Company Overview Of Ryanair

1.1 Introduction

Ryanair is Europe largest low cost airline service which has its headquartered in Ireland. This report is to analyse the business objective of Ryanair and its business environment. Ryanair is one of the successful low cost carrier airlines in the European airline industry. This report undertakes study of Ryanair’s current strategy and its financial operations. It indentifies its current operational position with respect to the airline industry and its competitors.

To access this company various models have been analyzed to get a deeper understanding of Ryanair’s operations over the last few years. Strategy that makes Ryanair the most profitable and the key player in their market through their Strengths, weakness, opportunities and threats has been analyzed. This report demonstrates how this airline have been performing during the past few years and on which factors the management would have to focus in order to have a strong competitive position in the low cost airline market.

The Business plan for this project ranges from internal and external analysis, industry analysis to financial and competitor analysis.

1.2 Company Overview

It was established in the year 1985 with the launch of daily flights on a 15 seated turboprop plane between Waterford airport and London Gatwick. It’s a public quoted company which has its shares traded on London, Dublin and New York (Nasdaq) stock exchanges. Its is now the largest low cost airline service in Europe and United Kingdom which is based on the strategy of a Low Cost Leadership model. It is commits to low cost airfares and introduces competition to flag carriers and growing alliances in the European airline market. With its ability of offering lowest fares in this industry to passengers makes it one of the toughest competitors for any new entrances. Ryanair was the first European airline specifically to offer low fares to its customers on short inter European routes.

“Ryanair has its operations at London, Dublin, Glasgow, Brussels, Frankfurt, Milan, Stockholm, Rome and other European destinations. Its is operating on a schedule passenger low fare startegy airline serving short-haul point to point routes. Ryanair was the pioneer in low fare operating model in Europe in the early 1990s.” As of June, 2009 the company offers over 1200 short term flight a day serving European destinations with a operating fleet of 196 aircrafts flying 845 destinations. [1] 

During 1986, Ryanair entered the Dublin-London route, where two state owned airlines namely British Airways and Air lingus already existed. This was a demanding route which had been stagnating at about 1 million passengers per annum between 1975 and 1985, which was characterized by some of the highest fares in this route. Ryanair expanded by opening many new routes and increasing them between Ireland and United Kingdom. The company attracted many customers because of its attractive prices but were not cost efficient which resulted in significant losses.

Over the next few years, Ryanair opened up new routes to other places of Europe such as Paris, Stockholm and Brussels. Ryanair entered these markets with 80% low airfares as compared to other flagship airlines. Despite of its success, Ryanair was entirely committed in providing low air fares, increased frequencies to destinations and providing services to both business and economy class passengers. Ryanair has presently well positioned itself in the current recession to grow. They have strong financial structure and have presently a liquid cash of 2.5 Billion (Euros).

Industry Analyses

In the year 1996, Ryanair holding was incorporated to Ryanair limited. Ryanair is well established low cost carrier airline which has its services in most of the European countries like UK, Continental Europe, Ireland and many more. Ryanair from over the years of its service has made a name for itself as a scheduled low cost carrier airline serving point to point short haul destinations. It has been ranked the top by IATA as world’s leading airline in term of international passenger carried in the year 2008. On June 2009, with its operating fleet of 196 Boeing 737-800 aircrafts, Ryanair offers more than 1200 scheduled flights per days serving 145 destinations. Ryanair suffered losses after taxation of 169.2 million Euros in the fiscal year 2009, compared to its profits of 390.7 million Euros in the fiscal year 2008. Their has been an increase of 8.4% in the total operating revenue from 2942 million to 2713.8 million Euros. Their have been an increase of 58.9% in fuel prices as compared to last year. The market acceptance of Ryanair’ low fares services is reflected in its market share stimulating significant annual passenger traffic growth since 1991.

Envoirment Analyses

External Environment Analyses using Appropriate Tools

The PEST analysis is a business measurement tool for understanding market growth, positioning of company and its potential and core competencies of its business. PEST is a acronym for political, economical, social and technological factors which are used to assess the market for the business unit. PEST analysis has been done to investigate the macro external factors of Ryanair which helps to identify its strategies. We will examine this analysis to examine Ryanair external threats and opportunities in the future.

