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RYANAIR

By Professor Geoff Lancaster

Overview

Ryanair pioneered low-cost air travel in Europe. The brand has become one of the best

known in the world (a Google survey recently found that Ryanair is in the top five

leading brands, alongside Ferrari and Sony). (Creaton, 2004: 3).

Ryanair operates a low-fares, scheduled, passenger airline that serves short-haul, point-to-

point routes in Europe from its bases at Dublin, London Stansted, Shannon, London

Luton, Glasgow Prestwick, Brussels (Charleroi) and Frankfurt (Hahn) airports.

This low cost revolution pioneered by Ryanair has reduced the price of air travel to below

the cost of bus and train transport and given millions of people the opportunity to visit

friends and family across Europe. 24 million people are expected to have traveled with

Ryanair in 2004. It is expected that 50 million people will use the airline during 2010.

Airlines compete primarily on 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.

Profits after tax 1998: 45,525, 000

Profits after tax 2002: 150,375,000

Since Ryanair began to introduce its low cost operating model in the early 1990s, its

passenger volumes and scheduled passenger revenues have significantly increased as

Ryanair has substantially increased capacity.

Ryanairs annual scheduled booked passenger volume has increased more than tenfold

over the past decade, from approximately 945,000 passengers in calendar year 1992 to

approximately 11.1 million passengers in fiscal year 2002.

Source: Securities and Exchange Commission File: September 30, 2002, signed by Michael OLeary, CEO

of Ryanair

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1. History

In operation since 1985, Ryanair began to introduce a low cost operating model under a

new management team in the early 1990s. At September 30, 2002, with its fleet of 44

planes, including 21 Boeing 737-200A jet aircraft and 23 Boeing 737-800 next

generation aircraft, Ryanair offered approximately 300 scheduled short haul flights per

day which serve 11 locations in England, five locations in Ireland, two locations in

Scotland, one in each of Wales and Northern Ireland and 34 locations in continental

Europe. (As filed with the Securities and Exchange Commission on September 30, 2002)

The 737-800 aircraft has more seats (189) than the A320 (180) or the 737-700 (149). It

gives us more revenue opportunities and lower per seat operating costs. Its fuel

consumption and maintenance cost performance is outstanding, and since we already

operate 20 of them, this growth in fleet will not disrupt our 25 minute turnarounds, but

will continue to yield economies of scale in operations, maintenance and training

(Michael OLeary. http://www.ryanair.com/investor/results/pressrelease31mar.html)

In the mid-90s, Ryanair used the new aircraft to create a UK-Ireland network based at

its headquarters in Dublin. Initially the strongest routes were from Gatwick and Luton to

the Irish capital, but quickly a whole network of options was to build up, from Cardiff toTesside. Then, crucially, Ryanair discovered Stansted.

One important step to reduce costs was to look for low cost airports, according to

OLeary the decision where to fly is based on that airport which provide them with a very

good package of facilities as well as efficient facilities, at low cost.

OLeary stated: Whichever airport provides us with the best package is the next new

route we open.

1.1 The Beginning of a New Administration

We dont look upon ourselves as an Irish airline any more, we look upon ourselves as a

European Airline- Michael OLeary.

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OLeary, chief executive of Ryanair, joined before the end of 1988. His strong vision and

focus on keeping costs down turned the small airline into a carrier that flies to more

European destinations from Stansted that British Airways does from Heathrow.

OLeary described the company as like Superman, going UP, UP, UP and AWAY.

According to him, Ryanair will be Europes largest airline in the next 8 years. His aim is

to sustain a disciplined growth strategy which will yield to lower costs, lower fares,

faster growth and increasing profits.

2. Airlines Industry Overview

2.1 European Airline Market

The Western European air transport market has historically been subject to significant

governmental regulations, both from the EU and individual countries. However, in the

1980s, the EU commenced a programme to reduce the level of regulation, substantially

reducing the ability of individual EU Member States to restrict access to routes for air

travel.

Since April 1997, EU carriers have been able to provide passenger service on domestic

routes within individual EU Member States outside their home country of operation

without restriction. There has since been a large increase in the number of airlines

providing scheduled passenger service in the EU.

Notwithstanding the overall increase in the number of carriers, the majority of new

entrants are quite small, although this may change, and the overall market has been

volatile, with several new entrants ceasing operations. The major causes of their failure

were competitive responses from major airlines serving the same routes, including a

number of sustained price wars and difficulties new entrants encountered in obtaining asufficient number of slots at major airports at peak times along with rapid, unmanageable

expansion.

The independent carriers include low-fares, no-frills, carriers such as Ryanair, EasyJet

(who recently acquired Go) and carriers providing frills services more comparable to

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those of the flag carriers, but at slightly lower fares than the flag carriers. e.g. British

Airways.

