Marketing Management - Ryanair Case Study

1.0 Introduction

1.1 Contents of this report:

This report is made up of four main parts: first a general description of Ryanair in terms of its history, expansion, its competitors and its business model. Second, we discuss the marketing challenges facing Ryanair. Thirdly we analyse the options available to Ryanair based on its sustainable competitive advantages and SWOT analysis. And lastly we will discuss the marketing communication tactics of Ryanair and debate its 2009 Calendar.

1.2 History of Ryanair:

Ryanair was formed by Tony Ryan and his sons in 1985. In 1990, Michael O’Leary, Tony Ryan’s personal advisor, started restructuring the airline based on Southwest Airlines’ low-cost model. Southwest was the pioneer of low-cost, no-frills airlines. The move worked and Ryanair turned its first profit in 1991. Michael was made the CEO of the airline in 1993 and given 25% stake in the company.

1.3 International Expansion:

In 1997, Ryanair hugely benefitted from the European airline deregulation and by 2000 were flying to 45 destinations throughout Europe and transporting around 6 million passengers. Buzz, the no-frills, low-fare subsidiary of KLM, was acquired by Ryanair in 2003 for $21 million.

1.4 Main competitors:

The main competitors of Ryanair include British Airways, Wizz Air, SkyEurope and EasyJet. In 2006 BA launched its low-cost arm called BA Connect to take on the Low Cost Carriers (LCC) in Europe.

1.5 Business Model:

Ryanair = Low-costs + Low-fares + no-frills

Ryanair maintains low operating costs by keeping their marketing budget very low, charging passengers for checking in their luggage, charging for meals, charging the passengers a fee to use the toilets etc. Also, they have just one type of air plane, reducing the cost of training the staff and maintenance of the plane.

Because Ryanair keeps its costs low, they sell their tickets for less and earn their profits from selling large volumes of tickets. The passengers pay for any additional services they opt for.

2.0 Identify and critically discuss the marketing challenges facing Ryanair.

The major marketing challenges facing Ryanair are listed below:

1. Rising fuel costs: Ryanair’s profit before tax for 2008 was £439 million, down from £451 million the previous year even though their revenue increased £477 million. This was mainly because of increase in fuel costs by £100 million. The growth of air travel in Asia has been phenomenal to say the least and, is still growing by leaps and bounds. This means that the demand for aviation fuel will remain high, pushing the already high fuel prices even higher. This poses the biggest threat to, not just Ryanair, but the entire air travel industry.

2. Competition from other players: Ryanair faces stiff competition in Europe from a number of carriers including British Airways, Wizz Air, SkyEurope and EasyJet. In 2006 BA launched its low-cost arm called BA Connect to take on the Low Cost Carriers (LCC) in Europe. A number of other airlines are planning a similar move in the near future. This might affect Ryanair as there will be greater competition. Airlines will need to constantly adapt new strategies to avoid losing market share. We might also see a period where some of the bigger airlines will try to acquire smaller ones and consolidate.

3. Expansion into Eastern Europe: In 2001, UK accounted for 61% of the total revenue of Ryanair. However, by 2005, this had dropped to 49%. This shows that Ryanair has been expanding eastwards at a fairly fast pace. Future expansion into Eastern Europe means competing with already existing players in the market and operating on even tighter margins. This may be a challenge as Ryanair already operates on low margins and uses the economy of scale to get profits.

4. Dissatisfaction among employees and poor processes: A Channel 4 programme titled ‘Ryanair Caught Napping’ was broadcasted in early 2006. The programme alleged inadequate safety and security checks, dirty planes, exhausted cabin crew and pilots complaining about the number of hours they fly. In my view, the inadequate safety and security checks and dirty planes reflect on the poor processes employed by Ryanair where as exhausted cabin crew and number of hours allotted to pilots shows that Ryanair cares very little for their ‘People’. Motivated and happy employees can do wonders in projecting a healthy brand image and pull in repeat customers, especially in the service industry. Improving employee satisfaction can be a challenge for Ryanair as this may increase their costs.

5. Proposed acquisition of Aer Lingus: Ryanair has twice tried, unsuccessfully, to acquire the Irish airline Aer Lingus. The proposed acquisition would probably result in a change of strategy for Ryanair. Ryanair specialises in short-haul routes between secondary and regional airports with their average flight covering about 425 miles. Where as Aer Lingus flies in the long-haul routes. I am not sure if Ryanair’s strategy to charge extra for checked in baggage, using toilets, meals, etc would work in the long-haul routes because most of the passengers would want to avail of these facilities in the long routes. This would result in increased costs and pose a challenge for Ryanair to maintain cost leadership.

6. Website the only means to book flights: Ryanair’s website is the only means to book flights and associated travel products. This saves them the fee charged by the agent, but it reduces their reach to the customers who don’t use internet. With the kind of business model Ryanair employs (economy of scale), there may be people who don’t have access to their booking system – they might prefer to get their tickets booked through an agent. The challenge facing Ryanair is how to employ booking agents and still keep their costs low.