Ryanair as an Irish airline with its routes to UK and other EU countries is subject to is subject to Irish and European regulations governed by department of transport, the IAA, the European commission and the EASA.

Political Factors

Changes in Government policies

Rules and Regulation of different countries

Government action in promoting industry such as travel and tourism

Trade Unions pressures

Tax rules and regulation as it reduces profits

Government support for national airlines as Ryanair, IAA is primarily responsible for airline operating, safety and technical aspects under aviation of Ireland.

Economic Factors

Rise in Oil Prices as it increases operating cost for the airline

Increase and decrease in Purchasing of Customers

Increase/Decrease in interest and taxes

Current Recession

Threat from Substitutes

Rise in airport handling services and airport charges

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Social Factors

Population growth

Purchasing power of customers

Customer Service

Increase travel by Airline as it saves time and energy for business travelers

Country Selection in terms of business travel

CSR policy

Technological Factors

Usage of Internet

Competition from local inter-country transport

Decrease fuel consumption

There is a strong competition among all airlines in the aviation industry. After the credit crunch in the year 2008, the competition has become even tight which allows no room for the other. If we try to think over our threats and make strategic plan to overcome them we can be a step further of the completion. Ryanair has its strategies like low cost, fuel hedging, low operational cost which are very much suitable for this stage and allows Ryanair to be a market leader among low cost carriers.

Business Model of Ryanair

Ryanair business model has been kept really simple as it offers the lowest possible fare to passengers. This has been managed by minimizing cost effectively. However, the airline has emphasized on safety and security of passengers. Ryanair initiated by being the first European discounted airline and had been benefited by the emergence of “open skies” deregulation across the continent. It consists of a flat management structure which helps in transparency over the different level management decision making. Ryanair has differentiated itself my maximum utilization of its resources low cost, increase capacity of planes, short turnarounds by maximizing utilization of its aircrafts and aggressive fuel hedging.

Current Strategies

Ryanair objective is to establish itself as Europe’s leading scheduled airline by focusing on continues improvements and low fare services. Ryanair aims to offer low fares to attract its market share and eliminate competition. Ryanair has majorly emphasized on cost control and operating efficiencies. The key elements of Ryanair long term strategy are as follows:

Low Fares: Ryanair focuses on keeping its fares low to attract demand particularly from fare conscious economy and business class passengers. Its sells its most seats for one way passengers which eliminate the minimum stay requirement. They target the fare conscious travelers who might have travelled by other means to save money. Ryan air sets its fares on the basis of demand for particular flights and by period remaining the scheduled date of departure. 70% of the seats are sold at minimum available fare assigned for the route, once these seats are filled the prices per seat rises. [2] 

Customer Service: Customers always better service even by paying cheaper fares. Ryanair delivers better customer service as compared to its competition. According to Association of European Airlines(AEA), Ryanair has achieved better punctuality, fewer lost bags and fewer cancelations. Association of European airlines

Low Operating Cost: One Strategy behind the low fare is to minimize its operating cost which reduce burden on passenger fares. Efficient cost effectiveness is due to minimize customer services cost as the management attempts to negotiate fixed prices and multiyear contract at competitive prices. Internet booking has helped them to eliminate agents and third party cost.

Personnel cost: Personnel cost has been minimized by continues improvements in highly productive labor force. The incentive for staff is based on number of hours worked or regulation fixing maximum working hours. Airport entrance and handling cost has been reduced by delivering consistently high volume of passengers at less expensive gate locations and outdoor boarding stairs relatively than expensive runways.

Frequent Point to point Flights and Short Haul Routes: Ryanair provides point to point services on short haul routes to secondary airports in around major population centers and travel destinations. Ryanair flies with its operating fleet of 196 Boeing 737-800 aircrafts to more than 1200 scheduled flights per days serving 145 destinations.

Route Choices: Ryanair favors secondary airports with convenient access to major population centers e.g. London Stansted Airport and regional airports like Brussels and Charleroi Airport. Not only it has more competitive access and handling cost but also provides a higher rate of on time departures, arrival and eliminates to an extent cancellation of flights.

