’s
policy is to price the new route at its lowest fare so that
it will be significantly lower than other carriers’ lowest
fares, but still provide a satisfactory operating margin.
Consistent with the budget model, Ryanair’s routes are
point-to-point only. In 2015 fiscal year, Ryanair flew an
average route length of 776 miles (1250 km) and average
flight duration of 1.83 hours. Short-haul routes eliminate
the need to provide free in-flight meals and movies,
expected on longer flights, while point-to-point flying
allows Ryanair to offer direct, non-stop routes and avoid
the costs of providing transfers for connecting passengers, including baggage transfer and transit passenger
assistance.
In response to an operating environment characterised
by high fuel prices, typically lower seasonal yields and
higher airport charges and/or taxes, Ryanair has adopted
a policy of grounding a portion of its fleet during the
winter months. In the winters of fiscal 2014 and fiscal
2015, Ryanair grounded approximately 70 aircraft and
50 aircraft, respectively, but was planning to ground
approximately only 40 aircraft during the winter 2015–16
season, due to lower fuel costs and higher anticipated
demand.
Low operating costs
Low operating costs continues to be at the heart of
Ryanair’s strategy. There are various facets to the implementation of this low-cost cornerstone.
Aircraft fleet
Ryanair has always grown and developed its fleet to meet
expansion of its routes and to acquire the most up-todate fuel-efficient aircraft. In 2015, the principal fleet
was composed of 315 Boeing 737-800 ‘next generation’
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Having introduced a service to Copenhagen in the
spring of 2015, Ryanair had come under attack from
trade unions in Denmark. They accused the carrier of
violating workers’ rights, and threatened to go on strike
after a ruling by the Danish Labour Court that Copenhagen
airport staff had the right to refuse to service its flights
in the dispute. Moreover, the mayor of Copenhagen
banned city employees from using the airline because its
low wages amounted to ‘social dumping’; in general,
Ryanair was subjected to a campaign of abuse in
Denmark by labour protagonists, especially in social
media. This included statements by Morten Windeløv, a
Ryanair pilot from 2007–11, and now a leading voice in
the unions’ campaign to the effect that ‘Ryanair’s style is
management by fear . . . There is a widespread disdain
for employees, you are not treated with trust or respect
as an individual.’9 The dispute culminated in Ryanair’s
exit from its two Danish bases in Copenhagen and
Billund before the unions could carry out their strike
threat. The airline announced that a planned €360m
investment in the Copenhagen base will instead be
spread throughout other European cities, and it would
continue to fly to the Danish capital but will not base any
aircraft or crew there. Ryanair’s reputation went steeply
downhill in Denmark during the course of the row; it was
ranked last in YouGov surveys of corporate reputation.
However, customers were apparently indifferent, as a poll
suggested more Danes would choose Ryanair than before
the dispute.
Passenger service
The internet has been a source of cost savings for
Ryanair in the passenger process. The development of its
own internet booking facility has allowed Ryanair to eliminate travel agent commissions, although, as part of its
improved service initiatives, the company has broadened
its distribution base by making its fares available online
to a limited number of other websites for a nominal cost.
Direct sales via the Ryanair website and mobile app
continue to be the prime generator of scheduled
passenger revenues.
Ryanair pioneered cost-cutting/yield-enhancing measures for passenger check-in and luggage handling. One
was priority boarding and web-based check-in. Charging
for check-in bags encouraged passengers to travel with
less or zero check-in luggage, thus saving costs and
enhancing speed. Before it charged for checked-in bags,
80 per cent of passengers travelled with checked-in
luggage; within two years, this had fallen to 30 per cent,
and was less than 20 per cent in 2015. The airline met
harsh criticism of its meagre luggage allowances and
ever-rising fees for checking in bags with strict enforcement of limits on size and weight of carry-on luggage.
charge reductions for the incremental passenger volumes
delivered. In 2015, Ryanair confirmed that it would bid
for Gatwick slots which were to be sold as a condition of
IAG’s takeover of Aer Lingus, to develop further its
capacity at the London airport.