7. Retention of employees: As discussed in point number 2 above, there are some airlines waiting to enter the Low cost segment. If and when they do enter, Ryanair’s staff will be susceptible to poaching from these airlines. Ryanair would be advised to develop better HR policies so as to be able to continue their business without any hindrance.

8. Uncontrollable factors: There are some factors over which Ryanair may not have control. These include their CEO O’Leary leaving – he had previously said he might leave in 2009, but stayed on because “things were too interesting”. Another example of uncontrollable factor is a 9/11 type incident. In the aftermath of 9/11, airlines found it tough to pull in passengers for months. There are numerous other examples like global recession or the Icelandic volcano ash which forced hundreds of airports to close and left thousands of passengers stranded.

3.0 Critically evaluate Ryanair’s basis for competitive advantage and discuss its sustainability. Propose recommendations regarding what marketing strategies Ryanair can adopt to remain competitive.

3.1 Sustainable competitive advantages (Refer Appendix 3):

1. Single type of aircraft: Ryanair uses a single type of aircraft (Boeing 737-800s) to fly on all routes, thereby minimising the cost involved in training its staff. Using a single type of aircraft also means that Ryanair saves on obtaining spares and services from the aircraft manufacturer.
2. Flying from secondary airports: Ryanair flies short-haul routes between secondary and regional airports. This means Ryanair avoids paying congestion charges to the airport as these airports don’t charge a congestion fee. This also means that Ryanair flights spend less time hovering over the airport, thereby saving Ryanair precious fuel and time.
3. Low operating costs: As is expected from a low-cost carrier, Ryanair maintains very low operating costs. Ryanair maintains low operating costs by keeping their marketing budget very low, charging passengers for checking in their luggage, charging for meals, charging the passengers a fee to use the toilets etc.

3.2 SWOT Analysis (Refer Appendix 4):

Let us now perform a SWOT analysis to review the Strengths, Weaknesses, Opportunities and Threats of Ryanair.

Strengths:

Ryanair is Europe’s first low-cost, no-frills airline and no matter how many competitors come in, its going to remain the first one. The airline flies in more than 125 destinations all over Europe and maintains a fleet of 140 Boeing 737-800s. The company’s website is the “one stop shop” for air travellers offering everything from cheap flights, car rentals, travel insurance and accommodation.

Weaknesses:

In spite of the fact that Ryanair’s revenue increased from £ 2237 million to £ 2714 million between 2007 and 2008, the profits before tax decreased from £ 451 million to £439 million. This shows that the company is finding it difficult to maintain low costs.

Some might even consider their one-off press advertisements, which are frequently banned by the Advertising Standards Authority, as deceiving.

Opportunities:

Ryanair can expand to Eastern Europe, Asia, Trans Atlantic routes and still maintain its low costs, thereby maintaining cost leadership. Ryanair has plans to order new air planes to expand its current fleet and thereby cater to the expansion plans. Ryanair collects a lot of data from its passengers while booking flights and has the opportunity to create a comprehensive database. The database can then help Ryanair better Target their customers by understanding their customers.

Threats:

Rising fuel costs is the biggest threat facing Ryanair, and the entire airline industry indeed. As Michael O’Leary said that a no-profit situation could easily happen if the oil prices reach $150 a barrel mark. Another threat, although not very big, is the introduction of 10 tourist tax in Ireland. This move is bound to drive the Ryanair’s costs upwards. The airline should also create strategies to deal with the likes of British Airways Connect and other global giants who are about to enter the low-cost niche market.

3.3 Segmentation:

I tried to segment the customers of Ryanair based on two criterions. They are:

- Based on type of customer

- Based on customer quality

Based on type of customer:

There can be three types of customers – Business, Individual/Family and Agent. Below is the plotting of these customers based on number of tickets they purchase and their loyalty towards Ryanair.

Business customers are the ones that buy more tickets than individual/family buyers and are more likely to be loyal. An example of this may be a large/ small company booking tickets for its employees. They are normally a little flexible on the price of the ticket as long as the difference is not too much and also buy a lot of tickets because many of their employees travel on business.

Individual/Family customers are the ones travelling less frequently and are very likely to switch to other airlines if that airline offers cheaper tickets.

Agents are the booking agents who book flights based on the needs of their own customers. So if their customer needs a cheap flight, they’ll book the cheapest one available in the market. On the other hand, if their customer demands good service, they may book a flight which offers better service. Nevertheless, the number of tickets that the agent’s book is higher than the number of tickets Business and Individual/Family book.

Based on customer quality:

There can be three types of customers based on customer quality – Low Value, Medium Value and High Value. Below is the plotting of these customers based on their cost and profitability to Ryanair.

Low Value customers are the ones that cost Ryanair the least but they also contribute the lowest towards the profit.

Medium Value customers are the ones that contribute towards Ryanair’s costs more than the Low Value customers and also bring in more profit.

High Value customers are the ones that may increase Ryanair’s costs but also bring in the most profit out of the three. One rule of thumb is that 20% of your customers (High Value) will account for 80% of your profit. Ryanair must give this 20% special attention (Refer Appendix 5).

