© Ryanair ~ The 'Southwest' of European Airlines "Everyone always says, "What's your secret?” I's very simple. We're like Wal-Mart in the US. = we pile it high and sell it cheap.” “Michael O'Leary, CEO of Ryanair “Ryanair isthe best imitation of Southwest Airlines that I have seen.” “Herbert D. Kelleher, founder of Southwest Airlines “He (O'Leary) is almost certainly one of the mast successful leaders in the industry, ‘with a unique business model, discipline and an extraordinary level of confidence" Sir Michael Bishop, chairman, BMI British Midland > "Ryanair has the financial and operational capacity to maintain its position as the ‘dominant player in the low fares, no frils market, and indeed become one of Europe's largest airlines.” -Stephen Furlong, airline analyst, Davy Stockbrokers * RYANAIR CHALLENGES EASYJET In the summer of 2003, Michael O'Leary (O'Leary), the CEO of Ryanair, one of the ‘oldest and most successful low-cost airlines of Europe, outfitted himself in combat gear and led a small army of Ryanai’s employees to Luton airport, the base of rival easyJet’. An old World War If battle tank was also roped in to complete the fect. This was Ryanai’s way of ‘attacking’ the fares of easyJet, which it claimed, were very high for a low-cost airline. O'Leary said he wanted to ‘liberate’ the public from the high fares of easyJet Through this unconventional publicity stunt, O’Leary was able to get his message across successfully and create positive media attention for his airline. ‘Ryanair was one ofthe first independent airlines in Irland, Until Ryanair was set up in 1985, the Irish air services were almost exclusively under the control of Aer Lingus, the national carier. Some other airlines, notably Avair, had been set up in Ireland before Ryanair, but most of them collapsed due to their inability to compete with the more powerful national carier. The setting up of Ryanair was an important landmark in Irish airline history. Ryanair went through a few turbulent years of ‘operation, but soon it managed to refocus itself successfully as a low-cost no-frills carter, capturing a large share of the market for air services between England and Ireland, By the late 1990s, it was the largest low-cost airline in Europe. However, it was overtaken by easyJet when the latter took over Go, the low-cost subsidiary of British Airways (BA), to gain a larger market and a bigger combined fleet. (Refer Exhibit for note on low-cost airlines in Europe). BACKGROUND NOTE. [Ryanair started operations in July 1985, flying between Waterford in the southeast of Ireland and London's Gatwick airport. Three brothers, Calan, Declan and Shane Ryan " Keny Capel, Carlos Tromben, Wiliam Echikson, Wendy Zeller, “Renegade Ryans’ Business Week May 14,200), * Keny Capel, Cals Tromen, Wiliam Echikson, Wendy Zener, “Renegade Ryanair" Business Week May 14, 2001 > The Life of Ryan”, wir casyprtes2 con ¢ woewyaniccom, * Basylet is ow cost ssn based in London. It was setup Stelios Haj-loannou, a Grek shipping magnate.were the founding shareholders of Ryanair, which was set up to offer low-cost no- Fils services between Ireland and London. The airline began operations with a fiteen-seater turbo prop commuter plane which was leased to the company by Guinness Peat Aviation (GPAY', of which ther father, Tony Ryan, was the chairman. Ryanair got an early break when, shorly after its formation, the UK and Irish governments signed a new air services agreement that deregulated air traffic between fhe two countries. In anticipation of the increased air trafic between the two ‘Countries the Irish government decided to license a second Irish operator on the route from Dublin to London, Ryanair happened to be the only airine to apply for the Ticense, It was granted the license to operate on the Dublin (Ireland)-Luton (London) route By the end ofthe first year, the Ryanair had carried 5,000 passengers and had a staff of 57. “To meet increased operational requirements, Ryanair purchased two more planes (24- year-old $0-seaters) from Dan Air. The airline quickly realized that it could capitaline 2h the market by offering cheap fares, and set its initial fare at IR £95 (1 Ireland ‘Pound was equal to approximately 1.44'US Dollars) for aretum ticket. The price was 20 percent lower than the cheapest fare ofits competitors. Gradually, the ailing replaced its ol aircraft with newer airrat purchased from TAROM, a Romanian air ‘transport company. By the end of 1986, services to London were firmly established. However, further texpansion had been blocked because the requisite licenses could not be obtained. To Gharcome this, Ryanair acquired an 85 percent stake in London European Airways (LEA, a Luton-based airline). LEA had been flying scheduled flights to Amsterdam rd Brussels from London, but the flights had been suspended in early 1987. By May 4987, Ryanair had resumed services to both the cities. However, load factors were low ‘on both the routes (around 45 percent), and the Amsterdam route had to be dropped later that year. The Brussels route also had problems and had to be more closely integrated with the parent company which was called Ryanair Europe, However, ‘Rusral diffeutties cropped up and the scheduled routes had to be abandoned. The company repositioned itself as a charter tour operator flying to various destinations in the Mediterranean and Europe. In the summer of 