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martes, 25 de diciembre de 2012

ESTRATEGIA: Ryanair´s low cost flights (in English)


1. WHO IS RYANAIR

Ryanair is the most famous low-cost airline in the world. This company is dodging the crisis like no other. In fact, Ryanair is the airline with the world´s highest growth rate in the last 15 years, expanding its business and activities through the whole Europe, and becoming the most profitable airline in the world.


Ryanair has changed completely the way of travelling by plane: the traveler becomes a luggage, and the luggage disappears until the slightest expression, like all the luxuries and extra-services that all the airlines were offering a few years ago.


This airway has upended the airline market and has changed the traditional rules of the game. The goal: reducing costs to the maximum for doing the tickets cheaper, and thus achieving that more and more people travel in one Ryanair´s plane. Following this policy, the Irish company has become the world´s most profitable airway.


At present, Rynanair is the low-cost airline that makes more flights in Europe. In fact, the company has more than 1,100 routes between 147 airports and 44 bases, and each day more than 1,000 Ryanair planes take off from some European airport.

In Spain, the low-cost airline is having a growth rate of above 20% in the last years. Here Ryanair is fighting with the Iberia Group for achieving the first place in the market by offering great deals. Meanwhile Iberia is trying to compete at the low-cost segment through Vueling (which is owned a 46%) and with the launching of Iberia Express, its new low-cost subsidiary.



2. THE BEGININGS OF THE AIRLINE 

Ryanair was founded in 1985 by Tony Ryan, an Irish businessman who wanted to break the duopoly of the flights between London and Ireland, that just were operated by British Airways and Aer Lingus until this moment. At the begining, the company had just a small 15 seats airplane which flew between the airports of Waterford (Ireland) and Gatwick (London).

In 1986, the company added a new line between Dublin and London (Luton). Around this year, Ryanair carried 82,000 passengers.


The total number of flights and frecuencies were increasing during next years, but the airway started to offer losses at the end of 80´s. Due to this fact, in 1991 the company appointed Michael O´Leary to turn it profitable again. O´Leary would change completely the operations and business model of the company, laying the foundations for what Ryanair is at present. He travelled to the USA for studying the low-cost model of Southwest Airlines, and he applied this model to the Irish company.



3. THE BUSINESS MODEL AND THE SECRET OF ITS SUCCESS

Consumers demand has changed in the last decade. Nowadays consumers know they can save buying airplane tickets, and they choose this option in a large proportion. This fact has even made that many people who time ago never flew, now are being users of low-cost airways.


The secret for offering low fares that Michael O´Leary discovered in the USA, and the features of the low-cost model applied in Ryanair are the next:


1) The airplanes must be always working: each airplane must cover many diary frecuencies. Ryanair´s airplanes must be always flying: "one plane that is stopped over the land doesn´t generate money". The idea: exploit the airway infraestructure for achieving the maximum number of flights each day. Saying it from the economic point of view: maximizing the rotation, being constant the fixed costs and, in this way, exploiting the economies of scale.

As the company has to hold on a fixed costs estructure each day (amortization of its airplanes fleet, staff expenses, aeronautical charges...) we can distribute these fixed costs between more tickets if we make more flights per day, doing each ticket cheaper in this way. One Ryanair´s plane can do the double number of flights per day in comparison with one airplane of another airway. But this is possible, because Ryanair has been able to generate demand enough for so many routes, with all its airplanes crowded.


2) Speed and punctuality: for achieving the first point, it is very important that all the operations inside the airline are done very quickly (the infraestructure and the staff must be ready for this) and always with punctuality (all the flights must take off on time). Ryanair makes every efforts for achieving the punctuality in every flights, not only for getting the satisfaction of the customers, but for being able to make all the flights scheduled each day and exploit very well its airplanes fleet.

In this way, if you are a passenger waiting at the airport for travelling in one Ryanair´s plane, you will probably see the airplane landing (the airplane will never be stopped waiting for you at the landing strip), being refueled and checked in just a few minutes, being ready for the next flight in a record time. Ryanair has changed the rules: now the passengers have to wait the airplane, and the airplane doesn´t never wait for the passengers. The important thing is to achieve that the airplane never takes off with a delay, and the passengers must scramble and take care of themselves for being on time. In fact, flying with Ryanair you can feel that the they don´t care the customers: they are treated just like goods that the airplanes have to carry from one city to another one.

Critical voices say that the company treats the people like they were "cattle", but the truth is that the majority of the users who fly with the Irish airline repeat. It is possible that the segment of public who usually travels with this airway is very price sensitive, and they don´t care to resign the comfort and a good personal treatment in exchange for saving on the fares. But the experience says that each time this segment is bigger, and more and more people want to travel with a low-cost airway and save money.