Certain small carriers, including Virgin Express and Deutsche BA Luftfahrt GmbH

(which Easyjet now has an option to acquire) have become franchises of major airlines,

sharing some ticketing and other distribution systems with the flag carriers. These

franchises serve mainly regional routes where flag carriers cannot operate profitably due

to their high overhead costs and serve to feed regional passengers to their flag carrier

partners for interline service.

Charter operators currently account for a significant portion of total intra-EU annual

passenger traffic and operate primarily on routes between northern and southern Europe,

targeting mainly price-conscious leisure travellers.

Although the number of promotional fares has increased and average fares have fallen on

certain routes since the liberalization measures came into effect in 1993, substantial

across-the-board reductions in air fares such as those that followed the deregulation of the

air transport market in the United States in 1978 have not yet been experienced in

Europe.

2.2 Ireland-U.K. Market

The market for scheduled passenger air travel between Ireland and the U.K. can be

divided into two principal segments, the Dublin-London route and the routes between

Ireland and other locations in the U.K. outside of London.

The Dublin-London route (including service from Dublin to each of Heathrow, Gatwick,

Stansted, Luton and London City airports) is currently served by four carriers. Ryanair

serves three London airports (Stansted, Gatwick and Luton), Aer Lingus serves three

airports (Heathrow, Gatwick and London City) while British Midland and CityFlyer

Express each serves one airport (Heathrow and Gatwick, respectively).

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For the fiscal years ended March 31, 2001 and 2002, passengers flown on Ryanairs

routes between Dublin and London accounted for approximately 19.3% and 15.4%,

respectively, of Ryanairs total passenger revenues, with the Dublin-London Stansted

route alone accounting for approximately 10.9% and 8.8%, respectively, of such total.

(www.ryanair.com/investor/results/presrelease31mar.html)

It must be noted that Ryanairs business would be adversely affected by any circumstance

causing a reduction in general demand for air transportation services in Ireland or the

U.K., including, but not limited to, adverse changes in local economic conditions,

political disruptions or violence (including terrorism) or significant price increases linked

to increases in airport access costs or taxes imposed on air passengers.

As long as a significant proportion the Companys operations remain dependent upon

routes between Ireland and the U.K., the Companys future operations and growth will

be adversely affected if this market does not grow and by increased competition in this

market.

2.3 Service to Continental Europe

In 1997, Ryanair began service on new routes to four locations in continental Europe

(Dublin to Paris (Beauvais) and Brussels (Charleroi), and London Stansted to Stockholm

(Skavsta) and Oslo (Torp). Since that time Ryanair has substantially expanded its

continental European service and now serves a total of 34 routes.

In continental Europe, Ryanair established its first continental European bases at Brussels

(Charleroi) and Frankfurt (Hahn). Ryanair competes with a number of flag carriers,

including British Airways, Lufthansa, Air France, KLM and Alitalia, and a larger number

of smaller carriers, including low fares airlines such as easyjet with the number and

identity of its competitors varying according to the route flown.

2.4 Critical Success Factor: Safety

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In its 18 years of operations, Ryanair has not had a single incident involving major injury

to passengers or flight crew. It has not experienced any reportable incidents involving

security breaches, such as hijackings. Ryanair is highly committed to safe operations.

Safety training procedures, investment in safety-related equipment and the adoption of an

internal confidential reporting system for safety issues demonstrates some of the

measures the company takes to ensure this critical success factor in airline operations is

well managed.

3. Running Ryanair: Strategy and Operations

3.1 Ticket Sales

In order to reduce costs to a minimum, Ryanair changed its way of selling tickets by

adopting a B2C strategy using the internet. While the agent tapped into a computer

reservations system (CRS) and booked the flights, the travel agency picked up 9 per cent

commission, which was the industry standard for international flights. On a typical 59

return flight from Manchester to Dublin, this earned the agent barely 5; with the host of

the CRS collecting almost as much. (Calder Simon, 2003)

Unilaterally, Ryanair decided to drop commission to 7.5 per cent, in line with the rate

paid on domestic flights. Predictably, the agents howled, saying they were being asked to

sell tickets at a loss. Ian Smith, then boss of Britains biggest chain of travel agents, Lunn

Poly, announced a boycott: his 800-plus Holiday Shops would no longer sell Ryanair.

By 2001 at which point Ryanair was selling the vast majority of seats online, the airline

sent out a letter to every agent in the country explaining that, at the end of a fairly

painful retrenchment of Ryanair amongst its travel agency partners it would no longer

sell through the trade.

Our website, www.Ryanair.com made a very significant contribution to our growth.

Internet sales are now running in excess of 65% of all bookings, which when added to

Ryanair Direct means that we are now taking over 90% of all bookings direct. Travel

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Agency sales now account for just 8% of our bookings and still falling .Michael

OLeary. http://www.ryanair.com/investor/results/pressrelease31mar.html

3.2 Spotting Opportunity in Disaster

Ryanair reacted to the events of 11 September (9/11) by keeping all its staff, hiring more

people and continuing to grow, when almost every other airline was doing the opposite.