Staff costs and productivity
By 2015, Ryanair’s employee number at 9394 was up on
8992 in 2014, reflecting growth in traffic and upgraded
product. Staff costs increased 1.1 per cent from
€9501m to €9586m. Ryanair refuses to recognise trade
unions and negotiates with employee representative
committees (ERCs), regarding pay, work practices and
conditions of employment. Following negotiations through
this ERC system, pilots and cabin crew at all Ryanair
bases are covered by long-term collective agreements.
But, as seen below, various aspects of Ryanair’s industrial relations continue to attract controversy.
Ryanair’s employees earn productivity-based incentive
payments. These include bonus payments for onboard
sales of products by flight attendants and payments
based on the number of hours or sectors flown by pilots
and flight attendants. By tailoring rosters, the carrier
maximised productivity and time off for crew members,
whilst nonetheless complying with EU regulations which
impose a ceiling on pilot flying hours to prevent
dangerous fatigue. Its passenger-per-employee ratio of
approximately 9640 was the highest in the industry.
Share option plans for employees (and directors) add to
staff remuneration packages.
Generally, onboard crew have to pay for their initial
training and uniforms. Ryanair has licensed approved
organisations in Dublin, Germany and the UK to operate
pilot training courses, using Ryanair‘s syllabus, to grant
Boeing 737 type-ratings. Based on their performance,
trainee pilots may be offered a position operating on
Ryanair aircraft.
Apart from employing its own staff at Dublin Airport,
Ryanair outsources much of its services at other airports
for ticketing, passenger and aircraft handling, and activities that can be more cost-efficiently provided by third
parties. It claims that it obtains competitive rates for
such services by negotiating fixed-price, multiyear
contracts.
Ryanair imposes the same labour conditions, such as
no unions, and pay rates on its staff operating abroad as
it does in Ireland. This has led to some disagreements
where it was accused of breaching local labour laws. For
instance, in October 2014, Ryanair lost an appeal
against a ruling that it breached French labour laws by
employing 127 local staff on Irish contracts. It was fined
€200,000 and €8.1m in damages to trade unions,
France’s social security system and pilots among others.
RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
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RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
to have viewed it as a breach of the original contract
which entailed only direct ticket sales by Ryanair.
Subsequently, in a change of strategy, Ryanair launched
its own car hire website in a new partnership with online
car rental aggregator, CarTrawler. This arrangement
would offer customers a direct connection to over 1500
car rental agents in over 30,000 locations, across 174
different countries.
Ancillary services accounted for approximately 25 per
cent of Ryanair’s total operating revenues in the 2015
and 2014 fiscal years, increasing 11.7 per cent, from
€1247.2m in the 2014 fiscal year to €1393.7m in the
2015 fiscal year. Ancillary revenues per booked passenger
increased to €15.39 from €15.27. This reflects an
improved product mix and fully reserved seating across
the network. Revenues from non-flight scheduled operations, including excess baggage charges, administration/
credit card fees, sales of rail and bus tickets, priority
boarding, reserved seating, accommodation, travel insurance and car rental increased 15 per cent to €1164.4m
from €1012.4m in the 2014 fiscal year. Revenues from
in-flight sales increased 9.2 per cent to €128.1m from
€117.3m in the 2014 fiscal year. However, revenues from
internet-related services, primarily commissions received
from products sold on Ryanair.com or linked websites,
decreased 13.9 per cent, from €117.5m in the 2014
fiscal year to €101.2m in the 2015 fiscal year.
Further growth and development
Having become the largest international airline in Europe
with respect to passengers carried, Ryanair continues its
growth ambitions, declaring in its 2015 annual report
that it intends to follow a growth path consistent with the
way it has expanded in the past. It intends to grow by
offering low fares and fare promotions, thereby achieving
higher load factors. It will add additional routes and flight
frequencies on existing flights, as well as new bases in
the EU, and in countries party to a European Common
Aviation Agreement with the EU on both international
and domestic intra-country routes. It will seek opportunities to offer budget fares on routes currently served by
mainstream and higher cost competitors, but expects to
open new routes, not currently served by any carriers.
While it has mentioned plans to connect airports
within its existing route network, it does not mention
anything about offering connection services to passengers, such as luggage transfers. Ryanair was in talks with
Norwegian Air Shuttle and Portugal’s TAP to provide
transfer connections on long-haul flights. Similar talks
with Aer Lingus and Virgin Atlantic had broken down,
since Ryanair did not want to be responsible for missed
connections or delays. In March 2015, Michael O’Leary
retracted a statement issued two days’ earlier, announcing
Passengers incurred penalties for exceeding the limits.
