Strategy module | Kevin Constant | Lesley Wieme

Ryanair – Business Model

“Air transport is just a glorified bus operation.”

Key FiguresRyanair leads the pack, but the pace is slowing down

Key Figures

EUR million 2013 Change vs FY2012 % of 2013 total

Fuel 1,886 18,3% 45%

Airport & Handling Charges 612 10,4% 15%

Route Charges 487 5,7% 12%

Employee 436 5,0% 10%

Depreciation 330 6,6% 8%

Materials, repairs 121 16,1% 3%

Aircraft Rentals 98 8,3% 2%

Other 198 9,9% 5%

Total Expenses 4,166 12,4% 100%

Cost performance is good, but CASK strongly influenced by fuel prices

Hyper-competitive environment

Trends:• Consolidation among Legacy Carriers• Low-Cost subsidiaries of FSCs (e.g. Germanwings, Iberia Express)• LCCs evolving to more hybrid forms

Competitive environmentRyanair disrupted the European air travel market, but competitors are on the look-out

Ryanair’s business model

Value Proposition What value do we create for whom?

Value Architecture How do we do it?

Revenue Model How do we earn money?

Culture & Values What values do we pursue and communicate?

4 building blocks for a profitable strategy in fierce competition

What value do we offer to whom?

Value proposition

Lowest fares = CORE of business model

Target customers?• Those who compromise on comfort• all fare-conscious customers

How?• Maintain focus on cost-containment• Maximise ancillary revenue

“Offer direct, on-time flights at the lowest fare in the market, without any frills.”

“Europe’s leading low-fares scheduled passenger airline”

How do we do it? By focusing on cost-containment and operating efficiencies!

Value architecture

Airport-related

• Short-haul• Point-to-point• Monopoly on most of its routes

• Secondary airports: Less congestion Lower charges Bargaining power

“Sometimes there is not even a road to the airports we fly to. It is immaterial.”

“Ryanair flies routes that were never flown by any other airline and will never be flown by any other airline”

How do we do it?

Value architecture

Aircraft-related costs

Aircraft acquisition costs• Aircraft of a single type (Boeing 737-800)• Buy in bulk• Young fleet: lower per seat costAircraft usage

Personnel-related costs

Cost savings are more important than relationship between management and employees.

"MBA students come out with: "My staff is my most important asset.“ Bull****. Staff is usually your biggest cost.”

Michael O’Leary on the deal with Boeing: “We raped them”

How do we do it?

Value architecture

Customer service costs

• Agreements with third party contractors• Internet booking facility

Ryanair managed to keep its fares below the LCC competition

Value architecture

Figure: Lowest ex fuel costs at Ryanair (figures from Ryanair, FY2013)

Ryanair managed to keep its fares below the LCC competition

Value architecture

Figure: Ryanair’s average fare vs other airlines (Figures from Ryanair, FY2013)

Revenue modelHow do we earn money?

“Any fool can sell low airfares and lose money! The difficult bit is to sell the lowest airfares and make profits.”

58%22%

20%

"Core" revenues

Ancillary revenues

Subsidies

Revenue model

“The other airlines are asking how they can put up fares. We are asking how we could get rid of them.”

Putting traditionally non-core revenues at the core of the business model

Compulsory fees and charges

Variable amount fare based on barebone ticket structure

Ticket-related fees and additional charges

Ancillary revenues

“If someone wanted to pay £5 to go to the toilet I would carry them myself. I would wipe their bums for a fiver."

“We think [passengers who forget their boarding pass] should pay 60 euros for being so stupid.”

Turning airports from a cost into revenue

On how to settle differences with Dublin Airport: “With Semtex. Preferably during a board meeting.”

Airport Airline

Deliver service

Pay charges and fees

Airport Ryanair

Provide subsidies and support

Grants its presence

Revenue model

Corporate culture and valuesWhat values do we pursue and how do we communicate them?

“people say the customer is always right, but you know what – they’re not. Sometimes they are wrong and

they need to be told so.”

SWOT analysisStrengths, Weaknesses, Opportunities and Threats

• Brand name (20 years in LCC business)• Lowest fares• Small headquarters: low on overheads• Benefits from low airport charges• Low distribution cost • O’Leary charisma providing strong leadership

and cheap marketing• Financial situation

• Dependency on subsidies• Poor service, prone to bad press• Low frequencies and mid-day departure times

(problem for business travellers)

• Market growth• Continuing European economic crisis• Growing demand for LCCs• Growing market with EU enlargement• Untapped potential in Europe • Absence of LCC on long-haul flights• Market consolidation (LHG, AF-KLM, IAG)

• Increase of airport and navigation charges• Fuel price volatility• EU regulations (e.g. on denied boarding

compensation and ‘hidden fees’)• EC investigations into airport subsidies

Strengths

Opportunities Threats

Weaknesses

QuestionsStrategy module | Kevin Constant | Lesley Wieme

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