In the aftermath of the Trade Center attacks, OLeary saw immediate opportunities to cut

costs. Taking advantage of Ryanairs big cash reserves and the dire state of the market for

new planes, he ordered 100 Boeings, with options on 50 more. It was the worlds biggest

order of 2001. (Calder Simon, 2003)

Ryanair announced on 5th February 2002 record traffic and profit figures for Q.3 (end 31

Dec01). This quarter covers trading in the immediate aftermath of Sept 11 and the

weaker winter months. Despite these adverse conditions, passenger traffic grew by 30%

to 2.7 million and load factors rose to 79%.

Average yields declined by 10% due in large measure to the low fare promotions which

Ryanair launched immediately following Sept 11. As a result total revenue grew by 18%.

Thanks to continued tight control, operating costs rose by 15%, a slower rate than

revenue growth. Unlike many other airlines in the world following Sept 11, Ryanairs

margins rose from 19% to 21% for the quarter and net profit increased by 35% to

28.8m. http://www.ryanair.com/investor/results/pressrelease31mar.html

Summary Table of Results (Irish GAAP) - in

Quarter Ended Dec 31, 2000 Dec 31, 2001 % Increase

Passengers (incl. no shows) 2.1m 2.7m + 30%Load Factor (incl. no shows) 77% 79% + 3%

Revenue 114.9m 135.5m + 18%

Profit after tax 21.3m 28.8m + 35%

Basic EPS (Euro Cent) 3.04 3.98 + 31%

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These are a very strong set of results which underline the resilience of Ryanairs unique

low fares model. Ryanair led the fight back following Sept 11 by slashing fares and

offering one million seats for sale at just 9.99. It was important to respond to terrorism

by stimulating air travel and promoting consumer confidence. The travelling public

responded to the lower fares in huge numbers with the result that we carried more than

10 million passengers in a calendar year for the first time in our history.

3.3 Acquiring Buzz

From the summer of 2002, Ryanair has had to relinquish its title of Europes biggest no-

frills airline, because of easyJets takeover of Go. However in February 2003, Michael

OLeary surprised the aviation world by announcing the acquisition of its rival at

Stansted Buzz.

At a press conference OLeary announced that the price was so low that Ryanair could

not turn the opportunity down. He took delight in comparing the 3m Ryanair paid for

Buzz with the 374m easyJet had spent on Go. The Dublin-based group said it would

close a number of Buzzs unprofitable routes, while increasing the frequency and

reducing the cost of other routes. (Calder Simon, 2003)

3.4 Future Growth

Ryanair believes it will have opportunities for continental growth by:

Initiating additional routes from the U.K. to other locations in continental Europe that

are currently served by higher-cost, higher-fares carriers.

Increasing the frequency of service on its existing routes out of London, Glasgow

Prestwick, Brussels and Frankfurt.

Starting new routes within the U.K.

Considering possible acquisitions that may become available in the future.

Landing at other airports within its existing route network and establishing more new

bases in continental Europe. www.ryanair.com/download/DCRyantextCLN.PDF

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Ryanair expects to see its passenger numbers grow at rate of over 20% in the next seven

or so years, as a result of assured fleet and network expansion. By 2010, it expects to

account for about 9% of gross passenger numbers and more than 60% of the low-cost

segment.

3.5 Operational Requirements

According to Donne Michael (in Low Cost Airlines) the operation of Ryanair is like the

rest of commercial aviation, in that it depends on an established air transport environment

in which to flourish. They require communities of sufficient size to justify the existence

of an already highly-developed, efficient and safe aviation infrastructure. He highlights

that they need efficient airports, not necessarily grand in scale, but swift and efficient to

move through, comparatively inexpensive to use and reasonably placed in relation to

local communities so that transit times on the ground to and from city and town centres

are smooth and convenient and reasonably priced.

In this LCA (low cost airlines) model, they use well-proven aircraft types which are

reasonably inexpensive to buy and to fly. They base their operations on high frequencies

(up to seven or eight or even more flights on a given route each way) with swift

turnaround times. The length of the journeys is another aspect Michael mentions Shorthauls mean less fuel consumed while the discomforts of more spartan seating and limited

food and beverage availability can be tolerated better than they could on long flights

....the longer the distance, the fewer flights in a day, and the less revenue earned.

Since Ryanair began to introduce its low cost operating model in the early 1990s, its

passenger volumes and scheduled passenger revenues have significantly increased as

Ryanair has substantially increased capacity.

