A2 Business Studies – Objectives & Strategies

(Understanding Operational Objectives)

Ryanair LTD
Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled
passenger airline through continued improvements and expanded offerings of its low-fares
service. Ryanair aims to offer low fares that generate increased passenger traffic while
maintaining a continuous focus on cost-containment and operating efficiencies. The key
elements of Ryanair’s strategy are:

1. Low Fares.
Ryanair’s low fares are designed to stimulate demand, particularly from fare-conscious
leisure and business travelers who might otherwise have used alternative forms of
transportation or would not have traveled at all. Ryanair sells seats on a one-way basis,
thus eliminating minimum stay requirements. Ryanair sets fares on the basis of the
demand for particular flights and how early a flight is booked. Higher fares will be
charged on flights with higher levels of demand and for bookings made nearer to the
date of departure.

2. Customer Service.
Ryanair’s strategy is to deliver the best customer service performance compared to its
rivals (other low cost budget airlines). According to reports by the Association of
European Airlines and the airlines’ own published statistics, Ryanair has achieved better
punctuality, fewer lost bags and fewer cancellations than all of the rest of its
competitors.

3. Frequent Point-to-Point Flights on Short-Haul Routes.

Ryanair flew an average of approximately 1.83 round-trips per route per day with an
average route length of 491 miles and an average flight duration of approximately 1.2
hours. Short-haul routes allow Ryanair to offer frequent service, while eliminating the
necessity to provide “frill” services otherwise expected by customers on longer flights.
Ryanair also favors secondary airports with convenient transportation to major
population centers and regional airports. Faster turnaround times are a key element in
Ryanair’s efforts to maximize aircraft utilization. Ryanair’s average scheduled turnaround
time is around 25 minutes. Secondary and regional airports generally do not maintain
slot requirements or other operating restrictions that can increase operating expenses
and limit the number of allowed takeoffs and landings.

Ryanair’s “on time” performance record (arrivals within 15 minutes of schedule) is

around 92%, exceeding that of its competitors.

Airline On time performance (arrivals within 15minutes of schedule)

Ryanair 92%
Lufthansa 84%
Air France 84%
Easyjet 82%
Alitalia 81%

4. Low Operating Costs.

Management believes that Ryanair’s operating costs are among the lowest of any
European scheduled passenger airline. Ryanair strives to reduce or control four of the
 primary expenses involved in running a major scheduled airline: (i) aircraft equipment
costs; (ii) personnel productivity; (iii) customer service costs; and (iv) airport access and
handling costs:

Aircraft Only buy and run one type of aircraft purchased from a single
equipment manufacturer.
costs This limits costs associated with personnel training, maintenance
and the purchase and storage of spare parts.

Personnel Employees are offered productivity based pay incentives including

productivity commissions for on board sales of products and payments based on
hours flown.
Productivity among employees has improved by 21%.

Customer Ryanair uses contractors for passenger and aircraft handling,

service costs ticketing and other services that management believe can be more
cost efficiently provide by third parties.
They negotiate multi-year contracts at prices that are fixed with
contractors.
Using the internet has also allowed Ryanair to eliminate travel agent
commissions. The internet or telephone makes up 96% of all their
sales direct to the company.

Airport access Secondary and regional airports are generally less congested than
and handling major airports and, as a result, can be expected to provide higher
costs rates of on time departures, faster turnaround times, fewer terminal
delays and more competitive airport access and handling costs then
major airports.

5. Safety and Quality Maintenance.

Ryanair’s commitment to safety is a primary priority of the Company and its
management. This commitment begins with the hiring and training of Ryanair’s pilots,
cabin crews and maintenance personnel and includes a policy of maintaining its aircraft
in accordance with the highest European airline industry standards. Ryanair has not had
a single incident involving major injury to passengers or flight crew in its 20-year
operating history.

Although Ryanair seeks to maintain its fleet in a cost-effective manner, management

does not seek to extend Ryanair’s low cost operating strategy to the areas of safety,
maintenance, training or quality assurance. Ryanair currently contracts heavy airframe
maintenance, engine overhaul, services and repairs to certified contractors this ensures
safety but also keeps costs low.

