284
The above is a suggested answer on the sustainability question. Students themselves can
3. Would you recommend any changes to Ryanairs approach? (Refer especially to Chapters 3,
6, 8 and 11 of Exploring Strategy.)
Students can offer their own recommendations, but certain ones emerge from the analysis so far.
If Ryanair wants to play the role of low fares champion in Europe, it has to assume superiority
on the critical cost factors within its managements control. So far, Ryanair has successfully
pursued its cost leadership model. Certain moves have decreased costs and boosted revenue; e.g.
At the same time, Ryanair has to continue aggressively to pre-empt competitors entering its
routes. It has to anticipate its competitors growth patterns and destabilise them. Currently,
Ryanair has the deep pockets to wage a price war against any existing and potential airline
Ryanair needs to understand its clientele, especially its new clientele, as it rolls out further
routes and opens up hubs in mainland Europe, especially central and eastern Europe, and even
further afield in Morocco. What are their expectations, apart from the low fares aspect? Is
outsourcing services a limiting factor? How can this be addressed without compromising costs,
especially in the high wage, less flexible work environments of mainland EU countries?
285
4. What should Ryanair do with Aer Lingus if its third takeover bid succeeds?
4.1 The first observation is that the original two bids were presented as a way of creating a
strong Irish Airline that would compete successfully with larger European carriers.
However, Ryanair was already competing very successfully in the European arena by itself.
4.2 One is forced to conclude that Ryanair is determined to get hold of Aer Lingus, at almost
any cost. Why is this so? Ryanair has changed its logic for the third bid, and it is much less
4.3 After disposals, Ryanair would be left with a rump of Aer Lingus, including the
transatlantic routes. This would finally offer the opportunity to enter the transatlantic market
offering low fares, no frills, as Ryanair had been threatening to do for a number of years,
but had not acted upon the idea.
Given its experience with the budget model, how should it take advantage of its new acquisition
in the transatlantic market, building on its budget model experience and Aer Lingus long-haul
expertise? The parenting advantage question (Chapter 7) is one medium for answering the
question. Another angle is the strategy development directions one (Chapter 7).
286
Restructurer (special case of portfolio manager)
This would be similar to portfolio manager, except that Ryanair might be more interfering
in cost cutting at Aer Lingus. While it might cut some fat, there is a real danger that it
Synergy manager
There might be some scope for synergy e.g. aircraft purchasing (although Aer Lingus uses
Airbus, as opposed to Ryanair who use Boeing). Joint staffing could also be a source of
Parental developer
There is a paradox here, in that if Ryanair were to impose its business model on Aer Lingus,
it could have the effect of destroying Aer Lingus, because of the inconsistency between
their operating models. Ryanair brought Buzz downmarket rather than itself up, in the
course of integrating that acquisition. However this may suit Ryanairs purposes.
The considerations above provide food for thought in a post bid scenario.
4.4 Another scenario to be considered is the most likely one where Ryanair does not succeed in
acquiring Aer Lingus. What should it do with its existing shareholding? Notwithstanding
the advantages of the blocking holding in Aer Lingus, is it an expensive way to block Aer
Of course, if the UK authorities have their way, Ryanair might be forced to dispose of its
holding in Aer Lingus, with all the accompanying adverse consequences.
Note:
In February 2013, The European Commission rejected Ryanairs takeover bid of Aer Lingus on
the grounds that it would have led to monopoly. Ryanair declared that it would appeal the
5. Evaluate the strategic leadership of Michael OLeary.
Michael OLeary is an enigma. On the one hand, he keeps announcing that he will leave
Ryanair in two years time, severing all links with the company. On the other hand, he is
inextricably involved in all the companys activities and long-term plans. So, should we take
OLearys repeated resignation declarations with a pinch of salt?
Should he decide to leave, he is right in his determination not to be kicked upstairs to the board,
since such a dominant personality would tend to constrain his successor and the board in
general, another corporate governance issue (Chapter 4).
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy, 10th edition,
Instructors Manual on the Web
In fact, some schools of thought would value highly Michael OLearys relentless energy and
his thriving on adversity. It displays a lack of complacency quite the opposite of what
Finkelstein points out as a danger signal. The capacity to irritate may bring about conflict and
change. Also, in Michael OLearys favour, as Ryanairs largest single shareholder, he literally
puts his money where his mouth is.
i Done, K. 2009. Airline industry in intensive care. Financial Times, 25 March, 22.
ii Lex Column, 2010. Ryanair. Financial Times, 2 February, 18.
iii Emmet Oliver. 2003. Former Go boss offers lessons in high flying. Irish Times, 28 November.