The combination of expanding passenger volumes and capacity, high load factors and

aggressive cost containment has enabled Ryanair to generate increase operational profits

and profits after taxation. Ryanairs operating profit increased from 84.1 million in

fiscal year 2000 to 114.0 million in fiscal year 2001, and to 162.9 million in fiscal year

2002, while profit after taxation increased from 72.5 million in fiscal year 2000 to

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104.5 million in fiscal year 2001 and to 150.4 million in fiscal year 2002 . http://

www.ryanair.com/download/DCRyantextCLN.PDF *See appendix I for a more detailed financial analysis.

Ryanairs future operations will be affected by various factors:

overall passenger traffic volume,

the ability to finance its planned acquisition of aircraft,

its ability to discharge the resulting debt service obligations,

economic and political conditions in Ireland, the U.K. and the EU,

seasonal variations in travel,

government regulations,

fuel prices, foreign currency fluctuations,

competition,

public perceptions of safety on low-fares airlines,

aircraft acquisition and leasing costs,

future fuel cost increases as a result of the current shortage of fuel production

capacity and/or production restrictions imposed by fuel oil producers.

maintenance expenses which might increase as a result of Ryanairs fleetexpansion and replacement programme,

costs of insurance coverage for certain third party liabilities arising from acts of

war or terrorism which has increased dramatically as a result of 9/11.

3.5.1 Ancillary Services

Ryanair offers a variety of ancillary, revenue-generating services in conjunction with its

core transportation service, including onboard merchandise, beverage and food sales,

charter flights, cargo services, accommodation reservation services, advertising, travel

insurance, car rentals and rail and bus tickets. Ryanair distributes car rentals,

accommodation services and travel insurance through both its website and its traditional

telephone reservation offices. Management believes that providing these services through

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the internet allows Ryanair to increase sales, whilst at the same time reducing costs on a

per unit basis.

3.6 Reservations System

Passenger airlines generally rely on travel agents for a significant portion of their ticket

sales and pay travel agents a commission for their services. Following the introduction of

its website-based reservations program, Ryanairs reliance on travel agents has been

eliminated.

Recently Ryanair initiated significant changes in it reservations operations with the aim

of improving direct contact between its customers and its own reservations centre. In

1996, the company transferred its reservations operation from two locations in London

and Dublin to a single new facility in Dublin operated by Ryanair Direct Limited, and

arranged for callers to be able to reach the centre from anywhere in the U.K. for the price

of a domestic call.

The airline has also entered into agreements with call centre operators to provide foreign

language reservations services to customers in France, Italy, Germany, the Netherlands

and Scandinavia. Management believes that these companies will provide competitively

priced reservation services in language other than English, which will in turn mean that

Ryanair does not have to recruit and train foreign language speakers for its Dublin

reservations centre.

In August 1999, Ryanair launched an internet-based reservation and ticketing service that

allows passengers to access its reservations system through Ryanairs website at

www.ryanair.com. In January 2000, the system was enhanced and integrated with

Ryanairs new Flightspeed reservations system. Passengers can now make reservationsand purchase tickets directly through the website.

The level of internet bookings has grown rapidly, accounting for approximately 92% of

all daily reservations as of September 2002. Management anticipates that the internet-

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based direct sales system will allow it to continue to benefit from substantially reduced

distribution costs.

3.7 Aircraft

As of September 30, Ryanairs owned fleet consisted of 21 Boeing 737-200A aircraft,

each having 130 seats and 23 Boeing 737-800 next generation aircraft, each having 189

seats. On January 2002, Ryanair announced that it had entered into a new series of

agreements with Boeing to purchase an additional 100 new Boeing 737-800 seat aircraft

over a six-year period from December 2002 to December 2008.

Ryanairs purchase of the 737-800 aircraft under the 1998 contract is being financed by a

combination of a bank loan facility supported by guarantee from the export Import Bank

of the United States and cash flow generated from the Companys operations. The airline

is investing in its employees as well, currently owns and operates 737-200 and 737-800

flight simulators for pilot training, and recently entered into a contract to purchase two

additional 737-800 flight simulators from CAE Electronics Ltd of Quebec, Canada.

http://www.ryanair.com/investor/results/pressrelease31mar.html

4. Marketing

European low-fare airline market share, 2002

Airline Passengers (000) Percentage of low

Cost market

Percentage of total

market

Ryanair 6939 34.6 2.3

EasyJet 6262 31.2 2.1

Virgin Express 2976 14.8 1.0

Go 2823 14.1 0.9

Buzz 1080 5.4 0.4Total 20,080 100 6.7

www.ryanair.com/charter_home.html

4.1 Ryanairs Marketing Strategy: Price

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At the business unit level, firms face choice about how to compete with rivals. Porter

identified two basic types of competitive advantage: low cost or differentiation

(McDonald, 2003). Management of Ryanair adopted the cost leadership strategy to gain

competitive advantage on the market and started the knock-out game by the means of

price war. In 2001, its passenger numbers rose by 35% to 7.4 million and pre-tax

profits increased by 37%. In contrast to the difficulties experienced by most of Europes

national flag carriers this was an impressive performance.

