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Case Study Ryanair and Virgin Atlantic

Case Study Coursework LEADERSHIP and ORGANISATIONS BABA SDL 2012-13’B’ Virgin Atlantic and Ryanair This case examines two organisations that have many similarities as well as a number of significant differences. The essential technology and systems behind each organisation may be very similar, but the nature and style of management and its consequent impact on the way people working in these organisations think, feel and behave have created very different organisational cultures.

So what are the similarities and what are the differences? The most obvious similarity is that both Virgin Atlantic and Ryanair operate in the UK passenger air transport industry. Both are relatively recent creations and might be seen as new entrants to the sector: Virgin’s air transport business was founded by Richard Branson in 1984 and Michael O’Leary took over as Chief Executive at Ryanair, a small Irish airline which had been founded as Guinness Peat Aviation in 1985 (Creation, 2004).

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Both started life in competition with major national flag carrier airlines (British Airways and Aer Lingus respectively) and grew to be major challengers to these established companies.

As they grew, their scale of operations brought them into competition with a much larger number and range of airlines operating from the UK: Branson’s Virgin Atlantic competes with some major US and other intercontinental companies such as American Airlines and United Airlines; O’Leary competes with the likes of Flybe and EasyJet in the short-haul market.

Both Branson, who was born in 1950, and O’Leary, who is ten years younger, are individuals with strong and distinctive personalities, who have a relentless appetite for media presence and who make extensive use of themselves in their frequent marketing communications. They engage in advertising stunts, readily appear on the news media in relation to stories about the industry, and their faces and personalities are easily associated with their companies. Charting different courses There are, however, some major differences. First, they differ in their choice of markets.

Virgin’s air transport business originated in the long-haul, mainly transatlantic market which might be highly profitable but is also extremely competitive.

As the business grew, offshoots were founded as independent companies; for instance, Virgin Blue in Australia and Virgin Express which has its hub in Brussels and serves European destinations outside the UK and does not compete directly with Ryanair. Ryanair started as a short-haul carrier and has remained so, focusing on European destinations from a small number of airports in the UK and Eire. The two companies’ competitive positioning is also very different.

Ryanair is well known as ‘The Low Cost Airline’; the first thing that hits you in its publicity material is the price and this is very clearly the core of its business strategy (Ryanair website). The ‘no frills’ approach means just that: even the in-flight food is limited to sandwiches and costs extra.

Virgin, by contrast, attracts passengers by offering a superior experience and is firmly positioned at the quality end of the market: Publicity material emphasises style and comfort, and there is a range of in 1/4 Case Study Coursework LEADERSHIP and ORGANISATIONS BABA SDL 2012-13’B’ light extras which, even at the economy end of the price range, includes in-flight food and drinks and packs of ‘amenities’ such as flight socks, eye shades and lip balm. As was noted, both men love publicity stunts and often use humour in their public communications. Branson is usually smiling and in poses which indicate fun and a desire to show close links with his staff and popularity with employees, customers and the public in general. O’Leary is much more likely to be acerbic, critical and uses what might euphemistically be called ‘colourful’ language in his public statements.

He seems to care little about public opinion of him as an individual and has been in trouble with the advertising standards authorities in the UK and Eire on more than one occasion for ‘offensive’ adverts that have upset people from British Airways (who were accused of being ‘Expensive ba * * * * ds’ in an Evening Standard advert in 1999) and the Catholic Church (the ‘Fourth Secret of Fatima’ advert of 2000 featured the Pope) (Creation, 2004).

The brand values are also very different. Virgin as a collection of businesses does everything from running trains, manufacturing contraceptives and cosmetics o offering financial services. All these enterprises are linked by the single powerful central image of the founder and the characteristic red livery; Ryanair does one thing and one thing only, but in doing so sets an almost buccaneering tone, readily taking on authorities such as the European Union over competition policy and the British Airports Authorities over charging practices. Branson has certainly had his conflicts with British Airways, notably over the ‘dirty tricks’ affair of the early 1990s, but is not likely to challenge governments.

Virgin tries hard to build customer loyalty and gain repeat business through brandrelated service values; Ryanair’s repeat business (and for some customers the Ryanair experience is one which inspires the thought ‘never again’) is on price, not loyalty to the brand.