Commitment to Safety: Ryanair commitment to safety has been of prime importance for company and management. The commitment begins with hiring and training of Ryanair pilots, cabin crew and maintenance personnel. Ryanair has not had a single incident involving major injury to passengers or flight crew in its 25 years of operating history. Although Ryanair seeks to operate its fleet in a cost effective manner but the management never seeks to compromise on their safety and security standards.

Additional Services: Ryanair offers different variety of additional services to its customers who generate revenue from on board merchandising, beverage and food sales, accommodation reservation services, advertising, travel insurance, rail and bus ticketing.

SWOT Analysis

The SWOT analyses are done in term to help Ryanair to achieve its mission, objectives and goals by capitalizing on their opportunities using its strengths to eradicate its weakness and threats. If we analyse our threats into our opportunities we can be a further step ahead into analyzing competition. SWOT stands for Strengths, Weakness, Opportunity and Threats. Strengths and Weakness are the analyses for the internal part of the organization and Opportunity and Threats are related to the external environment.

The Objectives of Ryanair are:

-to be the biggest and the most cost-effective low fare airline in Europe

-to target growth, by lowering cost and increasing effectiveness

-to achieve a enormous market share and eliminate competition

Strengths

Its low fare policy and launch of low cost flights

Aggressive and innovative leadership

Brand image and first movers low cost airline advantage

Increase capacity in new fleets

Fuel price hedging

Single model aircrafts which reduces maintenance cost

Short haul and increase turnaround resulting in maximum resource utilization

Eliminating agents and third party commission by Internet booking

Weakness

Negative publicity through press reporting as it affects long term brand image

Poor public relations

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Long distances departure and arrival services from city

High level of innovativeness required to sustain low fares

Highly sensitive to any new taxes and regulations

Misleading advertisements and ticket fare destinations

Not properly trained cabin staff onboard

Opportunities

Complete Deregulation of aviation industry in all EU markets

The US-European “open skies” agreement could be the source to enter new markets and expand customer base

Merger and Acquisitions could be the way to enter other markets and explore new business routes for popular destinations

During this financial downturn the company can invest into new markets for planning long term goals

Threats

Competition with other LCC players

Other Airline also cutting down fare to attract market share

Customer want better onboard satisfaction and great value deal even at cheaper fares

Rise in airport service Charges which increases operating cost for the airline

Merger and acquisition between other airline could decrease the markets positioning of Ryanair

Increasing Fuel cost

Face increase air traffic charges due to busy destinations

Porter Five Forces Model

Porter’s Five Forces Model done to analyse Ryanair in the present low cost airline industry

Bargaining Power of Suppliers

Boeing are the chief suppliers if Ryanair

Regional airports have limited access to negotiate as they completely depend on the airline

Ryanair policy is to utmost avoid those airport where the bargaining power of the supplier is high and where most of the competitors operate

Boeing and Airbus are the major suppliers of planes in the airline industry

Ryanair control its operating fuel cost by hedging its prices which minimizes their operational cost

Bargaining Power of Customers

Customers are price responsive and have no loyalty to a particular airline

Attractive to other airline and better offers by competition

Safety record of Ryanair

Scheduled departure and arrival services

New Entrance

High Capital Expenditure

Government Regulations

Flights and routes authorization

High competition for low fare airline

Price Competition for LCC routes

Barriers to Entry

Differentiation between services and fares will be difficult

Threats of Substitutes

Brand loyalty among Customers absent

Other modes of transport present among destinations

Close Customer Relationship absent among low cost carrier service

Better package deals from peers in the airline industry

Competitive Rivalry

Price is the only major factor and differentiation between services is hardly recognizable

Competition in fares decreases profit for the company as market share is of utmost importance

LCC is a Highly Competitive market

Cost advantage is transparent to competitors

Low level of existing rivalry is eliminated by selecting diverse routes to serve

Financial Analysis

Ryanair sales in terms of annual booked passengers volume has grown from approximately 945,000 passengers in the calendar year to 58.5 million passengers in the year 2009. Ryanair revenue passenger miles(RPM) increased 13.8% from 34,452.7 million in the year 2008 fiscal year to 39202.3 million in the 2009 fiscal year due to a 13.9% increase in scheduled available seats miles(ASM) from 41,342.2 million in the 2008 fiscal year to 47,102.5 million in the 2009 fiscal year. [3] 