Ryanairs success, based on offering low-priced, no frills service, is modelled on South

West Airlines of the USA. Under this model costs are driven down in a variety of ways:

No in-flight meals are served

Cabin crews do the cleaning, speeding up turnaround times and allowing aircraft to

fly more hours everyday

The fleet comprises one type of aircraft, the Boeing 737, reducing costs such as parts

and maintenance

Using secondary airports at which landing charges are low (and sometimes zero)

By keeping out of the market for connecting flights, aircraft are not delayed waiting

for passengers

Emphasis is on direct sales: in 2001/2002 70% of Ryanairs tickets were booked over

the Internet, 22% by phone and just 8% through travel agents; this saved the company

62% in selling costs

(Ryanair competitive strategies, The Economist, issue 26 May 2001)

4.2 Customer service

Ryanairs marketing consists of:

Determining passenger needs

Selling tickets

Communication with passengers

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Responding to feedback.

The objective is to create value for a potential ticket buyer, so that they become on-

going customers. At Ryanair this needs to be achieved in a cost-effective manner, fitting

in with company strategy. Competitive advantage rests primarily in the low prices of

Ryanair tickets. However, Ryanair claims that its success is due not only to low fares, but

also to a winning combination of a good on-time record, friendly and efficient crew and

good service. The company also claims (contrary to popular opinion) that the company

puts emphasis on customer feedback illustrated as follows:

Feedback

Ryanairs Record of Service:

On-Time punctuality 93.5%

Complaints/1000 passengers = 0.43%

Baggage complaints/1000 passengers 0.74%

Complaints answered within 7 days 100%

(Charles F. Banfe, 2003)

4.3 Advertising

Ryanairs primary marketing strategy is to emphasise its widely-available low fares. In so

doing, Ryanair primarily advertises its services in national and regional newspapers in

Ireland and the U.K. as well as on radio and television in these markets. In continental

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passenger needs& demands

Interrelatedmarketingstrategy

Provide total

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Europe, Ryanair advertises primarily through regional and national newspapers, as well

as on radio, billboards and other local media. Currently, the slogan Ryanair.com, the

Low Fares Airline is prominently featured in all of the airlines marketing to build its

brand identity.

Other marketing activities include the distribution of advertising and promotional

material and cooperative advertising campaigns with other travel-related entities,

including local tourist boards.

Ryanair generally runs special promotions in coordination with the inauguration of its

service into new markets. Starting approximately four to six weeks before the launch of a

new route, Ryanair undertakes a major advertising campaign in the target market and

local media and editorial attention frequently focuses on the introduction of Ryanairs

low fares.

Ryanairs sales teams also visit each area and target pubs, clubs, shopping malls,

factories, offices and universities with a view to increasing consumer awareness of the

new service.

4.4 Internet

During January 2000, Ryanair converted its host reservation system from the BABS

(British Airways Booking System) to a new system called Flightspeed, which it operates

under a five year hosting agreement with Acenture Open Skies. Open Skies provides the

reservations systems for most of the low-fares carriers in Europe and many of the smaller

low-fares carriers in the United States. As part of the implementation of the new

reservation system, Open Skies and Ryanair jointly developed an Internet booking

facility called Takeflight. The Takeflight system allows Internet users to access Ryanairshost reservation system and to confirm and pay for reservations in real time through

Ryanairs website Ryanair.com.

Ryanair launched its Takeflight Internet booking system in mid January 2000. Since then

it has heavily promoted its website through newspaper, radio, television advertising with

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the result that internet bookings have grown rapidly, accounting for in excess of 92% of

all reservations on a daily basis as of September 2002.

Today, the Web accounts for 95% of overall bookings. Ryanair has been named the most

popular airline on the Web for 2003 by Google. Much emphasis is placed on Internet

marketing and more routes are constantly being added to update the already extensive

network. Besides online booking http://travel.yahoo.com, additional facilities such as

flight search, hotels, cars and cruises reservations, deals, travel guides, interest guides

(such as top beaches, top family vacation etc) top destinations are also posted on the

website. (www.luchzak.be/article-topic-21.html)

5. Human Resource Management

Ryanair is committed to the practice of continuous appraisal and encourages counselling

to develop its employees.

5.1 Training

Ryanairs flight operations and customer ground operation personnel undergo recurrent

training. A substantial portion of the initial training for Ryanairs cabin crews is devoted

to safety procedures and cabin crews are required to undergo annual evaluation and fire

drill training during their tenure with the airline. Ryanair pays for the recurrent training of

employees and has established an in-house apprenticeship programme to train engineers

who complete advanced training in certain fields of aircraft maintenance along with a

salary inducement.