These differences have a significant effect on the nature of employment relations and the psychological contract between the two companies and their employees. Working for Richard and Michael Each company’s brand image and treatment of customers have a bearing on the nature of organisational relationship with staff, and vice versa.

Aspects of organisational behaviour therefore show through in a variety of interconnected ways to create consistent and very different cultures. At Virgin Atlantic, cabin crew are there to be helpful and welcoming; they are important projectors of the brand image and their job is partly to encourage the allimportant customer loyalty which generates continuing profit. The importance of staff as carriers of company values is clearly reflected in the recruitment material and other statements about the nature of work at Virgin Atlantic.

Virgin Atlantic brings together all manner of people in all manner of roles, all playing a crucial role in the smooth running of a very complex operation. But whoever you are and wherever you join us, you’ll never stop thinking of our customers and what 2/4 Case Study Coursework LEADERSHIP and ORGANISATIONS BABA SDL 2012-13’B’ we can do for them. From frontline cabin crew to IT analysts, everyone here plays a role in delivering the Virgin brand. That means using initiative, taking responsibility for your actions and being ready to support those around you at all times.

Similarly, you’ll play your part in maintaining the friendly, unconventional professionalism that makes Virgin Atlantic such a unique place of work (Virgin Altantic website).

The recruitment process is lengthy and includes a group interview which acts as a filter for further tests before job offers are made. Training programmes for cabin crew and other staff are run from a dedicated training centre, and there is a wide range of benefits for full-time staff including seven free flights a year, private pensions and medical schemes and discounted goods and services across the Virgin group.

At Ryanair, the cabin crew work for a supplier organisation called Crewlink. You can discover whether you qualify to apply for a job by answering a series of 11 on line questions. Successful applicants for cabin crew posts are trained at one of Crewlink’s centres and are expected to pay an up-front charge of €1,200 for the fiveweek course (or with a €400 deposit it can be offset against initial year’s salary at a total cost of €1,300). Students are not paid to attend the course; successful graduates get a three-year contract with Crewlink to work on Ryanair flights on a shift-work basis.

Ryanair crew are not expected to make overnight stops at its destinations. Post-tax starting salary is listed as being ? 1,100 per month (? 13,200 pa); Crewlink suggests that after the initial three years, and subject to satisfactory performance, a permanent job with Ryanair itself might be available at a salary of up to ? 25,000 pa. Staff must be flexible in terms of their work location across the 15 European centres and Crewlink does not guarantee work if individuals specify a preferred work location (Crewlink website).

By comparison with long haul, a short-haul operation involves very tight turnaround times and Ryanair aims for 20 minutes. This creates a very different pace and set of pressures on the workforce compared with those at Virgin, which is likely to have higher staffing levels and to give crew longer rest breaks in the destination locations between flights. The nature of customer relations, by contrast, might be more demanding at Virgin than at Ryanair – staff and customers are together for longer and the brand image must be maintained.

Complaints and horror stories can be found about work at both organisations; however, Ryanair is subject to a more systematic and organised campaign of criticism for its employment practices by trade union organisations. In particular, the International Transport Workers’ Federation has run a major campaign on its website since 2004 called ‘Ryan-be-fair’, the purpose of which is to pressurise the management at Ryanair into accepting the role of trade unions in representing the workforce.

It collects comments from disgruntled crew and former workers which give a flavour of the operational stresses and organisational culture. Both organisations have been successful – Ryanair has turned in significant profits for several years in a sector which is prone to disruption and financial loss and which has seen a number of brands disappear (Buzz, Go and Debonair) (BBC, 2005). Virgin also continues to go from strength to strength commercially.

But the cultures and values which get them off the ground could hardly be more different (BBC, 2006). /4 Case Study Coursework LEADERSHIP and ORGANISATIONS BABA SDL 2012-13’B’ References Creation, S. (2004) Ryanair – How a Small Irish Airline Conquered Europe. Arum Crewlink website www. crewlink. ie International Transport Workers’ Federation website www.

iftglobal. org Ryanair website www. ryanair. com Virgin Atlantic website, Working for Us, http://www. virginatlantic. com/en/gb/careers/workingforus/index.

jsp BBC News articles: News website: www. news. bbc. co. k Profits Jump at Virgin Atlantic (27 May 2005) Ryanair Profits Jump on Hot Spots (1 August 2006) Question: Using relevant leadership and organisational theory, explore the impact of organisational features and external environment influences on the leadership and management styles and performance of Richard Branson and Michael O’Leary.

