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Ryanair and Cost-Leadership Strategy

Ryanair is leadership on the European low cost airlines dedicated to the continuous research of optimization and efficiency while all companies are subject to decline of passenger number and reductions of filling coefficients, forced to raise rates and heavy losses. Ryanair in the first 6 months of the fiscal year 2009/2010 has registered revenues and filling coefficients (85%) stable, 36 million passengers, an increase of 15% with yearly average flight rate of 39. The target clientele of Ryanair are not frequent travellers and they are also sensitive to the price, rather than to transfer times to and from the airport. Ryanairs chairman built a new business model by eliminating frills leading to high costs. As the below model shows his strategy applied over the years which led to a drastic reduction in costs that has impacted in a reduction in customer care and in terms of number of assistants to customers. However, this lack can be justified ensuring low price to the customer. Michael Porter suggested Cost-Leadership a generic strategy in order to obtain for an organisation competitive advantage. This strategy involves the organisation aiming to be the lowest cost producer within their industry. The organisation aims to drive cost down through all the elements of the production of the product from sourcing, to labour costs. The airline low cost Ryanair can be considered a cost leader, the scheme below shows all elements that constitute on cost leadership strategy focused of operational choices where each reinforces the other, aiming at a broad market where sales can cover costs.
Limited board services High turnaround of aircraft costs Access only to secondary

Short haul routes

CostLeadership
Client price sensitive

Limited use of travel agency

Fleet with only Boeing 737/800

Bruna Aldegheri

Business Strategy 9/11/2011

Core competence can be identified on two types of competency of Ryanair: Management, resources and knowledge Ecent transport uniformity of routes, direct connections between local airports, Ryanair manages to reach a large number of destinations; In addition, through an efficient management manages reduce delays for take-off, more flights on the same day; having then significantly expanded its fleet, the company has been able to secure more flights and destinations, also aided by the numerous offers on the website; Ability to enhance brand Ryanair has earned a reputation in the environment, especially in Europe; Low-cost marketing Ryanair is a company at the forefront of the application of new technologies, especially if these lead effective savings; some of these are infrastructure, such as the use of aircraft fuel efficient, or booking online service. Management and strategy Cost reduction strategy fundamental innovative element, reduce costs by cutting on all needless services and gain on large economies of scale; The service offered is essential and no frills, luggage, priority boarding, water, coffee and biscuits are extra sold dearly and are important ancillary revenues. Price elastic on demand that means that demand increases when costs fall. The price may vary depending on the days of advance booking and availability. Quality of fleet The fleet is composed exclusively of Boeing 737, an aircraft produced since the 80s, tested and ecient; In addition, the average age of aircraft is very low; Capacity of business the economic success of Ryanair is due to the innovative ideas and strong charisma of Michael O'Leary and the management team who have supported in these years; Reduced administrative headquarters continuing the policy of cost reduction, the company has reduced the costs of the bases on the territory, reducing the number and size. In conclusion airlines companies are leading to financial difficulties to compete with Ryanair. Many companies are studying mergers, others are obliged to recapitalise themselves in order to achieve a better performance and must have sustainable competitive advantage. From a scenario prospective only a few large operators with low-cost model will have the capacity to stay in the market, where the market is the place where demand and supply of services, determine the price.
Bibliography Ryanair Holdings, PLC SWOT Analysis; Mar2011, p1-10, 10p, 2 Charts Document Type: Company Report Johnson, Scholes & Whittington, Ch. 6 Thompson, Ch. 8 from p301 Porter, Genetic Competitive Strategies in de Wit & Meyer pp344-358 Rumelt, The Evaluation of Business Strategy in de Wit & Meyer pp33-40 European Low Fares Airline Association,Memebers statistics, Dicembre 2009 Analyses of the European air transport market, Annual Report 2008 Ryanair spooks investors with prot warning, Reuters, 27 Luglio 2009

Bruna Aldegheri

Business Strategy 9/11/2011