5.2 Regulating

Training programs are subject to approval and monitoring by the IAA. In addition, the

appointment of senior management personnel directly involved in the supervision of

flight operations, training, maintenance and aircraft inspection must be to the satisfaction

of the IAA. Ryanairs employees earn productivity-based pay incentives, including

commissions on in-flight sales for flight attendants and payments based on the number of

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hours or sectors flown by the pilot and cabin crew personnel within limits set by industry

standards/regulations fixing maximum working hours. (Gerry Johnson, Keven Scholes, 1999)

6. Finance

Ryanair is a very liquid company with current ratio of 5.16. This is backed by current

assets of about 500m. This can be attributed to the fact the organisation trades only in

cash and the percentage of internet bookings which now account for about 90% of all

bookings. The business model of direct bookings presents the organisation with the

opportunity to reduce overheads whilst maximising revenue. This also explains the

positive cash flow of the business. The cash flow position has increased by about 2300%

from 1998, but represents a drop of about 50% from 2001 where the cash flow balance

was at about $40million and dropped to about $20million in 2002. However, by 2004 the

cash flow position was negative to a value of about 51million due to consistent

investment in the purchase of tangible fixed assets and increased interest payment.

The operating margins for the company dropped from a high of 31% in 2003 to 23% in

2004. This shows that the company has increased its ability to increase revenues, but this

inevitably comes at a short term price of increase in operating expenses costs.

Earning before interest, tax, depreciation and amortisation (EBITDA) has been constant

at about 36% for the reported period. A measure which is peculiar to the industry and is

known as EBITDAR (this includes) aircraft rental charges, has also been constant at

about 37% for the reported period.

The number of revenue passengers flown in the period 2000-2004 quadrupled from 5.5m

to over 21m. The average passenger flown fare at 40 makes Ryanair a 1bn revenueorganisation. The average fare for Easyjet for the same period was 43 (note different

currency). This is significant against the backdrop of continued news reports that the

industry is depressed especially after the 9/11 catastrophe.

The revenue passenger miles increased 5 fold from about 2.1billion miles to about 10.4

billion miles.

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Load factor is an important statistic in airline travel and it estimates the capacity

utilisation of aircraft. In effect, how many people it carries on average. In the case of

Ryanair, the flown passenger load factor dropped from 85% in 2003 to 81% in 2004. This

compares favourably with the Easyjet load factor of 2003 of 84%. This shows a year on

year decline of about 4.7%. Equally significant is breakeven load factor which has

increased consistently from 54% in 2000 increased to 62% in 2004. This could be

attributed to the increase in operational capacity and opening of new routes. The situation

is further complicated by the 26% decline in the average fare paid by passengers. This

has dropped from 53.77 to 39.97.

The revenues of Ryanair have risen in proportion with the increase in the number of

airports served. This has grown 2 and half times from 35 airports in 2000 to 84 airports in

2002. Interestingly Easyjet serves fewer at 38 airports in 2003.

6.1 Purchases

The company plans to add another 100 aircrafts to its fleet. With an average cost of about

$50m this could affect the future profitability of the company and put pressure on its

margins due to increased interests payments as the bulk of the purchase will be financedby loans by American EXIM bank. This additional purchase meant to provide the means

to meet the expect growth in passenger numbers in the future. Passenger volume was

expected to increase to 14.5m in 2003, an increase of 30% from the 2002 figures.

6.2 New routes and airports

For the organisation to continue to grow at its current rate it will have to open up new

routes. The effect of this is depressed load factor and increased expenditure as the new

routes will have to be promoted aggressively to attract patronage. Allied to this is the

ability to find suitable airports that will support its low cost strategy.

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6.3 Labour relations

So far labour relations has been good, but the potential for a BA style walk-out is still

possible and this would put a lot of pressure on margins due to loss of revenues.

6.4 Cost of fuel

A 1% rise in fuel cost would increase the amount spent on fuel by about $1million. This

could severely affect the companys finances as fuel costs accounted for about 16.3% of

expenses in 2004. This equates to over 210million gallons i.e. over 171m in 2004. This

exposure is significant as the two alternatives open to the company will be to pass it on to

customers or absorb the cost. The former option could alienate customers the second

could squeeze margins.

6.5 Additional Financial Information

On January 1, 1999, the euro was introduced as the common currency of then eleven of

the Member States of the EU, including Ireland. The Company has adopted the euro as its

reporting currency.

Profits after tax 1998 (in thousands): 45,525

Profits after tax 2002 (in thousands): 150,375

Scheduled passenger revenues increased from 330.6 million in fiscal year 2000 to

432.9 million in fiscal year 2001 and 551.0 million in fiscal year 2002.

Ryanairs operating profit increased from 84.1 million in fiscal year 2000 to 114.0

million in 2001 and to 162.9 million in fiscal year 2002, while profit after taxation

increased from 72.5 million in fiscal year 2000 to 104.5 million in 2001 and to 150.4

million in 2002.