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy, 10th edition,
Instructors Manual on the Web
Supplementary Notes: Ryanair: the low fares airline
Ryanair competitors and comparators*
Eleanor OHiggins
These notes provide details on Ryanairs biggest budget airline competitors and some selected
other carriers. Exhibit S1 shows comparative fare levels for Ryanair versus other airlines along
EasyJet
EasyJet, the second largest budget airline in Europe, is Ryanairs greatest rival, given that they
encounter each other in the same markets. As of the end of 2012, easyJet served 134 airports in
32 with 190 Airbus aircraft. Ryanair and easyJet frequently attack each other as part of their
Based at London Luton Airport, easyJet was founded by Greek Cypriot EasyGroup entrepreneur
Sir Stelios Haji-Ioannou in 1995. Although it is listed on the London Stock Exchange, members
of the Haji-Ioannou family still owned 37 per cent of the company in 2013.
The business model of easyJet is somewhat different to Ryanair in that it uses more centrally
located airports, thus incurring higher airport charges, but more actively courting the business
traveller. For example, Schiphol Airport in Amsterdam and Orly Airport in Paris are hubs, while
In March 2008, easyJet purchased GB Airways, a franchise of British Airways, headquartered at
London Gatwick, in a deal worth £103.5m. The takeover was used to expand easyJet operations
at Gatwick and start operations at Manchester. While all GB aircraft (fortuitously Airbus) were
transferred to easyJet, slots used by GB Airways at London Heathrow Airport were not included
in the sale.
However, all was not well in the easyJet boardroom. In May 2010, Sir Stelios Haji-Ioannou and
another non-executive board member he had nominated, Robert Rothenberg, declared open
warfare on easyJet by resigning from its board to become shareholder activists against its
expansion plans. Sir Stelios was continuing his campaign started in 2008, objecting to the
managements strategy of relentless growth in aircraft numbers and lack of focus on profit
margin increase, notwithstanding that the dispute had earlier appeared to be resolved with a
compromise that would see the airline keep expanding by 7.5 per cent a year.
The altercation erupted again in early 2013, when members of Sir Stelios family sold 0.34 per
cent of their holding in easyJet in protest against the possible purchase of more aircraft by the
carrier. Sir Stelios declared that this token disposal of shares would be followed by more
substantial ones, should easyJet place orders for new aircraft. In addition to his objections to
expanding the fleet, Sir Stelios had long campaigned for greater controls on executive
remuneration and increased dividends for shareholders. In fact, the company had previously
more than doubled its dividend and was reviewing its remuneration policy. However, it was still
evaluating the case for ordering new more fuel efficient aircraft.
Air Berlin
Air Berlin is second only to Lufthansa in size among airlines in Germany. Originally a charter
airline which started operations from Berlin in 1979, it expanded into scheduled services and
styled itself as a low-cost airline. However, it did not operate with a pure low-cost carrier
model. Most notably, instead of only point-to-point service, Air Berlin offered guaranteed
The airline first floated on the stock exchange in May 2006, with its initial share price range
reduced from 15.017.5 before finally opening at 12, due to rising fuel costs and other market
pressures at that time. As a result of the IPO, the company claimed to have over 400m in the
bank, to be used to fund further expansion, including aircraft purchases. Since its announcement
as a low-cost airline in the mid-2000s, it has made a profit only twice, in 2006 and 2007.
