Its charismatic boss Michael O’Leary has a business model with a central focus on cost reduction (and making money of course!). In around 20 years he has taken Ryanair from a single plane company to become the largest airline in Europe. He had a vision and achieved it through masterful leadership. So how did he do it? How does Michael O’Leary retain his narrow cost focus niche strategy in the face of intense competition? The business simply has lower costs and those costs are passed on to their passengers in the form of low fares.
The branded airlines argue that passengers are willing to pay more for a better level of service. You can pre-assign seats. You get food and drink onboard, and can choose a higher level of service e.g. business class. However the large flag carriers have taken notice of the low-cost model and have employed it as part of their own more differentiated business model.
In 2009 the company settled for 30% of its local Irish rival Aer Lingus after a prolonged takeover bid. Tough trading conditions meant that Ryanair made its first annual loss in 2008/9. O’Leary put this down firmly to rising fuel costs (as did British Airways in the same year). The company also needed to take into account the burden of purchasing its stake in Air Lingus. So in reality things are looking good for Ryanair and its budget operation – since the business aimed to fly double the amount of passengers 2009/10.
Let’s take a closer look at Ryanair’s marketing mix:
Product or Service.
- Low cost, no frills air travel to European destinations.
- There is no free food or drink onboard. Food and drink are income streams. You buy them onboard, or you don’t – take your own food and drink if you like.
- There are other income streams – or ancillary revenue. The company has deals with Hertz car rental, and a number of hotel businesses. So Ryanair takes a commission on ‘up selling’ i.e. ancillary revenue. Other examples include phone cards and bus tickets. About 16% of profit is made this way. This keeps costs lower.
Ryanair Marketing Mix
Ryanair is the European low cost airline. Low cost or no frills marketing strategies are of great interest to marketers since the marketing mix employed tends to run in opposition to what makes a great brand – and Ryanair is a great brand and a very successful business. In a nutshell Ryanair sells the cheapest tickets that you can buy (on most occasions). If you’d like to learn more about this topic then take a look at our marketing mix lesson. Otherwise please read on. Would you like to take a lesson on the marketing mix?
- Ryanair has low fares.
- 70% of seats are sold at the lowest two fares.30% of seats are charged at higher fares. The last 6% are sold at the highest fare
- Ryanair occasionally get in trouble with bodies such as the Advertising Standards Authority (ASA) in the UK over differences between advertised and actual price – in fairness to Ryanair these are rare mistakes.
- Ryanair does not use travel agents so it does not pay agency commissions. It uses direct marketing techniques to recruit and retain customers, and to extend products and services to them (i.e. Customer Relationship Management). This reduces costs.
- You book online over the Internet. This saves them 15% on agency fees.
- They are based in Stansted in Essex – which is known as a secondary airport. It is new and accessible. It is cheaper to fly from Stansted than either Heathrow or Gatwick, and since it is less busy Ryanair can turn aircraft around more quickly.
- Many of Ryanair’s destination airports are secondary. For example if you fly to Copenhagen (Denmark) you arrive in Malmo (Sweden) – although it is only a short coach trip over the border. Secondary airports, which tend to be smaller regional airports, depend upon this single carrier – some (it is rumored) paying up to £100, 000 for each additional new route. Costs are lower and aircraft can be turned around faster.
- Keeping aircraft in the air as much as possible is another important part of the low cost jigsaw. However, the company has been challenged by the European Union in relation to anti-competition laws.
- They spend as little as possible on advertising.
- They do not employ an advertising agency. Instead all of the advertising is done in-house. In fact O’Leary himself oversees much of the promotion of Ryanair. They use simple adverts that tell passengers that Ryanair has low fares.
- Ryanair employs controversy to promote its business. For example in 2009, the company reasoned that passengers would be charged £1 to use the toilets on board. O’Leary reasoned that passengers could use the terminals at either the destination or arrival airport. This would speed things up. It was reasoned that this is what passengers wanted – since they did not want other passengers leaving their seats and walking the aisles to go to the toilet. O’Leary also argued that larger passengers should be charged more since they took up more room – again it was reasoned that this is what the majority of passengers wanted.
- Some of their aircraft are decorated in the livery of advertisers e.g. News of the World, Jaguar and Kilkenny (beer).
- Pilots are recruited when they are young as pilot cadets. They work hard and take early promotions and then move on after 10-years or so to further their careers.
- Cabin crew pay for their uniforms to be cleaned. They invest in their own training. They are mainly responsible for passenger safety as well as ancillary revenues onboard.
- They pay as little as possible for their aircraft. Planes are the most expensive asset that an airline can make. They get big discounts on aircraft because they buy them when other airlines don’t want them, for example after September 11th, or on the invasion of Iraq and Afghanistan. Aircraft manufacturers cannot simply stop a supply chain in minutes. If orders are being cancelled or delayed, this is when to buy. It was rumored within the industry that Ryanair was buying Boeing 737s – list price around £40,000,000 (forty million pounds) – with up to a 50% discount.
- There is no check in. You simply show your passport and supply your reference number.
- You cannot select a preferred seat. It is first come, first served. This aids speed.
- There are no air bridges (the tunnel that connects to the side of the aircraft when to board it). You walk or are bused to the aircraft.
- Baggage is deposited directly onto the terminal – it’s quick. However if your bag is broken don’t expect high levels of customer service.
Beyond any doubt, Ryanair is one of the strategic marketing successes of the last decade. Undoubtedly synergized by Michael O’Leary – the low cost strategy that it employs is remarkable and industry changing. In many ways the business has looked closely at all aspects of it markets and operations to remold the industry and customer expectations in a unique way. This is how Ryanair has applied the marketing mix.
Ryanair is the World’s favourite airline with 44 bases and 1100+ low fare routes across 26 countries, connecting 157 destinations. Ryanair operates a fleet of 250 new Boeing 737-800 aircraft with firm orders for a further 64 new aircraft (before taking account of planned disposals), which will be delivered over the next 2 years. Ryanair currently has a team of more than 8,000 people and expects to carry approximately 73.5 million passengers in the current fiscal year. More . . .
Ryanair’s route to riches, BBC The Money Programme, First transmitted 4th June 2003.
Ryanair reports first annual loss – BBC New Online – 2nd June 2009.
Aer Lingus to vote on board pay – BBC News Online – 5th June 2009.
This case study has been compiled from information freely available from public sources. It is merely intended to be used for educational purposes only.