7. SWOT Analysis of Ryanair in the European Airlines Industry

Internal Company Strengths

Excellent, strong brand management

24 million customers in 2004

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Strong, visionary leadership

Competitive

Low operating costs

Large and expanding fleet of aircraft Many routes now offered and expanding

Steady growth in profits over its 10 year period of existence

Internal Weaknesses

Bad reputation for poor treatment of both employees and customers

Reputation for airports being too far from destinations advertised

Customer complaints only ever handled in writing

Charging of individual passengers an additional special insurance levy(terrorism insurance levy) to keep Companys insurance costs down

External Opportunities

Airlines industry is highly competitive, subject to swift dramatic price drops on

fares

Entering in to agreement with Boeing to purchase new generation aircraft

New computers bookings technology available

Recent acquisition of Buzz airline In May 2002, a new minister was appointed to lead the Department of Transport

in Ireland following the general election. The minister completed a review of

Irelands airport facilities and requested proposals from interested parties for the

internet-based reservation system, to the point that they may no longer be

adequate to support Ryanairs operations. This would require Ryanair to make

significant additional expenditures

Ryanair is heavily dependent upon its UK-Ireland routes Ryanairs business

would be adversely affected by any circumstance causing a reduction in general

demand for air transportation services in Ireland or the UK

The company is dependent on third parties (e.g. contracts with heavy maintenance

providers)

Development of new terminals and piers at Dublin Airport

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External Threats

Due to the 9/11 terrorist attacks, the cost to all commercial airlines of insurance

coverage for certain third party liabilities arising from acts of war or terrorism

has increased dramatically

Growth is dependent upon the companys ability to acquire new aircraft as needed

Average age of Ryanairs aircraft is 21 years (newer models needed for safety

reasons)

Growth is dependent on access to airports, and charges for airport access are

subject to increase - Ryanairs future growth is thus also dependent on its ability

to access suitable airports located in its targeted geographic markets at costs that

are consistent with Ryanairs low-fares strategy

Ability to obtain financing for new aircraft on advantageous terms is very

important

Financing of the new and existing aircraft will significantly increase the total

amount of outstanding debt

The companys rapid growth may expose it to risks the expansion of Ryanairs

fleet and operations could strain existing management resources and related

operational, financial, management information and information technology

systems and controls, including its handled in writing only policy (poor CRM

image)

New routes and expanded operations may have an adverse financial impact (new

routes with half empty planes, requiring big advertising spend etc could cause

temporary drop in financial performance)

Labour relations could expose the company to risk with company profits

increasing as they have, maintaining base-line salaries may be difficult

employee action has already taken place (pilots and ground staff) The companys success is very much dependent upon key personnel especially

senior management like OLeary

Changes in fuel costs pose a dramatic risk even changes such as a rise of 1 cent

per litre could cost the company over a million dollars a year

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APPENDIX I Financial InformationRyanair Holdings plc and

Subsidiaries

Consolidated Profit and Loss Accounts in

accordance with US GAAP (unaudited)

Quarter

Quarter

Nine

months

Nine

months ended ended ended ended

Dec 31, Dec 31, Dec 31, Dec 31,

2001 2000 2001 2000

'000 '000 '000 '000Scheduled revenues 117,142 100,256 423,634 338,130Ancillary revenues 18,407 14,648 56,142 42,693

Total operating revenues -continuing operations 135,549 114,904 479,776 380,823Operating expenses Staff costs 18,773 14,997 56,744 45,190

Depreciation and amortisation 14,541 15,378 44,691 41,686Other operating expenses

Fuel &Oil

25,222 16,524 79,466 46,792

Maintenance, materials andrepairs

5,439 4,588 19,548 15,346

Marketing and distribution costs 1,115 2,472 10,525 18,153

Aircraft rentals 101 2,192 3,980 7,270

Route charges 11,092 8,770 35,548 27,252

Airport and Handlingcharges

20,343 16,829 65,190 50,491

Other 10,559 11,196 34,256 30,598

Total operating expenses 107,185 92,946 349,948 282,778Operating profit - continuing

operations 28,364 21,958 129,828 98,045

Other income/(expenses) Interest receivable and similar income 8,205 5,255 20,828 13,647Interest payable and similarcharges

(4,625) (3,154) (13,776) (7,535)

Foreign exchange (losses)/gains 1,228 2,803 (1,353) 3,988Gains on disposal of fixed assets 1 53 527 53

Total other income/(expenses) 4,809 4,957 6,226 10,153

Profit on ordinary

activities

before taxation 33,173 26,915 136,054 108,198Tax on profit on ordinaryactivities

(4,131) (3,650) (18,562) (19,641)

Net Income 29,042 23,265 117,492 88,557

Net Income per ADS * -Basic(Eurocent)