Critically evaluate the effectiveness of their leadership approaches in their specific context with their specific set of strategic challenges. (1500 words) Closing date: 1st April 2013, submit on StudyNet by 23. 30 UK time 4/4

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Home » Management Case Studies » Case Study: Ryanair Business Strategy Analysis

Case Study: Ryanair Business Strategy Analysis

Ryanair is an Irish low cost airline headquartered in Dublin founded in 1985. It operates 181 aircrafts over 729 routes across Europe and North Africa from 31 bases. Ryanair has seen large success over the recent years due to its low-cost business model and has become the world’s largest airline in terms of international passenger numbers. Taking Porter’s generic business strategies into consideration, Ryanair operates a cost-leadership strategy to drive itself into achieving its mission of being the leading European low-cost carrier (LCC). Throughout this essay the business strategy of Ryanair will be analysed and the sustainability of their model evaluated.

Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service. Considering their objectives and mission, Ryanair’s decision on their cost-leadership strategy was based on a few main factors which are discussed below.

A major influence was the deregulation of the airline industry in 1978 which removed government intervention within the European continent. Under the new rules, routes and fare decisions were made by individual airlines which meant that they could compete on other factors besides food, cabin crew and frequency. As a result of deregulation, a large number of new airline start-ups emerged within the EU and competition among airlines increased dramatically resulting in downward price pressures. Ryanair was established to take full advantage of these market conditions. By offering low prices, Ryanair entered a huge and virtually unlimited market.

Having seen the major success of the low cost carrier Southwest in the United States, Ryanair decided to follow in their footsteps by establishing a LCC for the European continent that targeted fare conscious leisure travelers and regular low cost business travelers. By doing this Ryanair became the first low-fare airline in Europe. However, they took the Southwest model further by offering no drinks and snacks at all and abolishing the frequent flyer program which Southwest up to this day offers its customers.

The evaluation of Porters five forces influenced Ryanair’s choice of a cost-leadership strategy, as the threat presented by new entrants and the threat of substitutes could hinder their success. The threat of new entrants is high within the aviation industry which meant that low fares would help drive away any further competition. The threat of substitutes to Ryanair had to also be carefully examined. Their primary market, Europe, had the availability of high speed trains and car holidays. For Ryanair to be successful, prices had to be low to attract the public, and resist strong competition from substitutes like Eurostar.

As Europe’s largest low fare airline, Ryanair’s competitive advantage remains in their ability to continue as cost leaders; providing the cheapest fares to its customers. This dictates that the company must minimize its own costs to ensure that they are able to offer customers the service at a price below their direct competitors. This leads us to consider some key functional strategies which directly help Ryanair towards their ultimate goal to be Europe’s leading low fares airline.

The marketing strategy is perhaps the most obvious and significant functional strategy of Ryanair. Low fares are designed to stimulate demand, attracting fare-conscious travelers, those who may have used alternative forms of transportation or even those who may have not traveled at all. Penetration pricing as it is called helps gain market share and simply, more customers equals more revenue. Tickets are almost solely sold on their website ‘www.ryanair.com’ which very importantly keeps sales costs to a minimum since very few phone operators are employed and computers are able to cheaply handle all functions of sales. With ever increasing accessibility of the internet globally anybody with internet access can buy airline tickets from Ryanair, so distribution practically takes care of itself through this medium. Ryan Air relies on low cost promotions and in recent times has concentrated on their ‘One million seats at one pound’ which is usually advertised through their internet site, national press and bulletin boards. It is the simplicity of this promotion which helps keep costs low since expensive advertising agencies can be entirely avoided and advertising can be dealt with in house.