Source : Centre for Asia Pacific Aviation

Low cost carriers (LCC) had an adverse affect by the economic environment, but less than their counterparts. Ryanair recorded a full year operating loss of EUR 105 million in 31 March 2009 as compared to its profit of EUR481 million for the same period last year, their first loss over 20 years. According to company sources these results are attributed to the poor financial performance of its Aer Lingus shares, while their airline operations were still profitable. Ryanair annual sales on the other hand increased by over 8% to reach EUR2.94 billion.

Ireland was one of the worst hit countries by the economic crisis in the year 2009. As a result, Ryanair has suffered considerably in its country and their domestic markets declining by -13% in term of passengers and by -16% in its retail value sales which overall affects its performance. The later declined more rapidly than passengers’ number because of low tickets prices and decline in the share of long-haul flights from 11% in 2008 to 10% the following year.

Key Financial Indicators

Financial Year Results

31 March 2008

31 March 2009

Revenue (EUR mn)

2714

2942

Operating Profit/ loss (EUR mn)

481

(105)

Passengers (mn)

50.9

58.5

Source: Euromonitor International Data/Travel & Tourism: Ryanair

Ryanair recorded a loss after taxation of EUR 169.2 million in the fiscal year 2009 as compared to its profit of EUR 390.7 million in the fiscal year 2008. This loss which was recorded despite of a increase in its total operating revenue of EUR2942.0 million in 2009 compared to its profit of EUR 2713.8 million in 2008 and EUR 2236.9 million in 2007. The loss for Ryanair was mainly attributed to an 58.9% increase in the fuel and oil cost from EUR791.3 to EUR 1257.1 million. There was a accelerated depreciation of EUR 51.6 million arising from aircrafts disposal. An impairment charge of EUR 222.5 million after the purchase of Aer Lingus, reflecting a decline in its share price from 31st March, 2008 to 31st March, 2009.

Ryanair scheduled passenger revenue increased 5.3% from EUR 2225.7 million in the year 2008 to EUR 2343.9 million in the year 2009, as their market share in terms of passenger increased by 50.9 million to 58.6 million. Ryanair ancillary revenue which compromises of non-flight scheduled operations like in flight sales, car services and internet related services increased 22.5% from EUR 488.1 million in 2008 to 598.1 million in 2009. This rate of growth in terms of revenue from non flight operations and car rental revenues had increased while the rate of increase in other categories lagged somewhat behind. Annual report 2009 Ryanair PLC

Operating expenses for Ryanair had increased from 96.9% in the fiscal 2009 as compared to last year. This reflects a fact that the operating expenses grew more than its revenue in 2009. The total operating expense increase by 30.9% form EUR 2176.7 million in 2008 fiscal year to EUR2849.3 million in the 2009 fiscal year. The reason behind the increase in the operating expenses of Ryanair is the rise in the fuel prices as well as increase in the amortization and depreciation expenses related to aircraft disposal.

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The Ryanair’s financial analysis is done through analyzing Ryanair’s annual report and performing ratio’s analysis using income statements and balance statements

Ryanair sales for 2009 recorded a full year operating loss of EUR 105 million in 31 March 2009. It’s the first loss for them over a period of 20 years. This performance is compared to a profit of EUR 481 million in the year 2008

Ryanair business suffered considerably in the domestic market from the recession in 2008. Ryanair declined by -13% in terms passengers and by -16% in retail value sales.

Ryanair annual sales increased over 8% to EUR 2.94 billion. Its airline operations were in a profit but it had suffered losses due to poor financial performance of its Aer Lingus Shares.

Ratio analysis

The ratio analysis of the company exhibits various key facts of the financial strength to the investors and stakeholders.

