From industry-based, resource-based, and institution-based views, how can we understand the
drivers behind Ryanair’s success? From an ethical standpoint, is CEO Michael O’Leary a loose
cannon or an astute strategist?
Charles M. Byles, Virginia Commonwealth University
Always in the news and not shy of adverse publicity, Ryanair has been soaring in profits for the past
few years. In November 2011, CEO Michael O’Leary announced a 20% increase in profits that in his
words was “a testament to the strength of Ryanair’s lowest fare/lowest cost model.” Ryanair did not
start with this model, however. Founded in 1985 with its headquarters in Dublin, Ireland, Ryanair
began flights between Ireland and the UK and later launched services on the lucrative Dublin-
London route after challenging the British Airways-Aer Lingus duopoly. But its initial foray into the
airline business was not profitable. As a result of severe financial losses in 1990, Ryanair changed its
strategy, adopting the Southwest Airlines business model and becoming the pioneer of low fares in
Europe. The next two decades showed growth from 745,000 passengers in 1990 to 73.5 million in
2010. Based on passengers carried, the airline is now Europe’s largest low-cost carrier and second
largest airline.
Resources and Strategy
While Ryanair competes primarily on low cost, it also differentiates (through certain aspects of
customer service) and raises revenues on non-ticket items (through ancillary services) as a means of
offsetting the lower fares. Although successful, this strategy has been controversial. The airline has
been accused of concealing its ancillary fees and offering customer services that are only available for
a fee. How does Ryanair deliver on its low-cost strategy? Five value chain activities are key to its low-
cost advantage: (1) operations, (2) human resource management, (3) customer service, (4) use of the
Internet, and (5) ancillary revenues.
Operations
Use of a single model of aircraft (the Boeing 737-800) is the primary method of cost control because
it allows minimization of training and maintenance costs, efficient management of spare parts
inventory, and more flexible scheduling of flight crews. The popularity of the 737 model also means
that flight crews are more readily available for hire. Finally, because Ryanair purchases a large
number of aircraft from Boeing it can negotiate price concessions.
Other cost savers are the use of secondary and regional airports that offer competitive prices, the use
of outdoor boarding stairs instead of jetways, having all passengers check in on the Internet, and the
introduction of a checked bag fee, which reduces the number of bags carried by passengers (hence
reducing handling costs and the number of check-in desks). Airports are chosen because of their low
fees rather than for market reasons. Some agreements with secondary and regional airports base the
airline’s fees on traffic volume.
The short-haul flights operate without the costs of meals, movies, and other in-flight services
expected by passengers on longer flights. While the distance of the secondary airport from the main
cities and the charge for checked baggage are inconvenient, a benefit is more frequent on-time
arrivals, quicker turnarounds (fewer bags to check), and more frequent on-time departures because
these airports are less congested. Quicker turnarounds and more frequent on-time departures are
also enhanced because the airline offers neither connecting flights nor the transfer of baggage to
other flights, whether operated by Ryanair or not.
Human Resource Management
The productivity-based incentive system is another activity contributing to greater ancillary revenues
and efficiency. Flight attendants receive commissions for onboard sales and, along with pilots,
payments based on the number of hours or sectors flown. For the 2010 fiscal year, productivity-
based incentives accounted for approximately 39% of a typical flight attendant’s total earnings and
37% of a typical pilot’s total compensation. The cost of customer service is reduced by outsourcing
ticketing and other services at airports. For these services, Ryanair has been successful in negotiating
fixed-price multi-year contracts.
Customer Service
Although Ryanair has a reputation for poor customer service, the airline states that customer service
is an important aspect of its strategy. Ryanair’s stated approach to customer service is the deliberate
reduction of services in some areas (e.g., free checked bags, meals, flights to major airports) while
raising it in others (e.g., on-time departures and arrivals, fewer lost bags). Its December 2011
customer service statistics (published on the Ryanair website) state that 89% of flights arrived on
time, complaints were less than one per 1,000 passengers, and mislaid bag claims were fewer than
one per 2,000 passengers.
The airline believes that customers prefer fewer services plus extra fees as needed for meals and
other items in exchange for low fares. The Air Transport Users’ Council, however, claims that in
2009, easyJet and Ryanair had the most complaints of any major European airlines. Cancellations,
missing bags, and denied boardings were top complaints. In a recent Bloomberg Businessweek
article titled “Ryanair’s O’Leary: The Duke of Discomfort,” even CEO O’Leary suggests that customer
service is poor:
In exchange for cheap fares, he [O’Leary] says, passengers will put up with just about anything. On
Ryanair, that can include high luggage fees; relentless in-flight sales pitches for smokeless
cigarettes and scratch-off lottery games; minimal customer service; bad, expensive food;
cramped seats; and flights to secondary city airports that are sometimes hours from the
actual city.
In the same article, O’Leary criticizes competitors for treating budget travelers with a level of
courtesy that they do not receive elsewhere nor expect when traveling. O’Leary believes that
customers will endure discomfort and indignity as long as they get to their destination cheaply and
with their suitcases.
Ancillary Revenues
Ancillary revenues (revenues beyond the sale of a ticket and including sales of related items such as
hotel reservations or car rental, as well as charges for food, checked baggage, priority boarding, and
other items) allow the airline to make up income lost through lower ticket prices. Ryanair has been
particularly creative in coming up with new means of generating ancillary revenues. For example, in
2009, the company announced the sale of smokeless cigarettes to ensure that passengers get their
“fix” of nicotine without lighting up.
The company’s website contains offers for car hire, travel insurance, hotels, airport transfer, credit
cards, hostels and bed and breakfasts, cruise holidays, villas and apartments, campsite holidays, and
others. Ancillary revenues are also generated by charging fees for priority boarding, reserved seats,
airport boarding card reissue, checked baggage, excess baggage, infant equipment, sports equipment,
musical instruments, and many others. One controversial fee is the boarding pass reissue fee
(charging €40/£40 for a passenger who fails to print out his boarding pass) that has been ruled
illegal by a judge in Barcelona, Spain. Without the charge, Ryanair argues that it would have to
employ numerous handling agents to issue boarding passes for passengers who forget to print them.
The Irish Examiner newspaper reported that Ryan-air’s ancillary revenues for 2009 were €663
million, more than any European airline, and in the top five ranking of airlines around the world (the
top three are United, American, and Delta). For the half-year ended September 30, 2011, ancillary
revenues increased by 15% to €486.5 million, faster than the increase in passenger volume.
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