As part of its AGB programme, it relaxed the limits by
allowing two pieces of carry-on luggage, but there are
reports that this has created a shortage of space in overhead lockers, with passengers forced to put their
carry-on luggage in the hold.
From October 2009, Ryanair adopted a 100 per cent
web check-in policy, enabling a reduction in staff
numbers, calculated to save €50m per year. Hefty fees
were incurred when passengers had not checked in
online. This was another heavily criticised aspect of
Ryanair passenger service. It was moderated as part of
its new customer-friendly ethos, cutting its airport
check-in fee, which applies to anyone who has not
checked in online beforehand from €70 per person per
flight to €45. The cost of checking in luggage at the
airport (rather than online) has fallen from €60 to €30,
its boarding card re-issue fee has been cut from €70 to
€15, and a 24-hour post-booking ‘grace’ period has been
introduced to correct minor errors or spelling mistakes,
free of charge (after that it costs €110, or €160 at the
airport).
Ancillary revenues
Ryanair provides various ancillary services, including
in-flight beverage, food and merchandise, console entertainment sales and internet-related services. It distributes airport transfers, car park services, accommodation,
travel insurance and car rentals through its website.
Delivering these services through the internet enables
Ryanair to increase sales, while reducing unit costs. As
part of its website upgrade, the company declared it
aimed to become the ‘Amazon for travel’ in Europe, with
all travel services currently being provided by intermediaries available on Ryanair.com.
Over the years, ancillary revenue initiatives were
constantly being introduced to raise extra revenue. It was
the first airline to charge for check-in luggage and
in-flight food and beverages. Virtually all budget airlines
have followed suit, as they have with other Ryanair initiatives. It has continued to find ways of charging passengers for services once considered inclusive. While the
airline has now changed its seating policy from open
seating to allocated seats, an extra charge procures
‘priority boarding’ purchased in advance for £10/€10 per
flight, an initiative followed by many traditional carriers,
such as British Airways, charging passengers to book
seats online for an extra charge. Ryanair incentivises its
ground staff to levy excess baggage charges.
In July 2015, Hertz ended its long-standing contract
to market its car rental services through Ryanair’s
website in a dispute over the airline’s ticket selling
arrangements using third-party agents. Hertz is believed
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board approval to launch a transatlantic airline. Indeed,
the company had talked for years about starting transatlantic services, offering one-way fares for as little as £10.
However, O’Leary admitted that the logistics were not
possible, as the plan was dependent on procuring longhaul, fuel-efficient, wide-bodied jets, which could take
many years to obtain, as aircraft manufacturers had
backed up orders from existing long-haul carriers developing their routes.
In the past, Ryanair has grown organically, with one
exception, its acquisition in 2003 of Buzz, a budget
airline subsidiary of KLM, the Dutch flag carrier, with
headquarters at Stansted, for a bargain £15m. Buzz’s
operations were quickly absorbed into those of Ryanair.
Of course, Ryanair had been trying for eight years to
acquire Aer Lingus until the matter was concluded when
it conceded in 2015. Nonetheless, it is open to acquisition opportunities. These can arise by sweeping up
competitors, although, in the past, Ryanair has been
more inclined to eliminate competitors through open
competition rather than by acquiring them.
Safety and maintenance
Ryanair has always been conscious of safety as a critical factor, and that any safety-related harmful incidents on Ryanair or other budget carrier could adversely
affect its business. It places resources into safety
training of its staff and maintenance of its equipment
and a board-level safety committee constantly reviews
safety issues.
Ryanair carries out routine maintenance of its Boeing
fleet, but contracts out overhaul engine and component
services to third parties. The commonality of the fleet
helps to keep down maintenance costs.
Ryanair’s competitive space
Europe has a total of 168 carriers; low-cost carriers
(LCCs) or budget airlines make up 45 per cent of the
capacity share. The industry in Europe is fragmented, as
consolidation has slowed down, forcing each airline to
devise its own unique strategy. Airlines compete primarily
in respect of fare levels, frequency and dependability of
service, name recognition, passenger amenities (such as
access to frequent flyer programs), and the availability
and convenience of other passenger services. The
industry is highly susceptible to price discounting,
because airlines incur very low marginal costs for
providing service to passengers occupying otherwise
unsold seats.