In March 2007, Air Berlin took over German leisure airline LTU, thereby gaining access to the
long-haul market and becoming the fourth largest airline group in Europe in terms of passenger
traffic. This deal led to the introduction of Airbus A321 and Airbus A330 aircraft into the Air
Berlin fleet. With the merger of the LTU operations, aircraft and crew, the LTU brand was shut
down. Later in 2007, Air Berlin acquired a 49 per cent shareholding in Swiss charter airline
Belair, otherwise owned by tour operator Hotelplan. A month later, in September 2007, Air
A possible rescue to profitability came about in December 2011, when Etihad Airways, the fast-
growing Gulf airline, took a 29.2 per cent stake by paying 72.9m for new shares in the German
airline, having already held a 3 per cent stake. For Air Berlin, Etihad was providing much–
needed financing with a loan of up to $255m to help pay for new aircraft. Etihad and Air Berlin
instituted a code-sharing partnership to enable them to offer more destinations to their
respective passengers. James Hogan, Etihad CEO stressed he was not seeking a controlling
stake in Air Berlin. However, he insisted the partnership would help restore loss-making Air
Berlin to profit. Hartmut Mehdorn, Air Berlins acting chief executive, described Etihad as the
Norwegian Airlines
Norwegian Airlines was founded in 1993 as a regional airline taking over routes in Western
Norway after the bankruptcy of Busy Bee. Until 2002, it operated Fokker 50 aircraft on wet
lease for Braathens. Following the 2002 merger of the two domestic incumbents Braathens and
Scandinavian Airlines, Norwegian Airlines established a domestic low-cost carrier. It has since
expanded quickly. By 2012, it was the second-largest airline in Scandinavia and the third largest
Norwegian Airlines charges passengers for checked in luggage (6 each way per bag) as well as
on-board snacks and meals and seat selection. In January 2009, Air Transport World (ATW)
named Norwegian Airlines as the Market Leader of the Year. The award recognised
Norwegian Airlines for several accomplishments: successful adaptation of the low-cost model
to the Scandinavian air travel market; its strategy to combine low-fares with high-tech with
strong emphasis on customer-focused information technology; swift market response in 2008 to
the collapse of Sterling, a Danish budget carrier; and the ability to stay profitable in challenging
Wizz Air
Wizz Air is a Hungary based carrier operating budget scheduled services linking Poland,
Hungary, Bulgaria, Croatia, Romania and Slovenia with points in the Mediterranean, UK,
Ireland, Germany, France, Italy and Scandinavia. The airline, which operates 37 leased Airbus
A320s from 16 bases spread across mainland Europe, was founded in Katowice, Poland in 2003
As a private company, Wizz Air does not publish any detailed financial information. However,
it appears that after years of losses, the carrier only broke even in 2010, thanks to a change in
the way it calculated its maintenance costs, swinging back to a net loss in 2011. The company
faces massive challenges in terms of financing and effectively deploying aircraft. Its further
expansion requires substantial investment and cash reserves, which may not be readily available
to secondary airports, but Wizz operates longer average stage lengths, which results in high
aircraft utilisation of 13 hours daily.
It has even been suggested it would make strategic sense for the two airlines to merge, given the
similarity of their cost-cutting cultures.ii In fact, Wizz is even more cost-cutting than Ryanair,
charging passengers 10 for carry-on luggage that does not fit under a seat, which Ryanair
Aer Lingus
Aer Lingus, operating short- and long-haul services was the national state-owned airline of
Ireland, until it was floated in October 2006. The events of 9/11 were particularly traumatic for
Aer Lingus, as the airline teetered on the verge of bankruptcy. It put paid to plans for a flotation
which had already been postponed several times. In late 2001, the choice was to change, or to be
taken over or liquidated. Led by a determined and focused chief executive, Willie Walsh (who
was to become the CEO of British Airways in 2005) and his senior management team, the
company set about cutting costs. One ingredient of its cost reduction was a severance
In its defence document against a Ryanair takeover bid in October 2006, the airline proclaimed
a strong track record of growth, with a return on capital and operating margin second only to
Ryanair in the European Airline industry, leading the Irish market in terms of technological
innovation and value-added service innovations such as self-check in, advance seat selection,
However, from 2008, Aer Lingus fortunes began to deteriorate in the face of the gathering
recession, rising fuel costs and fierce competition on all its routes, resulting in losses for the
years 2008 and 2009. Christoph Mueller joined the company as CEO in September 2009, and
set about trying to staunch losses suffered by the airline as it expanded during a recession that
hit its three main markets of Ireland, the UK and the US.
Revamping the strategic approach and culture of the airline was a priority in Mr Muellers
ambition to improve revenue. Thus, the airline rebranded itself as Irelands civilised airline as
it unveiled a plan to position itself midway between Ryanair and high-end carriers such as
British Airways, that some analysts compared with the positioning of easyJet. The airlines
civilised tag was seen as a dig at Ryanair.iv While Aer Lingus hoped to lure business travellers
with faster check-in times, pre-paid meals and conveniently located airports, rather than the
secondary ones for which Ryanair is known, it would not focus on the quality lounges, free food
and drinks associated with full-service airlines.
Ryanair had also indicated that it would be willing to part with Aer Lingus coveted slots at
Heathrow and Gatwick by selling them to other carriers, effectively giving away a significant
part of Aer Lingus erstwhile profits. It was reckoned that the addition of these remedies meant
the total cost to Ryanair of acquiring Aer Lingus would top 1bn.