Profitability Ratio Analysis

The ratios demonstrates decline in profitability in 2009 as compared to 2008. The UK began to experience the effects of the downturn which is evident on the effect of the company’s profits. However, when comparing 2008 to 2009, the figures suggest that profitability increased by approximately 3% overall. The downward profitability in 2008 was most likely due to changes in policies and practices to tackle inflation and increases in food prices in a competitive industry.

Gross Profit Margin

Gross profit Margin for Ryanair during the year 2009 was 44.4%. Gross profit margin states as the amount of contribution to a company after paying off all its expenses. It states its relationship between sales revenue and gross profit of a company.

Net Profit Margin

Net profit margin for the year 2008 was 14.40% as compared to -5.75% in the year 2009. This decrease was because of economic slowdown and increase in terms of its operational cost. Net profit margin refers to a measure of profitability. It is calculated in terms of net profitability as a percentage of the company revenue. http://quicktake.morningstar.com/stocknet/Profitability10.aspx?Country=USA&Symbol=RYAAY

Return on Capital Employed

ROCE of Ryanair during 2009 is -2.5%. This indicated us that the value of the business from all its capital employed in the business. The return that has generated over the year from net assets employed in the business.

Liquidity Ratio Analysis

According to Robinson et. al (2009) liquidity ratios are ‘Financial ratios measuring the company’s ability to meet short-term obligations’.

Current Ratio

Current ratio in the year 2009 is 1.84 as compared to 1.53 in the previous year. Current assets are decreasing continuously most likely from investing rigorously in long-term ventures or because current liabilities are rising faster than current assets. Ryanair used their liquid assets to finance their business through marketing and promotions to make it profitable, hence profitable during the downturn.

Acid Test Ratio

Acid test Ratio during 2009 is 1.56% as compared to 1.24% in the year 2008 and 2.11% in the year 2007. Acid test ratio indicates whether a firm has sufficient short term assets to cover is current liabilities.

Financial Leverage

Financial leverage in 2009 was 2.63 as compared to 2.53 in the year 2008 and 2.24 in the year 2007. Financial leverage indicates to the use of debt capital to increase equity capital. It’s a degree to which an business in utilizing its debt from the sources.

http://quicktake.morningstar.com/stocknet/FinancialHealth10.aspx?Country=USA&Symbol=RYAAY

Benchmarking

Ryanair, SkyEurope and Easyjet are three top Europe low cost carrier services. Ryanair’s business model is to fly within Europe with low cost fare services and capture market share for itself. This allows them to enlarge market share on route to route services. Easyjet is based on low cost carrier, its strong branding, multi network strategy and strong corporate governance. SkyEurope a quite competitor and has newly entered the low cost carrier services. Its strategy is to focus on few key routes in eastern Europe and wants to have enough market share in these markets.

Ryanair and Easyjet since 2000 were in substantial profits, while 2007-2008 these companies had a major fall in profits. Ryanair consistently till 2008 has the largest operating profit out of these airlines where as SkyEurope are into losses every year. The scale of operations for every company influence its profits. Ryanair has managed to keep higher profit than Easyjet although. Ryanair profit since 2000 to 2003 was on its peak of 31.27% in the year 2003 and then dropped to 20.19% in 2008 due to the recession that happened.

Operating Revenue since 2000 was EUR 370.1 millions to EUR 2713.8 million in 2008. Easyjet’s Revenue since 200 from EUR 432.5 million has increased to 2896.8 million till 2008. SkyEurope had an increase of EUR 112.7 million in 2000 to EUR 260.93 million in 2008. Ryanair has increased its routes from 28 in 2000 to 280 till 2008 where as Easyjet increased its routes from 19 in 2000 till 161 in 2008 and SkyEurope from 13 to 15 in its operational years.

In terms of passengers carried in the year 2000 was 5.6 million which has increased to 51 million till 2008, ranging to around 20% to 50% every year.

As we compared these three airlines we will see how cost can be minimized and revenue can be maximized. Decreasing cost for Ryanair can be the best option. Strategies such as fuel hedging should be more focused. Adopt fuel efficient aircrafts can serve better for longer routes. This will no only increase the speed but also increase its efficiency. Ryanair should decide to outsource its maintenance to countries with lower labor costs.

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