20.04

16.58 81.10 63.16

-Diluted(Euro cent) 19.7 16.37 79.98 62.4

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6 0

Weighted Average number of

shares*

-Basic 724,613 701,570 724,356 701,072

-Diluted 734,989 710,557 734,510 709,539*The Company implemented a 2:1 share split on December 7th, 2001. Share capital and earnings per

share figures have been restated to give effect to the share split. (each ADS represents 5 ordinary shares)

Ryanair Holdings plc and Subsidiaries

Summary of significant differences between UK, Irish and US generally

accepted accounting principles (unaudited)

(A) Net income under US GAAP


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Ryanair Holdings plc and Subsidiaries

Summary of significant differences between UK, Irish and US generally

accepted accounting principles (unaudited)

(C) Shareholders' funds - equity Dec 31, Dec 31,

2001 2000

'000 '000

Shareholders' equity as reported in the consolidated balance sheets (UK and Irish GAAP) 787,131 526,904

Adjustments: Pension 1,918 1,121

Unrealised gains on forward exchange contracts 4,189 1,051

Employment grants (585) (1,033)

Basis of accounting for August 1996 transactions - (1,097)

Darley Investments Limited (349) (437)

Investments - 593Unrealised gains on derivative financial instruments 1,832 -

Tax effect of adjustments (655) 243

Shareholders' equity as adjusted to accord with US GAAP 793,481 527,345

Opening shareholders' equity under US GAAP 674,386 439,340Comprehensive Income adjustments Investments (588) (1,395)

Unrealised gains on derivative financial instruments 1,832 -

1,244 (1,395)

Net income in accordance with US GAAP 117,492 88,557

Stock issued for cash

359

843

Closing shareholders' equity under US GAAP 793,481 527,345

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BIBLIOGRAPHY

Banfe, Charles F., 2001 Airline Management, 2nd edition; Prentice Hall

Calder, Simon, 2003 No frills, the truth behind the low-cost revolution In the skies; 1st

edition, Virgin books Ltd.

Creaton, 2004:3 Ryanair: How a small Irish Airline Conquered Europe, Aurum, London

Donne, Michael 2000, Low cost airlines publicised by Travel and Tourism Intelligence;

UK

Johnson, Gerry and Scholes, Kevan 1999, Exploring Corporate Strategy (Text & Cases),

6th edition, Prentice Hall Europe

www.ryanair.com/investor/results/pressrelease31mar.htmlwww.ryanair.com/download/DCRyantextCLN.PDF(Security and exchange commission Washington D.C. 20549)

www.ryanair.com/pax/charter_policy.htmlwww.luchzak.be/article-topic-21.htmlwww.ryanair.com/press/2004/sep/cst-en-140904.htmlwww.ryanair.com/weeklynews5.html

The Economist issue 26 May 2001

25
http://www.ryanair.com/investor/results/pressrelease31mar.htmlhttp://www.ryanair.com/download/DCRyantextCLN.PDFhttp://www.ryanair.com/pax/charter_policy.htmlhttp://www.luchzak.be/article-topic-21.htmlhttp://www.ryanair.com/press/2004/sep/cst-en-140904.htmlhttp://www.ryanair.com/weeklynews5.htmlhttp://www.ryanair.com/investor/results/pressrelease31mar.htmlhttp://www.ryanair.com/download/DCRyantextCLN.PDFhttp://www.ryanair.com/pax/charter_policy.htmlhttp://www.luchzak.be/article-topic-21.htmlhttp://www.ryanair.com/press/2004/sep/cst-en-140904.htmlhttp://www.ryanair.com/weeklynews5.html


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TASK

Provide an update of the above case study in 2,000 to 2500 words. This should not be

simply and update using www and other secondary sources, although it is expected

that you do this and, most importantly, that you acknowledge the sources in your

bibliography otherwise you might be accused of plagiarism. This part of the task

should take up approximately two thirds of your answer.

The remaining one third is where you will be able to gain good marks. Here I want

you to do strategic commentary upon Ryan Air. How you do this is up to you. You

can take a strategic marketing view and perhaps see how Ryan Air conforms to

rules put out by appropriate theorists. Dont forget that the boss of Ryan Air is a

bit of a maverick, so he doesnt like to think that he conforms to rules, so some kind

of commentary upon how an apparently unscientific approach to business is

successful in this competitive age will be interesting. Your commentary need not be

solely restricted to Strategic Marketing, although this is the title of this subject; you

can also comment on financial, HRM, etc. issues as you feel is appropriate, because

at the end of the day these all affect strategic marketing. Again, I would emphasisethat this final one third of strategic discussion and commentary will score most of

the marks the first two thirds is the easy stuff. Just think of it, about 750 words

(i.e. about three sides of A4) for most of your coursework marks. But take it

seriously as this is the hard part and please ensure that you start this work well in

advance of the hand-in date: I guarantee that this cannot be polished off quickly in a

couple of days!

It is doubly important that you do well in this work as I shall be using some of your

responses along with this case study in my upcoming marketing strategy text!

Documents

MS RYAN AIR