1987, Ryanair started its frst charter operation to over 65 locations ‘round Europe. By the end of that year, the airline had carried aver 400,000 passengers, 1988 started well, with Ryanair getting more licenses on new routes from Dublin, Knock, Cork and Shannon. However, attempts to develop new routes from Dublin to Manchester and Glasgow came up against entrenched competition from Aer Lingus, which slashed prices and increased capacity. In the face of this competition, Ryanai’s losses on the Manchester route rose alarmingly t© TRE700,000. In April that year, Eugene O'Neil, who became Chief Executive within a year of the airline's formation, was removed from his post. The ‘company released a statement citing differences withthe management. Declan Ryan twas named acting chief executive and both the Glasgow and Manchester routes were xed. Shortly afterwards, P.J. McGoldrick (McGoldrick) was brought in from a similar positon at Heavylift Cargo Airlines (a UK-based cargo company), to take over as chief executive. ‘On October 20, 1988, Ryanair cartied its 1,000,000th passenger, Jane O’Keefe on the ‘ight to Dublin from London. She was presented with a golden voucher entitling her ‘and a nominated friend free travel for life on any Ryanair route. By the end of 1988, RRyanairs total let had increased to six aircraft Losses however, were continuing 12 ‘mount, reaching IRE6 milion in 1988, GPA was setup in 1975 as an irra easing company. Tony Ryan was a founder member of PA. 159160 In September 1989, the Irish government announced a “two airline policy*, which would be valid for three years (tll October 1992). The new policy was directed at benefiting both the trish carriers, Aer Lingus and Ryanair, and eliminating the cut- throat competition between them that was harming both. The new policy ruled that the airlines would not compete on any international route and allotted them separate routes. (Aer Lingus would fly from Dublin to Paris and Manchester and Ryanain, from Dublin to Liverpool and Munich), Ryanair continued to expand and carried 100,000 passengers on the Dublin-London route in 1990. Some new routes were also added. However, the Gulf War (1990-1991) caused a general downturn in the market, and at the AGM held in November 1990, the ‘management announced losses of IRE4.5 million for 1989. The situation in 1990 looked even worse. The aisline had to cut down some routes, retrench staff and shift its base from central Dublin, to Dublin aisport. In 1990, the losses armounted to IRE7 rillion. Realizing that its position was becoming increasingly weak, Ryanair ‘efocused its activities on providing low-cost no-frills services. I also moved its base in London from Luton airport to Stansted. Services 10 regional airports were also reorganized. Jn Tate 1991, senior management changes were announced, with McGoldrick relinquishing his position as chief executive. Patrick Murphy (Murphy), who had Carlier worked for Aer Lingus, was brought in to replace hin. A few weeks later, Conor Hayes was appointed chief executive and Murphy became non-executive chairman. In financial year 1991, Ryanair made its first profit of IRE300,000 since it Was slated in 1986. In 1992, a new livery was introduced for the planes in the flect, ‘with the Ryanair logo and the Irish harp painted on them in a white and blue scheme {In 1992, the airline made a profit of IRE 0.8 million. In 1993, O'Leary, who had joined 48 chief operating officer in 1991, took over as CEO, 1m 1994, Ryanair took delivery of its first Boeing 737-204, By 1995, when Ryanair completed 10 years in service, it had become the biggest passenger cartier on the Tondon-Dublin route and the largest Irish carier on every route it operated. The airline caried atoll of 2.25 million passengers in 1995. In 1997, the European Union Geregulated the airline business and a number of low cast airlines (notably easy et) offering no-frills services were setup. The deregulation of the market enabled Ryanair {0 open new routes to continental Europe. The same year, the airline also came out ‘with an IPO on NASDAQ and the Dublin Stack Exchange for $500 million. With the ‘money raised from the IPO, it ordered 45 new Boeing planes. 11 2000, the airline opened Ryanai.com, an online booking ste. Within three months, the site was taking over 50,000 bookings a week. By the next year, over 75 percent of the bookings were made over the intemet. In 2002, Ryanair made Frankfurt-Hahn (Germany) its second continental European bas, after Brussels-Chaleroi (Belgium) ‘The airline also entered into a partnership with Boeing for the purchase of about 130 ‘ow aircraft over the next eight years (till 2008). By the end of 2002, the internet accounted for almost 95 percent of the tickets booked with Ryanair. By the end of 2002, the airline's feet had 44 aircraft In carly 2003, the airline took over Buzz, the low cost subsidiary of Dutch carrier KLM, for £15 million. Unil then Ryanair had not gone in for acquisitions, bot O'Leary said that this offer was too good to pass over. Ryanair later shut down the operations of Buzz. as it undertook a massive restructuring program to make the ailing airline more profitable. Jn the financial year ended March 31", 2003, Ryanair had carried 15.74 million passengers and camed revenues of £842, Sm. (Refer Exhibit-I). O'Leary declared that ‘he would double the numbers of passengers o 30 millon in 5 years,