Contributing to competition in 2015 was growth in
short-haul capacity accelerating to 7.7 per cent in the
fourth quarter. This growth was led by LCCs, especially
Ryanair, contributing 20 per cent. However, the 2015
growth was also a product of buoyant demand.
The CAPA Centre for Aviation has divided European
airlines into five models:
• Major network carriers. This model comprises the
major legacy groups, such as Air France-KLM, IAG,
Lufthansa.
• Niche full-service carriers. These are airlines from
smaller countries, with less developed networks, and
lower costs, such as Air Berlin.
• Pan European LCCs. Exemplified by easyJet, Vueling,
Norwegian, these airlines are not pure LCCs as they
offer some ‘frills’.
• Ultra LCCs. Also pan-European, this group is led by
Ryanair as following the pure low-cost model. Other
examples are Wizz Air and Pegasus.
• Leisure LCCs. These airlines are smaller scale, operate
mainly out of one country, concentrating on leisure
travel with longer distance routes to tourist destinations. Transavia, Monarch and Jet2.com are examples.
The differences between the features and cost base of
LCCs and legacy airlines have narrowed. Furthermore,
the distinction between the various business models for
short distances is increasingly irrelevant as traditional
flag carriers’ short-haul operations now compete head to
head with the LCCs’ point-to-point services.
The operating margins of European LCCs, especially
ultra-LCCs, in 2014 compared favourably to those of
full-service carriers. Five of the top six and all of the top
three by operating margin are LCCs. CAPA also points out
that for Europe’s major network airlines, successful LCC
subsidiaries are rare and require a distinct culture.
Creating new lower cost platforms can cannibalise the
mainline brand and present significant industrial relations challenges in realising LCC cost savings. Ryanair
was the most profitable listed European airline in 2014
ranked by operating margin. The least profitable was Air
Berlin. Wizz Air managed its unit cost down further while
raising its unit revenues. easyJet continued to take
advantage of its network of primary airports and its lead
over other LCCs in terms of initiatives towards business
travelers and customer service. However, some LCCs
recorded falling margins in 2014, among them Vueling
and Pegasus, and two were even loss-making, Norwegian
and Transavia.
Risks and challenges
Although the company had been enjoying success in the
2014–15 period, it was conscious that it had to be
equally vigilant about risks to sustain its exemplary
record. Some of the challenges faced by Ryanair were
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RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
as customer acceptance, competitive reactions and
market and economic conditions could derail the potential benefits of its AGB strategy. Initial reactions to
Ryanair’s ‘business-lite’ product from corporate travellers
was sceptical, as they compared it unfavourably to mainstream carriers, such as BA’s business class product,
especially as it does not include incentives such as
loyalty programmes. Others saw Ryanair’s combination of
airports in its network and competitive pricing as potentially attractive for small businesses, as fares were
pitched to be considerably cheaper than other carriers’
business class flexi-fares, but more than its own standard
fares.
It was also a matter of balancing still attractive fares
with more costly service inputs. Historically, the success
of Ryanair’s business model depended on its ability to
control costs to deliver lower fares than competitors while
still earning a profit. Operating in an increasingly
competitive marketplace, with a number of low-fare,
traditional and charter airlines competing throughout its
route network, places some pressure on Ryanair’s ability
to raise fares significantly.
Adapting to seasonality
Ryanair’s growth has been largely dependent on
increasing summer capacity, and decreasing winter
capacity. The policy of seasonally grounding aircraft
presents some risks. While reducing variable operating
costs, it does not avoid fixed costs such as aircraft
ownership costs, and it decreases Ryanair’s potential to
earn ancillary revenues. Decreasing the number and
frequency of flights may also negatively affect Ryanair’s
labour relations, including its ability to attract flight
personnel interested in year-round employment.
Various legal proceedings
Ryanair has been in litigation with the EU for over a
decade about alleged receipt of state aid at certain
airports. Although an EU ruling in 2004 that it had
received illegal state aid from publicly owned Charleroi
Airport was subsequently overturned on appeal, the EU
launched further investigations into allegations of illegal
aid, purportedly subsidising Ryanair at as many as
20-plus publicly owned airports, such as Paris Beauvais,
Lubeck and Frankfurt Hahn in Germany. Competitors
launched other legal challenges against the company.
