La Característica De Ryanair

Ryanair is a low-cost, low-fare airline headquatered in Dublin, Ireland, operatig over 200 routes in 20 countries. The company has directly challenged the largest airlines in europe and has built a 20-year-plus track record of incedibly strong passenger growth while progressively reducing fares. It is not unusual for one-way tickets (exclusive of taxes) to sello n Ryanair´s web site for less tan €1.00. See Exhibit 1for an excerpt of Ryanai´s Web site, where fares between London and Stockholm, for example, are available for 19 pense (approximately US $0.33). CEO Michael O´Leary, formerly an accountan at KPMG, described the airline as follows “Ryanair is doing in the airline industry in Europe what Ikea has done. We pile it high and sell it cheap…For years flying has been the preserve of rich (people). Now everyone can afford to fly’’. Having created profitable operations in the difficult airline industry, Ryanair, as did industry analysts, likened itself to U.S. carrier Southwest Airlines, and its common stock has attracted the attention of investors in Europe and abroad.

Low-Fare Airlines

Historically the airline industry has been a notoriously difficult business in wich to make consistent profits. Over the past several decades, low-fare airlines have been launched in an attempt to opérate with lower costs, but with few exceptions, most have gone bankrupt or been swallowed up by larger carries (see Exhibit 2 for list of failed airlines). Given the exces capacity in the global aircraft market in more recent years, barries to entry in the comercial airline space have never been so low. Price competition in the U.S. and Europe, along with rising fuel costs, has had a deleterious affect on both profits and margins at most carries. The current state of the industry can be described for most carriers as, at best, tumultuous.

The introduction of the low-fare sector in the United States predated its arrival in Europe. An open-skies policy was introduced through the Airline Deregulation Act of 1978, wich removed controls of routes, fares, and schedules from the control of the Civil Aeronautics Board” . This spurred 22 new airlines to be formed between 1978 and 1982, each hoping to stake its claim in the newly deregulated market. These airlines maximized their scheduling efficiencies, which, in combination with lower staff-to-plane ratios and a more straightforward service offrering, gave them a huge cost advantage over the big airlines. This led to the current two-tier industry structure, with the low-fare airlines waring fare wars with the larger established carries.

This was, however, a challenging time for the start-ups. First, the Federal Reserve raised the funds rate from 7.93% in 1978 to 12.26% in 1982. This had a dramatic effect on the financing costs for the start-up airlines, making financing of capital expenditures excessively costly. In addition, at this time the incumbent airlines were generally in relatively strong financial positions. Their deep pockets made it posible for them to run at a loss on certain routes in order to undercut the start-ups where necessary. As a result, many of the new companies failed.

One notable exception, however, was Southwest Airlines. By focusing on secondary airports, lightning-fast turnarounds, information technology, and a strong firm culture, it managed to gain passenger share and profitability. Within a decade, ticket prices in the U.S. had fallen by 33%, and the volumen of passengers had more tan doubled.

In Europe, it was not until 1992, with the signing of the Maasatrich Treaty, that years of protectionism by the governments of the so-called flag carries began to be dismantled. In 1993, European Union (EU) national carriers were for the first time permited to ofter international services from other EU countries. By 1997, this was broadened to include domestic destinations and opened to any certified EU airline. Open skies had arrived in Europe.

Even before then, start-up airlines had begun to enter the European space. These companies would typically negotiate with their country’s flag carrier for the right to fly to secondary airports only. Ticket sales were handled by agents, and the resulting cost structure forced the star-ups to complete with the incumbents primarily on service. Because they were not competing to provide traffic for the major hubs but rather targeting custiomers who had not previously considered flights for travel, they, they were in effect growing the market and were thus not seen as a major threat to the legacy carries. However, with the Maastricht Treaty, the number of new airlines entering the industry greatly increased, and these start-ups were now free to compete solely on cost, looking across the Atlantic to the Southwest model.

Subsequently, as the new entrants vied for market space, prices fell, encouraging previously untapped demand. European passenger volumes had a strong upward trajectory (5%-plus compound anual growth rate between 1998 and 2003). However, while low-cost passenger numbers soared, the long-haul operators faced reduced traffic and higher fuel costs due to events such as the SARS virus and the September 11 attacks. The flag carriers, now financially constrained, were forced to renegotiate, and even cancel, contracts for the delivery of new aircraft from Airbus and Boeing. The two aerospace giants were left with significant numbers of planes for wich the start-ups proved to be welcome customers.

Unlike the arrangements legacy carries negotiated with major airports, start-up airlines negotiated dramatically lower landing and facility chargers with secondary airports. They argued that, because they were bringing a significant number of passengers the rents they airports from concession stands and other retailers. As the low-fare airlines had no particular loyalty to one airport over another, the threat that they could simply stop flying to a particular airport was real.

Ryanair

Ryanair was Europe´s first low-fare carrier, with an initial route between Waterford, Ireland and London. The initial cabin crew had to be no taller tha 5`2’ because the aircraft being deployed were among the smallest being flown on comercial routes. The company immediately challenged incumbents Aer Lingus and British Airways and obtained approval for a Dublin-London (Luton) route, charging less tan half of what the large carriers were charging. A Price war ensued, but over the next decade Ryanair eventually overtook Aer Lingus and British Airways on this route, the largest international route in Europe at that time. (See Exhibit 3 for Ryanair’s remarkable passenger growth from 1985 through 2004).

The company went publico n May 9, 1997, and shortly thereafter was voted “Airline of

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