Ryanair’s operations strategy determines how the airline will deploy its resources and the policies it will operate by. To keep costs low they operate a ‘no frills’ service onboard aircraft. This means the fare only includes the flight. There are however a number of other measures directly related to a no frills service. These include ticket-less boarding, unallocated seats, one class of travel, costs for check-in baggage, no refund policy, basic seats (to increase aircraft capacity) and charging for any additional service. All this significantly reduces costs to Ryanair. The Achilles heel of Ryanair is their greater aircraft utilization through super quick turnaround times. Essentially this means the aircraft spends very little time on the ground, they achieve this through their human resource policies and by having none or very little cargo in the baggage hold to speed up loading and unloading of the aircraft.

Logistics strategy deals with the flow of products into and out of Ryanair. Again there is heavy emphasis on cost saving and reducing measures. Ryanair fly to secondary airports which are potentially much further from the City centre but accessible enough by other forms of ground transportation. At these airports Ryanair are able to negotiate extremely aggressively and demand the lowest landing and handling fees. Additionally Ryanair is usually able to gain financial assistance with marketing and promotional campaigns at these airports.

As cost leader Ryanair strives to undercut all its rivals but this means very low income per fare and requires maximum utilization of its resources. Fortunately their financial policy ensures they are able to still profit handsomely from rock bottom fares. The aim is to break-even on fares but to make their profits out of ancillary charges and commissions from their partners. Ryanair has a number of affiliates such as Hertz car rental, Acumus insurance and booking.com all of whom are advertised readily on the Ryanair website. Since the website has high website traffic its partners are able to reach out to Ryanair’s huge client base and are prepared to pay good commissions to the firm for this privilege. Ryanair also generate income from advertising on board the aircraft. Ancillary revenue is generated from many of the services that traditional airlines wouldn’t charge for, such as large baggage into the cargo hold, allocated seating, snacks and drinks.

Ryanair’s strategy when purchasing aircraft is to buy new, uniform aircraft. This is beneficial for a number of reasons all of which directly help cost saving measures. Firstly, by being able to order same aircraft in bulk they are able to negotiate a better price per aircraft. Secondly, uniform aircraft mean that there are potential savings in staff training; air stewards being more familiar with all aircraft and maintenance will be simpler. Finally by buying new, the company has safer, more fuel efficient planes with lower maintenance costs. Safer aircraft also means greater consumer confidence, equating to more fare sales.

Furthermore Ryanair aggressively hedge and fix as many of their costs as possible, such as oil and aircraft prices so they are not subject to future price fluctuations which could adversely affect profitability.

The human resource policy is again directly related to reducing costs. Employees are expected to pay for their own uniform and equipment. Training given is the required minimum and staff utilization is among the highest in the airline industry. Many staff are employed on performance contracts and those who do not meet their expectations are readily replaced. Staff are also expected to take on a number of roles, cabin staff will also clean the aircraft prior to the next service, check in staff assist in boarding the aircraft etc.

Ryanair has successfully experienced years of growth both in the number of its aircrafts and passengers since its launch. However, with the global financial system recently suffering its greatest crisis in more than 70 years, existing business models of many aviation firms are coming under great strain. As this economic downturn bankrupts LCCs like XL and Zoom with more expected to follow, the question is whether Ryanair’s cost-leadership strategy is sustainable or not as it continues to offer lower fares in the face of high costs. Although Ryanair has posted losses along with other aviation firms for the latest quarter, it is expected to emerge from this downturn with fewer competitors because its â €š ¬1.8 billon balance sheet is one of the strongest in the industry. Additionally, as the credit crunch takes its toll, traditional airlines are not in a position to cut fares and the threat of new LCCs is virtually eliminated due to the lack of financing. Although Ryanair faces competition from substitutes like Eurostar, it is at an advantage because of Eurostar’s limited destinations.

Ryanair is sticking to its mantra, when the going gets tough, sell more seats for almost nothing. By offering low fares, Ryanair expects passengers to trade down to the low cost airlines rather than stop flying completely. This trend appears accurate so far based on passenger numbers as recession forces millions of passengers to focus on price. Additionally, the latest statistics from The European Low Fares Airline Association members show a 15.7% year-on-year growth in the number of passengers for 2008, indicating that the LCC model is robust, even in times of crisis. Consequently, there is no doubt that Ryanair looks poised for substantial profits and passenger growth in the coming years. However, in order to compete with other LCCs and maintain its continued market share growth in the future, Ryanair needs to improve its poor customer relations.