Ryanair has won some of these cases and lost some
others, but many remain unresolved, as the losing party
always appeals the decision to the EU General Court, a
process that takes some years.
Frequently, Ryanair took the initiative on alleged
illegal aid to rivals. It filed a complaint with the EU
Commission accusing Air France-KLM of attempting to
specific to itself and some were general to the aviation
industry or the budget sector.
Fuel costs
Given that fuel constitutes a key input cost, wide fluctuations in the price and availability of this commodity are
a concern, since these are subject to factors beyond
Ryanair’s control. In these volatile circumstances,
hedging is the only answer. Historically, Ryanair has
entered into arrangements to provide for substantial
protection against fluctuations in fuel prices, generally
through forward contracts covering periods of up to 18
months of anticipated jet fuel requirements. Because oil
prices could change suddenly downward, hedging could
end up being costly if the price had been set before an
unexpected drop. As of fiscal 2015, Ryanair was hedged
at prices below contemporary spot prices. On 20 January
2016, crude oil prices fell to levels 76 per cent below the
previous year’s peak, down to just over $27 a barrel from
$115. Ryanair’s declaration of ‘no fuel surcharges ever’
and its reliance on low fares limit its capacity to pass on
increased fuel costs, especially in the face of its planned
expansion.
Risks associated with the euro
Headquartered in Ireland, Ryanair’s reporting currency is
the euro. With its extensive route system within eurozone
countries, the company and the value of its eurodenominated assets would be adversely affected by a
breakup of the euro or the exit of one or more members
from it. Operating inputs purchased abroad in non-euro
currencies could become more expensive, further undermining profitability. With so much of Ryanair’s business
conducted in the UK, the collapse of the euro against
sterling could be especially difficult. Moreover, as international prices for jet fuel are denominated in US dollars,
Ryanair‘s fuel costs are also subject to exchange rate
risks, exacerbated by a continuing fall in the value of the
euro against the dollar, from a 2008 high of just under
$1.60 to $1.08 in 2015.
Recent strategic initiatives – the jury is still out?
The actions taken as part of Ryanair’s improved customer
services and AGB campaign were intended to increase
passenger traffic, load factor and yields. There are additional costs associated with the initiatives, such as
primary airport fees and marketing expenses, simultaneously reducing ancillary revenues previously earned from
various penalty fees and charges. Although the revenues
from allocated seating and premiums from its BusinessPlus passengers should offset the reduction in ancillary
revenues, there can be no assurance that this will occur.
Ryanair recognises that factors beyond its control, such
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Such disturbances can entail rescheduling passengers, and disputes about compensation, since, according
to EU law, passengers denied boarding or delayed for
more than three hours are entitled to compensation from
the airline. Only circumstances outside the airlines’
control exempt it from such compensation, but Ryanair
claims that the extraordinary circumstances defence has
been very narrowly interpreted by the EU. Ryanair usually
resists paying compensation, mindful that large-scale
compensation payments are especially harmful to airlines
with low fares. Ryanair was appealing a court decision in
the UK that ruled that airlines could not enforce a
two-year limit in its terms and conditions on passengers
claiming flight delay compensation and claims could be
made for up to six years. This could have implications for
retrospective claims of £610m according to the law firm
representing claimants, but in Ryanair’s view, the sum
would be up to £5m.
In August 2012, Ryanair faced an investigation by the
Spanish Ministry of Public Works following emergency
landings of three Ryanair aircraft at Valencia Airport after
the airplanes had run out of fuel. The aircraft had been
diverted to Valencia when they were prevented from
landing at Madrid, due to an electrical storm. The Ryanair
flights, with others, were put in a holding pattern, but only
the Ryanair flights had to instigate emergency procedures
because they were running low on fuel. This incident
raised questions about Ryanair’s fuel policy – to take on
the minimum possible to save money. However, Ryanair
insisted that fuel levels never fell below the permitted
minima during the Valencia incidents, and that all of the
company’s aircraft operate with required fuel levels. If
irregularities were to be found at Ryanair, it could face the
loss of its operating licence for three years, with additional fines of up to €4.5m. Further, the following year, a
group of pilots, deemed to be the Ryanair Pilots Group,
raised safety concerns about the airline. However, Ryanair
claimed that the group did not include Ryanair pilots, and
was a PR front for pilot unions of their competitor airlines,
including KLM, Air France and Aer Lingus.
