Using the information in the case study and the appendix evaluate how well you believe Ryan

Air
has met its operational objectives. (18 marks)

An operational objective is a specific, detailed production target set by an organisation to ensure

that its overall company goals are achieved. Ryanir’s overall objective is to be the leading, low-fares,
scheduled, passenger airline in Europe through continual improvement and expanding it’s offering.
This main objective has led to two key operational objectives: a low operating cost objective to
support low fares which involves primarily lowering aircraft equipment costs, customer service costs
and airport access and handling costs as well as driving up personnel productivity; and a passenger
traffic growth objective which, along with low fares, involves offering the best customer service
expanding it route offering (convenience).

With regard to Ryan Air lowering it’s operating cost, the Chairman’s report noted that Ryan Air’s fuel
bill rose by 37% to €1.2bn. This cost rise came after the volcanic ash cloud disruptions of the
previous year which resulted in extra costs of €29m. And yet, at the same time, Ryan Air managed to
grow net profit after tax by more than operating revenues, +26% versus +21% respectively. This
implies a reduction is Ryan Air’s operating expenses (net of other income) over the period
2010/2011. Ryan Air has achieved this cost reduction by using productivity-based pay incentives for
staff; lowering training and maintenance costs buy using one type of aircraft purchased from a single
manufacturer; using a direct-to-customer sales model via the internet and phone to eliminate travel
agent commissions; using secondary airports to avoid slot fees; and using external contractors to
handle passengers, aircraft maintenance and repair, ticketing and other services.

However, it is difficult to make a definitive judgement as to the success of Ryan Air reducing it’s
operating costs from the evidence provided as there is no comparative data given for operating cost,
year-on-year, for Ryan Air and its competitors. If, over the same time period, Ryan Air’s competitors
reduced their operating costs by a greater percentage then, although Ryan Air may have lowered it’s
operating costs, it’s performance in this regard may be questioned. Further, some of Ryan Air’s cost
cutting strategies, such as using third party contractors for aircraft maintenance and only buying
aircraft from one manufacturer may work in the short term but could lead to increased costs in the
long term. If the manufacturer went out of business or was bought by a competitor Ryan Air would
face the cost of retraining all of its staff on new aircraft. If the maintenance contractor failed and
there was a major crash, the hit to Ryan Air’s reputation for safety would be servere and there
would be additional costs in repairing it. Lastly, while Ryan Air’s revenue has grown every year from
2007 to 2011, it’s adjusted profit rose from 2007 to 2008, then dropped significantly from 2008 to
2009 (financial crisis?) then rose from 2009 to 2011. It’s 2011 operating profit has still not reached
it’s 2008 level even though operating revenues in 2011 were €3629.5m versus approximately
€2750m in 2008. This suggests over the period 2008-2011 there has been an increase in operating
costs rather than a decrease, albeit possibly due to factors outside of the company’s control. The
point here is twofold: it is difficult to make year to year comparisons as operating conditions change
due to outside forces year to year, e.g. the ash cloud, the financial crisis (and now COVID); and
secondly data can be manipulated very easily over short periods – to see a trend data over multiple
years is required.
It appears Ryan Air has succeeded in it’s objective to grow passenger traffic as between 2010 and
2011 traffic grew 8% to 72m passengers. The company opened 328 new routes and maintained an
“on time” performance lead over their competitors, 92% versus 84% for the next best Lufthansa.
Ryan Air also achieved fewer lost bags and fewer cancellations than it’s competitors. It appears that
the companys low fares coupled with market-leading customer service and increased convenience
through many extra routes have driven passenger traffic growth. However, it would be interesting to
know if this growth has come primarily from new passengers or existing passengers. Ideally, Ryanair
would want both but solid increases in existing passengers would suggest the customer service
message is getting through. If the growth was predominanently through new customers, with a
decline in repeat customers, that could be a sign of trouble ahead.

It is difficult to assess whether or not Ryanair has achieved it’s low operating costs objective. Ryan
Air management asserts it has but the case study does not provide any competitor data for
comparison. Furthermore, no operating expenses data is given so the decrease in operating
expenses from 2010 to 2011 implied by the operating revenue and adjusted profit after tax numbers
is uncertain.

Ryan Air has met it’s objective of increasing passenger traffic as it rose 8% between 2010 and 2011.
However, to ascertain if this growth is sustainable long-term an analysis of it’s quality, vis-à-vis new
versus repeat customers, would be necessary.