The sustainability of Ryanair’s cost leadership strategy also depends largely on the price of oil and how effective the firm is in cutting costs in order to continue offering low fares. According to the firm’s latest financial report, Ryanair will enjoy significantly lower oil costs thanks to their recent hedging programme, when most of their competitors are already hedged at much higher prices. These lower prices will drive Ryanair’s traffic growth, maintain high load factors and capture market share from higher cost fuel surcharging competitors. In order to cut costs, Ryanair close all its airport check-in desks and have passengers check-in online instead. Other cost saving methods not yet implemented include charging customers for using toilets on airplanes. These cost cutting ideas are not very popular among consumers and it means that Ryanair needs to improve its already tarnished brand image in the future which it had attained through negative press reporting and misleading advertisements .

The current strategy at Ryanair is expected to work so well that despite the recession Ryanair’s CEO has underlined the firm’s commitment to expansion. The firm is expected to grow at 20 percent a year because of a 180 aircraft’s on order from Boeing. These expansion plans for the future will require the company to increase its landing slots at airports and recruit more employees. Currently Ryanair has limited access to landing slots in major airports and the secondary airports are long distances away from city centers which could make it less attractive in the future. However, a remarkable cut in flights by other European airline carriers due to recession is creating enormous opportunities for Ryanair, as many major airports compete to reduce charges in order to attract Ryanair’s growth. Availability of skilled personnel shouldn’t be a problem for Ryanair due to recent high unemployment levels. However, Ryanair needs to improve its current low level of empathy for employees if it is to retain them in the future.

Even though Ryanair’s cost leadership strategy is robust and it looks set to serve them well in the future, there are some key areas within the business that can be improved on to enhance the firm’s profitability and brand image.

Ryanair has always been criticized for many aspects of its poor customer relations. According to The Economist, Ryanair’s “cavalier treatment of passengers” had given Ryanair “a deserved reputation for nastiness” and that the airline “has become a byword for appalling customer service … and jeering rudeness towards anyone or anything that gets in its way”. If Ryanair is to maintain its large customer base, it needs to ensure that it acknowledges its customers’ concerns and maintains a service focused attitude at all costs. Ryanair needs to invest in servicing customers better by providing a non-premium contact number, improving its non user friendly website, and simplifying the terms and conditions of the flight service. Ryanair should also create a frequent flyer program to establish a fixed customer base and encourage customer loyalty.

Ryanair is notorious for its high staff turnover which negatively affects its reputation as an employer. Over utilization of employees, poor remuneration package , and minimal training are a few other critical items to be considered by Ryanair if it is to retain employees in the future. Ryanair needs to understand that although it is currently possible to replace outgoing employees, but with time Ryanair’s overall image will be tarnished. Resultantly, attracting new employees could become impossible and this will hinder their expansion plans. Ryanair should incorporate a flexible benefits package solely designed to improve employee morale such as flexible working hours and extra holidays. To improve its image amongst employees, training at all employee levels must include exposure to similar techniques and methods that help promote the development of a uniform company identity.

Following huge success in Europe, Ryanair should consider introducing low cost transatlantic flights to support its expansion plans and attain a larger customer base. With a high demand for certain routes like London-New York and room for negotiation in airplane prices and airport slots mainly due to the current financial climate, it is an ideal time to further reap the rewards of the cost leadership strategy that has served Ryanair so well over the years.

Ryanair’s model looks set to survive the current industrial downturn through its lower costs and substantial cash balances. No airline is better placed in Europe than Ryanair to trade through this downturn. It will therefore continue to grow, by lowering fares, taking market share from competitors, and expanding in markets where competitors either withdraw capacity or go bust. By taking the recommended improvements into consideration, it looks like Ryanair’s cost leadership strategy seems ideal for the future.

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• Management Styles: Ryanair versus Virgin Atlantic

Management Styles: Ryanair versus Virgin Atlantic - Case Study Example

• Subject: Management
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Ryanair staff motivation and treatment problems, easyjet and ryanair companies: the symptoms of tremendous growth, it infrastructure of virgin atlantic airways, compare betwwen virgin atlantic and ryanair, what is ryanairs strategy, porters five forces to analyze the competitive environment in which ryanair operates bargaining power of suppliers, ryanair warns fares will rise, virgin atlantic says no to ba/aa alliance.