Ryanair maintains various insurances: aviation thirdparty liability, passenger liability, employer liability,
directors and officers’ liability, aircraft loss or damage,
and other business insurance, consistent with industry
standards. Ryanair believes its insurance coverage is
adequate, although not comprehensive. This insurance
does not cover claims for losses incurred when, due to
unforeseen events, airspace is closed and aircraft are
grounded, such as the closures associated with the ash
cloud. It is almost impossible to insure against what may
be unlimited liabilities. For instance, EU legislation
provides for unlimited liability of an air carrier in the
event of death or injuries suffered by passengers.
block competition after the French airline filed a case,
alleging that Marseille was acting illegally by offering
discount airlines cut-price fees at its second, no-frills
terminal. Ryanair also called on the Commission to investigate allegations that Air France had received almost
€1bn in illegal state aid, benefiting unfairly from up to 50
per cent discounted landing and passenger charges on
flights within France. Adverse rulings on these airport
cases would not have major costs in fines, but they could
curtail Ryanair’s growth if it was prevented from making
advantageous deals with publicly-owned airports and was
confined to the fewer privately-owned airports across
Europe. It could also encourage more rivals to bring
actions against Ryanair.
Three airport authorities were suing Ryanair over
alleged delays in paying airport charges. After it called
for an Irish presiding judge to withdraw on grounds of
bias against Ryanair in previous proceedings, the judge
did withdraw, though not because he admitted Ryanair’s
charges but to avoid delay in the case. He stood by his
previous comments that ‘Ryanair told untruths to and
about the court and . . . that the airline and the truth
made uncomfortable bedfellows’.10
Ryanair has vigorously opposed different continental
European governments’ attempts to move its staff from
British or Irish employment contracts to more expensive
national ones on the basis that they were protecting their
own flag carriers. Ryanair accused the French government of using these contracts to protect Air France-KLM,
as it continues to fight a €9m sanction imposed by a
French court for breaking local labour laws. As shown
above, in the Denmark case, Ryanair was ready to
abandon its bases rather than succumb.
On another legal front, in the UK, Spain and Italy,
Ryanair launched a legal claim against Google and online
travel agent eDreams, which it accused of hosting a
misleading subdomain with Ryanair branding, selling
Ryanair tickets at higher prices than its own. It had
already won a similar case in Germany. eDreams
responded by denying any wrongdoing, but it did change
its website, though not sufficiently to fully satisfy
Ryanair.
Unforeseen events and passenger compensation
In the airline industry, there is always the possibility that
accidents and catastrophic events may occur, due to
natural or man-made causes. Among these are accidents
and safety-related incidents, terrorist highjackings,
outbreaks of contagious disease epidemics like swine flu,
weather and natural phenomena that interfere with flights,
such as the 2010 closure of a significant portion of the
airspace over northern Europe caused by safety concerns
from ash cloud emissions of an Icelandic volcano.
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RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
down, even if there are robust backup procedures in
place; potential unauthorised use of information from
the company’s website; cyber-security risks.
• A potential rise in Irish Corporation Tax, since Ireland
may be under pressure to raise its tax regime from
other EU countries.
• EU regulation of carbon emissions trading.
• Risks related to ownership of the company’s shares
due to restrictions limiting share ownership by non-EU
nationals in EU-based companies to 49 per cent.
However, in late 2015, the EU was considering loosening the rule for individual countries that agree to
abide by strict regulations on state subsidies.
Leading Ryanair into the future
‘It is good to have someone like Michael O’Leary around.
He scares people to death.’ This praise of Ryanair’s CEO
came from fellow Irishman, Willie Walsh, then CEO of
British Airways and later CEO of the International Airlines
Group (IAG).11 O’Leary has been described as ‘at turns,
arrogant and rude, then charming, affable and humorous,
has terrorised rivals and regulators for more than a
decade. So far, they have waited in vain for him to trip up
or his enthusiasm to wane.’12
In fact, O’Leary had been pronouncing his intention to
depart from the airline ‘in two years’ time’ since 2005.