It can be argued that Ryanair can use either of these segmentations, but I recommend them to use the former – based on type of customers. This will give Ryanair a better understanding of their customers and help them in targeting the specific type of customer. Also, since Ryanair is a low-cost carrier, their majority of customers are price conscious. The services that Ryanair provides most suit the needs of customers with low flying budget. So it doesn’t make sense in segmenting the customers on the basis of customer quality as most of the customers are flying Ryanair because of low prices and not the services offered in-flight.

3.4 Targeting:

Amongst Business, Individual/Family and Agent segments, Ryanair is advised to target Individual and Business customer. Since Ryanair is the cost-leader in the airline industry, they can offer cheapest fares. Individual/family segment is the most price sensitive segment of all. Especially with the onset of internet, customers have become more literate of the ticket prices being offered by other airlines and they look at websites of all the carriers before booking tickets. Business segment is proposed to be targeted because of the current recession; all organisations are looking to cut their costs. Even senior managers are travelling in economy class where as they used to travel in business or first class before the recession hit. Ryanair is not advised to target Agents because Agents have a fixed commission that they charge Ryanair; this drives Ryanair’s costs upwards, thereby reducing their profits.

3.5 Positioning:

Philip Kotler and Gary Armstrong have described five winning value propositions in their book (Refer Appendix 1). These are:

1. More for more

2. More for the same

3. The same for less

4. Less for much less

5. More for less

I propose Ryanair to use the “Less for much less” proposition. This proposition involves meeting customers’ lower performance requirements at a much lower price. This is attributed to the following reasons:

1. Ryanair’s operating costs are very low, and hence they can afford to sell cheap tickets.
2. Very few people need, want or can afford the best service in the airline industry.
3. Many flyers prefer not to pay for what they consider unnecessary extras like meals, drinks, etc.
4. Most of their target audience is price sensitive.

4.0 Discuss and evaluate Ryanair’s marketing communication tactics and strategies and the ethical debate surrounding the 2009 Calendar and its contents.

Ryanair spends no more than 2% of its total annual revenue on marketing strategies and uses a strategy that distinguishes them from their competitors. Their most commonly used medium of advertising is their website, which is available in 20 different languages. Customers can book flights, accommodation, transport, buy travel insurance etc through just one website. Ryanair earns commission from the products linked to Ryanair.com.

Ryanair also uses humorous poster campaigns with eye-catching phrases to capture attention. Ryanair also comes out with controversial one-off press advertisements to promote its low ticket prices.

Perhaps the most controversial marketing communication tactic used by Ryanair was the launch of its Girls of Ryanair calendar. The calendar shows scantily clad flight attendants posing in front of jet engines, fuel pumps and tool kits. The calendar drew a lot of criticism from the Women’s Institute and a government run rights organisation in Spain, where the calendar was shot. The feminists accused Ryanair of sexism and presenting the women in the calendar as sexual objects.

Frankly, I think the calendar did more good than harm to the carrier’s reputation. Ryanair gained a lot of publicity all over the newspapers, TV shows, etc. They didn’t have to advertise about the calendar because the media was already talking so much about it. And, the calendar sold like hot cakes, selling all 10,000 copies in just 4 weeks.

Personally I feel bad when I see women’s groups wasting their time with companies like Ryanair when there is so much they can actually do; there are so many other actual bad things happening to women that criticising Ryanair’s calendar seems to be a waste of time. I mean, these girls posing in the calendar are educated adults. They know what they are doing. And if they are ready to shed their clothes (for a good cause) then I don’t think anyone else has the right to say that they are being treated as sexual objects.

Ryanair received applications from more than 700 of their female employees to take part in the 2009 calendar. This clearly shows that the girls don’t feel like sexual objects, as perceived by some feminists.

Ryanair donated the £100,000 that they earned from selling the calendar to Dublin Simon Community which provides vital services to the homeless in Dublin. The Dublin Simon Community was chosen from 100 charities throughout Europe to receive the entire sales proceeds from the 2009 calendar.

By donating all the revenue generated from these calendars, Ryanair is using a very important tool in Public Relations – news (Refer Appendix 2). In the highly competitive airline industry, sometimes out of sight can mean out of mind. This marketing tactic helps keep Ryanair at the top of their customers’ head.

Appendix

1. Armstrong, Gary. "Customer-Driven Marketing Strategy: Creating Value for Target Customers." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson, 2010. 238-40. Print.

2. Armstrong, Gary. "Advertising and Public Relations." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson, 2010. 473-75. Print.

3. Armstrong, Gary. "Customer-Driven Marketing Strategy: Creating Value for Target Customers." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson, 2010. 234-38. Print.

4. Armstrong, Gary. "Company and Marketing Strategy: Partnering to Build Customer Relationships." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson, 2010. 77-78. Print.

5. Reh, John F. "Pareto's Principle - The 80-20 Rule." About Management - Business Management - People Management - and More. About.com Guide. Web. 21 Nov. 2010.