{"id":543,"date":"2015-12-01T18:12:50","date_gmt":"2015-12-01T23:12:50","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ryanair-low-prices-without-unnecessarily-pissing-people-off\/"},"modified":"2015-12-05T23:34:10","modified_gmt":"2015-12-06T04:34:10","slug":"ryanair-low-prices-without-unnecessarily-pissing-people-off","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ryanair-low-prices-without-unnecessarily-pissing-people-off\/","title":{"rendered":"Ryanair: Low prices without \u201cunnecessarily pissing people off\u201d"},"content":{"rendered":"<p><strong>Historical focus on cost and punctuality<\/strong><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-539 alignright\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/ryanairlogo1-300x107.jpg\" alt=\"ryanairlogo\" width=\"297\" height=\"106\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/ryanairlogo1-300x107.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/ryanairlogo1-600x214.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/ryanairlogo1.jpg 793w\" sizes=\"auto, (max-width: 297px) 100vw, 297px\" \/><a href=\"http:\/\/corporate.ryanair.com\/\">Ryanair<\/a>, the largest low-cost airline in Europe, was launched in 1985. In 1990, after a price war against Aer Lingus and British Airways, Ryanair had to go through a substantial restructuring to recover from a loss of \u00a320m. The company decided to copy Southwest Airlines&#8217; low fare business model by offering the lowest fares in every market. Ryanair believed that their target customer only cared about cost and punctuality so it focused its strategy on reducing fares without compromising on punctuality. The restructuring implied a lot of changes to align the airline\u2019s operations to its goal of being Europe\u2019s cheapest carrier.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Being a low cost airline<\/strong><\/p>\n<p>Ryanair\u2019s focus on cost is undeniable. Its operating model is totally aligned with its objective of providing its customers with the lowest possible fares (see figure 1). Its operating model includes:<\/p>\n<ul>\n<li><u>High asset utilization:<\/u> With high frequency flights, no layover, and quick turnaround at airports (25 min vs. an average of 45 min for other carriers), Ryanair is able to maximize the utilization of its aircrafts and personnel;<\/li>\n<li><u>Low airport costs:<\/u> Ryanair flies mainly from secondary airports which leads to less congestion, lower charges, and better bargaining power;<\/li>\n<li><u>Single aircraft fleet:<\/u> Ryanair exclusively operates <a href=\"http:\/\/corporate.ryanair.com\/about-us\/our-fleet\/\">Boeign\u2019s 737-800<\/a> which allows it to lower its maintenance costs, buy in bulk, have recent aircrafts, reduce training needs and have better safety records;<\/li>\n<li><u>High seat density and high occupancy:<\/u> Ryanair\u2019s planes are also specifically designed to have high seat density. For example, in 2014, Boeing designed a new <a href=\"http:\/\/aviationweek.com\/commercial-aviation\/ryanair-deal-launches-high-density-boeing-737max\">737 Max<\/a> for Ryanair that can seat 197 passengers. As a comparison, regular aircrafts of similar size seat around 130 passengers. Ryanair is also focused on maximizing the occupancy of its aircrafts by leveraging pricing to make sure planes are full at all times;<\/li>\n<li><u>No frills:<\/u> Both in its aircrafts and its customer service, Ryanair focuses on the bare minimum. For example, its planes have non-reclining seats, no seat-back pockets, safety cards on the back of the seats, and life jackets stowed overhead. This design helps to maximize turnaround time and seat density and to minimize maintenance costs.<\/li>\n<li><u>Selling tickets online:<\/u> Ryanair sells its tickets directly to its customers which reduces\u00a0marketing costs and eliminates\u00a0costs related to travel agencies.<\/li>\n<li><u>Low personnel costs:<\/u> Ryanair is also focused on reducing its personnel cost. Its average number of passengers per employee is more than 10 times the average of other airlines.<\/li>\n<\/ul>\n<p>Having really inexpensive operations allows Ryanair to offer low fares to its customers. In addition to fares, Ryanair also captures value with ancillary revenues. Ryanair\u2019s ancillary revenues were 25% of their revenue in 2014. It includes all extras that Ryanair charges for drinks, meals, carry-on luggage, etc. and in-flight advertising and\u00a0purchases. These revenues also contribute to subsidizing Ryanair\u2019s low fares and allow it to be one of the most profitable airlines in the world.<\/p>\n<p>&nbsp;<\/p>\n<figure id=\"attachment_542\" aria-describedby=\"caption-attachment-542\" style=\"width: 601px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-542\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline-601x1024.jpg\" alt=\"Figure 1 How come cheap airlines are so cheap?