Appendix 1: Financial highlights

Appendix 2: Revenue and Profit

Appendix 3: Chairman’s Report (2011)

Dear Shareholders,

I am pleased to report a 26% increase in profit after tax to €401m. This was a robust performance
during a year when we suffered a 37% increase in fuel costs, which we partially offset with a 12%
rise in average fares. During the year Ryanair delivered a number of milestones:

 Traffic grew by 8% to 72m passengers.

 We took delivery of 40 (net) new aircraft bringing the total fleet to 272.
 We opened 328 new routes.
 We opened 8 new bases bringing the total number of bases to 44. The opening of the
Manchester base in October 2011 will bring the total number of bases to 45.
 Our Customer Service further improved and Ryanair continues to be the No. 1 on time major
airline in Europe.

As noted, our fuel bill rose by 37% to €1.2bn as oil prices rose from $62 per barrel to $73 per
barrel. Fuel now accounts for 40% of our cost base. Higher oil prices will inevitably force many of
our high fare competitors to further increase fuel surcharges thus making Ryanair’s low fares even
more attractive.

Higher oil prices have led us to tactically ground up to 80 aircraft during the winter (40 last winter),
mainly at Dublin, Stansted and Spanish airports, as it is more profitable to ground these aircraft
rather than suffer losses operating them to high cost airports at low winter yields. As a result in the
coming year we expect our rate of passenger growth to slow to 4% and to deliver approximately 75
million passengers. Due to the winter grounding of aircraft our traffic will decline during the winter
months.

Last year volcanic ash disruptions, airport snow closures and repeated ATC strikes resulted in
14,000 Ryanair flights being cancelled. The volcanic ash disruptions resulted in extra costs of €29
 million.

Ryanair though is well positioned to cope with potential headwinds such as rising fuel costs and the
continuing economic difficulties. We will continue to work hard to reduce costs and further
improve customer service, while delivering the lowest fares in Europe to our passengers. This is the
real strength of Ryanair and our outstanding people who continue to deliver robust profitability for
shareholders even during difficult economic conditions.

Yours sincerely,
David Bonderman (Ryanair Chairman)
Task – Using the information in the case study and the appendix evaluate how well you
believe Ryan Air has met its operational objectives. (18 marks).

How do I do this?
1. Identify their overall objective and how these have influenced their key operational
objectives. (This should form the first part of your answer)
2. Use evidence that shows how they have and haven't met their objectives. Remember
to discuss anything that has influenced their objectives (e.g. competitors, demand,
what they offer, resources).
3. Reach a conclusion – do you think they have met their operational objectives? Why?

Mark Scheme – In marking your work the examiner is looking for some key things:
Knowledge (A01)
Demonstrate knowledge and
understanding of the specified
content.
Application (A02)
Apply knowledge and
understanding to issues and
problems
Analysis (A03)
Analyse problems, issues and
situations
Evaluation (A04)
Evaluate, distinguish between and
assess appropriateness of fact
and opinion and judge
information
That you can give accurate definitions of relevant terms.
That you can apply your knowledge to the business context in
which the question is set (this means recognising the problem
or issue being discussed). You will not gain marks for just
using the company name.
You should use relevant business theory and select
information from a range of sources to analyse the businesses
problem or situation. (This means use the case, appendices
and what you have learnt during the course).
You evaluate evidence to reach reasoned judgments.
Depending on the question this can be shown through the
weighting of an achievement or through a conclusion.

Remember quality of written communication is also important. Your must ensure: your text is legible
and that spelling, grammar and punctuation are accurate; that you choose a style of writing that is
appropriate to purpose and the subject matter; that you organise information clearly using specialist
vocabulary where necessary.

What does this look like in an 18-mark question?

Level Descriptor (A01, A02, A03) Mark

L5 Good application and good analysis 12 – 13

L4 Good application and reasonable analyse or reasonable application and good 9 – 11

analysis
L3 Reasonable application and reasonable analysis or 6–8
Good application (alone)
 Good analysis (alone)
L2 Reasonable application (alone) or Reasonable analysis (alone) 4–5
L1 Limited response primarily based on knowledge only 1–3

Level Descriptor (A04) Mark

E3 Judgment with well supported justification. Answer has a logical structure 4–5
throughout with effective use of technical terms.
E2 Judgment with limited attempt at justification. Evidence of a logical structure 2–3
and some use of technical terms.
E1 Judgment, which is unsupported. Limited evidence of a logical structure and 1
little use of technical terms.