He declared that he would sever all links, refusing to
‘move upstairs’ as chairman. However, in an apparent
change of heart in 2014, he signed a contract up to
2019, replacing his previous year-on-year rolling
contracts. His basic package, before bonuses, for 2015
was €2.4m, up by a third on 2014. In 2015, Michael
O’Leary held 3.8 per cent of Ryanair’s share capital. His
fortune is worth between €750m and $1.3bn, depending
on different reports.
When asked whether he would retire to focus on his
stud farm, O’Leary admitted that what he enjoys most is
working, and he will be involved in Ryanair as long as it
is doing something interesting. Besides, he needed to
keep working to finance his racehorses which were a
‘money pit’, and strictly a hobby. ‘Jesus, I’m only 54. I’m
such a beloved leader here. Can you imagine the devastation I would cause if I announced on Monday I’m
leaving?’ he ‘joked’ in an interview in late 2015.13
For most of Ryanair’s 30-year history, Michael
O’Leary had been operating with two deputy CEOs,
Howard Millar, CFO and Michael Cawley, Chief
Commercial Officer, part of the team that had built up
Ryanair. Both retired as executives in 2014, joining the
board as non-executive directors. Since then, there
have been no deputy CEOs. Although O’Leary consistently praised the contributions and achievements of his
Labour relations
Ryanair has been criticised for refusing union recognition
and allegedly providing poor working conditions. The
British Airline Pilots Association (BALPA) tried to organise
Ryanair pilots in the UK, maintaining the right to ballot
Ryanair pilots to join the union. In July 2006, the Irish
High Court ruled that Ryanair had bullied pilots to accept
new contracts, where pilots would have to pay €15,000
for re-training on new aircraft if they subsequently left
the airline, or if the company was forced to negotiate with
unions during the following five years. Meanwhile,
Ryanair was contesting the claims of some pilots for
victimisation under the new contracts.
Ryanair was ordered to pay ‘well in excess’ of €1m in
legal costs after a court refused the airline access to the
names and addresses of pilots who posted critical
comments about the company, on a site hosted by British
and Irish pilots’ unions. It claimed anonymous pilots were
using a website to intimidate and harass foreign-based
pilots to dissuade them from working for the company.
In late 2015, Ryanair concluded five-year agreements
of pay increases of ten per cent with all 76 of its pilot
bases across Europe and was commencing a similar
process with cabin crew. The Irish Airline Pilots
Association responded to the news by accusing Ryanair
of misrepresenting the real situation that pilots face in
establishing normal industrial relations with their
employer and claiming that the agreement did not cover
contractors who were more than 50 per cent of all pilots.
The company maintains its right to treat its crew operating from bases in other higher paying countries as if it
were on Irish territory, and therefore subject to Irish
labour laws, which are less exacting than those pertaining
in other European jurisdictions. This issue may be
compounded by EU regulations which require the
payment of employer and employee social insurance
costs to be governed by the country where the employee
is based. For instance, social charges in France are
40–45 per cent of wages against 10.75 per cent in
Ireland.
Notwithstanding the adversarial incidents in its industrial relations history, Ryanair appears to have no problems recruiting staff, including pilots.
Other risks and challenges
As listed in its own report, Ryanair faced other risks,
some specific and some generic to the industry:
• Prices and availability and financing of new aircraft.
• Dependence on key personnel (especially CEO Michael
O’Leary).
• Dependence on external service providers.
• Dependence on its internet website, should it break
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Sydney Finklestein identified these signs under five
headings – ignoring change, the wrong vision, getting too
close, arrogant attitudes and old formulae. But having
demonstrated the extent that O’Leary meets the failure
criteria, the columnist concluded: ‘So, is it time for
Ryanair to dump Mr O’Leary? Depends whether you
prefer the track record of one of the most successful
businessmen in modern aviation, or the theories of a US
academic from an Ivy League school.’ Would Professor
Finkelstein’s diagnosis be proven wrong after CEO
Michael O’Leary’s conversion to customer service and
the ‘AGB’ plan in 2014?
Notes and references
1. €1 = £0.8 = $1.3 (at the time of writing).
2. F. Gillette, ‘Ryanair’s O’Leary mulls one-euro toilets, standing passengers’, Bloomberg.com., 2 September 2010.
3. R. Rigby, ‘Social media is capitalism with a human face’, Financial
Times, Executive Appointments section, 26 November 2015, p. 4.