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Award winner: Ryanair: Flying too Close to the Sun?

Author perspective

Instructor viewpoint, who – the protagonist.

Michael O’Leary , CEO of Ryanair .

Ryanair is Europe’s largest, cheapest and most profitable airline. It was founded in 1985 in Dublin and initially provided flights between Ireland and the UK.

Between 2013 and 2018 Ryanair successfully planned and delivered a strategic turnaround, cementing its position as Europe’s number one airline. Its “Always Getting Better” programme introduced a host of changes to improve customer experience from online booking, to smoother travel and related services. This helped Ryanair digitally transform towards a travel platform.

Initially, passengers and profits grew as the airline expanded into new routes and services but, by 2017, it faced new challenges. Mishandling of pilot holiday rostering, frequent inabilities to conclude labour agreements, and the UK's withdrawal from the EU was starting to affect customer perception and its profits.

Ryanair’s headquarters are in Dublin, Ireland but it operates bases in over 40 countries across Europe and North Africa.

This case explores Ryanair’s growth and challenges in the period 2013 to 2018 following the launch of its “Always Getting Better” programme.

Early in 2019, Ryanair announced a decrease in profits, putting its reputation as Europe’s most profitable airline in jeopardy. Challenges faced over the last two years had damaged customer satisfaction and their brand image, leaving O’Leary and the management team wondering, will they ever achieve their target of flying 200 million passengers by 2024?

AUTHOR PERSPECTIVE 

This is the first award for authors Ciaran and Dorota, and the fourth for UCD Michael Smurfit Graduate Business School.

The authors said: “We are very pleased that so many of our fellow case instructors found the case study suitable for their needs. This recognition certainly motivates us to develop more cases in the future.”

Developing the case

They continued: “We developed this case to address a specific learning need among our students, and in light of a gap in the market for a case study showcasing the evolution of a business model and the digital transformation of a firm in a mature industry. The fact that there are few other such cases is probably one of the reasons for its popularity. We also designed the case to be modular so that instructors could use it in ways that best suit their needs. This adds to the versatility of the case.”

Rich story to tell

The authors added: “We thoroughly enjoyed writing this case. There was much publicly available information to work with and a rich story to tell.

“Perhaps the biggest challenge was condensing this richness to a workable total length and choosing which insights and data not to include.”

Student engagement

The authors explained: “Students find this case study relatable as many of them have first-hand experience flying with low-cost airlines.

“We benefited tremendously from the feedback of our undergraduate, graduate, and executive students when developing this case and would like to thank them for being such enthusiastic learners.”

They concluded: “Identify a true need in the market, pilot the case on various audiences before writing its final version, and write a teaching note as comprehensive as you would like to get yourself with a case.”

INSTRUCTOR VIEWPOINT 

Discover how this case works in the classroom.

"This case study is contemporary in timing, providing many challenges for students in terms of the company achieving its business goals, whilst recognising the fast-changing nature of the business environment.

"In addition, there is an intriguing challenge for students with the proposed change from the original strategic intent of the low-cost business model to a strategic intent to deepen the relationship with customers to support growth. Students will be challenged to consider the structural, social and reputational implications of this proposed change.

"The case study offers a wide range of challenges for students to consider, and will help them understand such complex issues should they meet them in their own managerial careers."

"When using a case in my Global Corporate Strategy course at Maastricht School of Management, there are a few key elements that are important: is it current; does it illustrate at least one key tool (5-forces); can it be used as the jumping-off point for other strategy discussion; is it about a brand that most students will recognise; and is it interesting for the students. It can be difficult to find a case that hits all these points, as the Ryanair case does. When I find a case like this, I will keep it in my curriculum as long as possible.

"Ryanair: Flying Too Close to the Sun? will continue to be an important element of my course for a few years."

The authors

In conversation with Ciaran and Dorota

Due to the Coronavirus pandemic we were sadly unable to visit Ciaran and Dorota to present their awards in person.

However, they joined our Director, Richard McCracken, from Ireland to discuss their winning case.

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