One curious thing is how Ryanair achieves the passegers to be punctual, and crowd all its airplanes in a record time. The answer: playing with their "evil passions" and stressing the people. Ryanair doesn´t numerate its airplanes seats, and the space for luggage on board is very limited. With these 2 limitations, the airway makes that people put all their interest in being very punctual at the boarding queue, because the passangers know that the last people on boarding will have the worst seats and even they will not have enough space for their luggage (which will probably have to be placed at the opposite corner inside the airplane).


This is one of the reasons why you can feel a lot of tension at the queues when you fly with Ryanair. The other reason is the implementation of its limited baggage policy, when before of boarding the airplane, the staff of Ryanair (as they were one kind of police inspectors and you were the criminal) look suspiciously to the members of the queue, and check -one by one- the right size of their suitcases. The goal: not allow that anyone can travel with more luggage for free if Ryanair can charge for this "extra-service", and reduce the total weight of the airplane for saving costs (if the airplane has less weight, it will need less amount of fuel for flying).

The airway also achieves this high speed embarking and disembarking its airplanes by opening both doors for the passengers, front and rear, doing -in this way- more fluid the traffic of people.


3) Every airplane must be always crowded: each flight must be profitable, and Ryanair is one of the few companies able to achieve an average occupancy on its planes above 85%, often being 100%. Offering very cheap fares, one punctuality commitment and travelling to interesting destinations, the company crowds all its airplanes. If one route is deficient and there is not public subsidies to cover it, this route will be closed.

4) Having a reduced costs structure and taking out the extra services and luxuries on board: Ryanair doesn´t have business class in its airplanes, there is not free food neither newspapers or any other kind of free luxury on board. If one passenger wants something else than just traveling, he or she has to pay for it. In fact, the company has already raised the possibility of charging for using the toilet on board. Inside the airplanes there is no luxury, no special decoration neither extra comforts. The headboard of the seats is made of plastic, and everything is so simple inside that the airplane could look like -exaggerating a few- a "bus with wings". The costs structure is limited, and in this way the cost of each ticket is less and its price is cheaper.


It is well-known that passengers can´t carry big suitcases and just one per head flying with Ryanair. If you want to travel with more luggage or your suitcase is bigger than the accepted measures, you will have to pay a penalty. The Irish airway also saves costs filling its airplanes with less amount of fuel than other airways (but always complying with the minimun required by law). With less weight (less suitcases and fuel), the airplanes can waste less and are more punctual.


On the other hand, unlike other companies, Ryanair doesn´t pay "millionaire" salaries for its pilots and much less for the other members of the crew. In addition, the staff of the company must be polyvalent because they have to do several different activities: serve the customers, clean up the airplanes, catering on board, etc.

In addition, travelling with this airway you will probably have to walk from the terminal to the airplane, and from the airplane to the terminal. Many times there aren´t buses that carry you to the airplane, neither other facilities that could increase the costs structure. The services of "handling" are reduced to the minimun.  

Other way for saving costs is selling the tickets just on the internet. In this way, Ryanair doesn´t need a physical structure for doing the administrative work. Thereby it is not necessary staff for serving the customers, printing the tickets, bookings... Selling the tickets on the internet, even the cost of the paper where they are printed is assumed by the customer. In addition, with the price discrimination system by date and occupancy, the company always achieves to sell almost all the places and crowds the airplanes.


In this low cost strategy, it is also important to say that the airports where Ryanair operates often aren´t the most important or the main. Flying from cheaper airports, the airway can also save costs.

With all these strategic decisions, the company is able to reduce its cost structure around a 30% in comparision to the traditional airways, doing its airplanes to be crowded and profitable.

5) Exploiting each flight for doing business on board: in addition to the price of the extra suitcase, once on board, the crew offer the customers all kind of items for buying: food, beverages and snacks, lottery tickets, gifts, newspapers, perfumes with special discounts... Everything is good to make more cash in each flight.


On the other hand, Ryanair also has advertisements inside its airplanes, normally from institutional and touristic agents, and the company is always looking for new ways for making business.



4. CONTROVERSIES RELATED WITH RYANAIR

There are many critical voices against the model of business developed by Ryanair. It is possible that many of them come from competitors (or not), but the main critics leveled against the Irish company are the next:

1) There is a costs saving in excess that could jeopardize the safety of the flights.





















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2) Customers are mistreated.


3) Controversial campaings of marketing and advertising.


4) The shameless public image of its CEO, Michael O´Leary.



3 comentarios:

  1. Wow! Thank you for sharing such great information. Could you please help me in finding out more detail on cheap flights

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  2. Thank you for the valuable information. I am looking online flight ticket booking services. could you please help me to find out the best one.

    ResponderEliminar