4. Statement from Ryanair’s half yearly results presentation, 6 November
2006.
5. LEX, Ryanair, Financial Times, 3 June 2009, p. 16.
6. L. Noonan, ‘O’Leary admits stake in Aer Lingus was stupid disaster’,
Irish Independent, 6 March 2009.
7. J. Guthrie, ‘Sir Stelios beknighted as suits prove bolder risk takers’,
Financial Times, 30 July 2009, p. 16.
8. S. Lyall, ‘No apologies from the boss of a no-frills airline’, New York
Times, 1 August 2009 (The Saturday Profile).
9. D. Crouch, ‘Ryanair closes Denmark operation to head off union row’,
The Guardian, 17 July 2015.
10. M. Carolan, ‘Judge pulls out of Ryanair case without altering previous
findings or comments’, Irish Times, 22 June 2010.
11. K. Done, ‘O’Leary shows it is not yet the end for budget air travel’,
Financial Times, 2 August 2008, p. 11.
12. The FT ArcelorMittal Boldness in Business Awards, 2009, Financial
Times supplement, 20 March, p. 21.
13. T. Powley, ‘Michael O’Leary: ‘I’m Irish so you’re born with bullshit on
tap’, Irishtimes.com., 5 October 2015.
14. B. Groom, ‘Leaders of the new Europe: business stars chart a course
for the profits of the future’, Financial Times, 20 April 2004.
15. G. Bowley, ‘How low can you go?’ Financial Times Magazine, No. 9, 21
June 2003.
16. Ibid.
17. S. Lyall, ‘No apologies from the boss of a no-frills airline’, The New York
Times, 1 August 2009 (The Saturday Profile).
18. Ibid.
19. S. Creaton, ‘Turbulent times for Ryanair’s high-flier’, Irish Times,
31 January 2004.
20. John McManus, ‘Maybe it’s time for Ryanair to jettison O’Leary’, Irish
Times, 11 August 2003.
management team, Ryanair was inextricably identified
with him. He was credited with single-handedly transforming European air transport. In 2001, O’Leary
received the European Businessman of the Year Award
from Fortune magazine; in 2004, The Financial Times
named him as one of 25 European ‘business stars’ who
have made a difference, describing him as personifying
‘the brash new Irish business elite’ and possessing ‘a
head for numbers, a shrewd marketing brain and a ruthless competitive streak’.14
Present and former staff have lauded O’Leary’s leadership style: ‘Michael’s genius is his ability to motivate
and energise people . . . There is an incredible energy in
that place. People work incredibly hard and get a lot out
of it. They operate a very lean operation . . . It is without
peer,’ said Tim Jeans, a former sales and marketing
director of Ryanair.15
O’Leary’s publicity-seeking antics are legendary. These
included his ‘declaration of war’ on easyJet when, wearing
an army uniform, he drove a tank to easyJet’s headquarters at Luton Airport. When Ryanair opened its hub at
Milan Bergamo he flew there on a jet bearing the slogan
‘Arrividerci Alitalia’. He has dressed as St Patrick and as
the Pope to promote ticket offers. A self-confessed ‘loudmouth’ whose outspokenness has made him a figure of
public debate, ‘he is called everything from “arrogant pig”
to “messiah”.’16 His avowed enemies include trade
unions, politicians who impose airport taxes (calling
former UK Prime Minister, Gordon Brown a ‘twit’ and a
‘Scottish miser’17), environmentalists, bloggers who rant
about poor service, travel agents, reporters who expect
free seats, regulators and the EU Commission, and airport
owners like BAA, whom he once called ‘overcharging
rapists’.18 An EU Commissioner, Philippe Busquin,
denounced Michael O’Leary as ‘irritating . . . and insists
he is not the only Commissioner who is allergic to the
mere mention of the name of Ryanair’s arrogant chief.’19
An Irish Times columnist suggested that ‘maybe it’s
time for Ryanair to jettison O’Leary’, asserting that he
has become a caricature of himself, fulfilling all 15
warning signs of an executive about to fail.20 Professor
RYANAIR: THE LOW FARES AIRLINE – ‘ALWAYS GETTING BETTER’?
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