\" width=\"601\" height=\"1024\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline-601x1024.jpg 601w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline-176x300.jpg 176w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline-352x600.jpg 352w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/lowcostairline.jpg 1754w\" sizes=\"auto, (max-width: 601px) 100vw, 601px\" \/><\/a><figcaption id=\"caption-attachment-542\" class=\"wp-caption-text\">Figure 1 How come cheap airlines are so cheap?<\/figcaption><\/figure>\n<p><strong>The meanest airline in the sky<\/strong><\/p>\n<figure id=\"attachment_541\" aria-describedby=\"caption-attachment-541\" style=\"width: 374px\" class=\"wp-caption alignright\"><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/Graph.png\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-541\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/Graph.png\" alt=\"Figure 2 Historical Ryanair traffic\" width=\"374\" height=\"279\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/Graph.png 963w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/Graph-300x224.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/Graph-600x448.png 600w\" sizes=\"auto, (max-width: 374px) 100vw, 374px\" \/><\/a><figcaption id=\"caption-attachment-541\" class=\"wp-caption-text\">Figure 2 Historical Ryanair traffic<\/figcaption><\/figure>\n<p>Ryanair\u2019s focus on cutting cost has allowed it to grow quickly (see figure 2). However, with the rising profits also came a\u00a0reputation of the meanest airline in the sky. Indeed, Ryanair alignment of\u00a0its operating and business models is so strong that it now has a reputation for being greedy, charging its customers for everything, and being really strict with its rules.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>New focus on customer service<\/strong><\/p>\n<p>In 2014, Ryanair announced their \u201cAlways Getting Better\u201d customer experience initiative to increase focus on customer service. Ryanair decided to relax its tight\u00a0rules and punitive charges to turnaround its image. Some of the proposed changes include allocated seating, permitting a second carry-on bag, relaxing specific rules, flexible fares, and flights to primary airports to appeal to business travellers.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>The cost of being nice<\/strong><\/p>\n<p>However, customer service comes at a cost and now creates a tension with\u00a0its low-fare\/low-cost objective. The bet seems to have paid off since they announced a 66% leap in profits to \u00a3867m\u00a0in March.\u00a0Ryanair also expects traffic to increase by a further 10% this year. However, even if\u00a0Ryanair maintains that its fares are still falling, some analysts say its fares rose by 12% on average in 2014.<\/p>\n<p>It will be interesting to see how Ryanair will keep transforming its operating model to focus on low fares, punctuality, and customer service at the same time.<\/p>\n<p>&nbsp;<\/p>\n<p>Sources:<\/p>\n<p>Ryanair\u2019s corporate website: <a href=\"http:\/\/corporate.ryanair.com\/\">http:\/\/corporate.ryanair.com\/<\/a><\/p>\n<p>The Guardian coverage: \u00a0<a href=\"http:\/\/www.theguardian.com\/business\/2015\/may\/30\/ryanair-being-nice-fewer-rules-less-hassle-more-profit\">http:\/\/www.theguardian.com\/business\/2015\/may\/30\/ryanair-being-nice-fewer-rules-less-hassle-more-profit<\/a><\/p>\n<p>The Economist coverage: <a href=\"http:\/\/www.economist.com\/blogs\/gulliver\/2015\/05\/ryanair\">http:\/\/www.economist.com\/blogs\/gulliver\/2015\/05\/ryanair<\/a><\/p>\n<p>BBC coverage: <a href=\"http:\/\/news.bbc.co.uk\/2\/hi\/business\/3489761.stm\">http:\/\/news.bbc.co.uk\/2\/hi\/business\/3489761.stm<\/a><\/p>\n<p>Cheap airlines infographics:\u00a0<a href=\"http:\/\/www.airliners.net\/aviation-forums\/general_aviation\/read.main\/4464421\/1\/\">http:\/\/www.airliners.net\/aviation-forums\/general_aviation\/read.main\/4464421\/1\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ryanair is Europe\u2019s largest low-fare airline and its focus on having the lowest possible cost also made it one of the most profitable airlines in the world. However, those profits came at the expense of, in Ryanair\u2019s CEO own words, \u201cunnecessarily pissing people off\u201d.<\/p>\n","protected":false},"author":1194,"featured_media":544,"comment_status":"open","ping_status":"closed","template":"","categories":[107,156,110,155,7],"class_list":["post-543","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-airline","category-customer-service","category-low-cost-uncategorized","category-ryanair","category-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Ryanair: Low prices without \u201cunnecessarily pissing people off\u201d - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ryanair-low-prices-without-unnecessarily-pissing-people-off\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ryanair: Low prices without \u201cunnecessarily pissing people off\u201d - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Ryanair is Europe\u2019s largest low-fare airline and its focus on having the lowest possible cost also made it one of the most profitable airlines in the world. 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