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Analysis of Ryanair

Student name: Student ID: Course:

xxx xxx Business in Information Systems (Year 3)

Module: Lecturer name:

E-Business 1 xxx

Table of Contents
Contents

Ryanairs Model.............................................................................3

Business

Introduction to low-fare airline in Europe........................................3 Business model overview..................................................................4 How Ryanairs ancillary revenue fits in business model...................5 An outline of agreements / Revenue Model....................................6 How technology supports chain......................................7 Ryanairs value

Internet Strategy.......................................................................................10 How technology supports Ryanairs low cost strategy..................10 Internet marketing strategy...........................................................12 Ryanair and social media...............................................................12 Porters competitive forces...........................................................14 Business modeling.......................................................................17 process

Diagrams.......................................................................................19 Bibliography.............................. ............................................................... 21

Ryanairs Business Model

Introduction to low-fare airline in Europe

Traditionally, the aviation market in Europe was controlled by the governments owning and protecting the monopoly of national carriers. While this situation facilitated high price maintenance, it resulted in additional costs to be borne by the customers. The significant cost barriers for entering the market, along with hostilities from the existing airlines effectively drove out all the cheap airlines, trying to establish in the market. By the mid 1980s, it was also clear that the policy was no longer tenable. Constant pressures from customers, the European Commission and the European Parliament triggered the process of reconsidering the situation by the governments. The actual airlines liberalization started in 1984 with a bilateral agreement between Britain and Netherlands, whereby both countries opened up their markets. Several months later, in Ireland, the Ryanair airline was established by Tony Ryan, becoming the leader of the start-ups. However, poor cost management between the years 1985-1991 led to severe losses and, in effect, to restructuring the company by adopting the South West Airline model. Ryanair officially became the first low-fare airline in Europe. [5]

Business model overview

As of June 30, 2010, the Company has offered approximately 1300 scheduled short-haul flights per day, serving 155 airports throughout the Europe and Morocco. Its operational fleet of 250 includes Boeing 737-800 aircraft, being able to fly approximately 1100 routes. [13] Mission Statement: Ryanair will become Europes most profitable lowest cost airline by rolling out proven low-fare-no-frills service in all markets in which we operate, to the benefit of our passengers ,people, and shareholders. [12] Analyzing the Ryanairs business model in terms of Porters models, it can be deducted that the airline is starting to implement the low cost strategy. The company is targeting on price-conscious customers, regardless of the age, gender or travel purpose. This wide target market allowed Ryanair to serve 73 m passengers in 2010. In 2010, Ryanair is officially considered the cheapest airline in Europe (average fare of 35 euro), which makes the company attractive to a large number of customers. Ryanair is not planning to extend the company in the foreseeable future. The opportunity to increase profits is stealing the market share from competitors. Since the airline market is currently saturated, Ryanair will focus on retaining existing customers and attracting new ones rather than expanding it to new routes and airports. Company claims that this strategy will boost the companys profits; at the same time, they are planning the expansion in the online base revenue sources, which already constitutes a significant amount of the total income.[11]
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The Ryanairs low-cost business model is based upon Southern West airline and it proved to be very successful. However, having adopted the model of American carriers, Ryanair went even further in the development of cost reduction strategy. The core factors in making the company so successful and creating such a huge competitive advantage, can be listed as follows:

Unique aircraft type with lower maintenance costs and crew training costs

High density to increase profitability Every additional service is charged Online service only Secondary airports Short turnaround and maximum utilization of aircraft Point-to-point flights Continuous innovative measures to increase ancillary revenues

How Ryanairs ancillary revenue fits the business model.

In 2006, it was claimed that Ryanairs website was the biggest travel website in Europe and the fifth, most recognizable brand in Google. This brings an enormous opportunity to convert this huge web traffic into profitable e-commerce and advertising revenues. In recent times, the Internet traffic, as well as the ability to utilize it adequately have become extremely important. The companys advertising potential may be a source of significant revenues flowing in.
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Because of the complexity of its processes, Ryanairs value chain is not linear, as traditionally outlined by Michael Porter in 1980. While entering the companys website, the customer finds fimself in the centre of the organization, co-producing the service. Apart from the core business, Ryanair provides the customers with a number of options that add value for them.[1]

In 2010, ancillary revenues accounted for approximately 660m euro and they include: Hotels Travel insurance Excess baggage charges Flight change fees Car rental services In- flight sales Rail transport services Commissions from Ryanairs credit card with MBNA Personal loans

Ancillary Revenue components were outlined in the table below and they constitute 22,8% of the total Ryanairs revenue of 2,988,1m euro.

Year ended March 31, 2010 euroM 463,6


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Non-flight Scheduled.......

Car Rental........................ In flight Sales................. Internet related............ Total................................

29,9 86,5 83,6 663,6

An outline of agreements / Revenue Model

Taking advantage of high web traffic, Ryanair managed to make a number of agreements for its own and customers benefits. Ryanair has a contract with Bookings.com, pursuant to which Booking.com handles all the aspects of such service marketed through Ryanairs website and pays the fee to Ryanair. Contracts with other accommodation providers enable the Company to offer camping, hostels, B&Bs, villas, apartments and guesthouses to its customers. The contract with Hertz Corporation enables Ryanair to make additional money on car rental reservations. Hertz handles all marketed through the Ryanairs website car rental services and, in turn, pays the fees to Ryanair on per-passenger basis. The sale of cruises, rail and bus tickets is also a part of the Ryanairs ebusiness plan. Each cruise is handled by Costa Cruises which pays the Ryanair a fixed fee for enabling the reservation through its website. [12]

How technology supports Ryanairs value chain.

Owing to a number of agreements concluded with other companies, Ryanair can offer a better value to its customers. The website contains all necessary links that could be beneficial to the customer. Having everything in one place and thanks to the Internet technology, Ryanairs passengers are given the best possible value for money. All services, essential for bringing passengers to or from the airport to the desired destination, are available from the homepage Ryanair.com. Thus, the whole journey experience is enriched and facilitated. Visiting the website, it is possible to order a taxi, book a flight, rent a car and drive it to the previously booked hotel. Such a wide array of facilities is available on the same website at reasonable prices.[4]

The creation of the website was a core achievement for the company; it also improved the value chain of the company to a considerable extent. Using Internet facility, customers are able to research the flights, routes, destinations, timetables and prices, to name the most important ones. They no longer have to contact travel agencies and infolines when it comes to getting information. This is a great and vital achievement which not only saves time and money, but also appeals to the customers. Other technological improvements, which are to be discussed more exhaustively later, add more value to particular activities. Baggage handling and ticket obtaining activities become easier by speeding up the former and eliminating the latter. Eliminating physical tickets is considered as a particularly huge value chain improvement. Significant savings come from the elimination of the middlemen, reducing the cost of providing each flight to approximately 9 euro. Taking into account the current average fare of 35 euro, this number constitutes over 25% of the overall flight cost. Pricing the flights had been a very demanding and difficult activity before the the technological advancements. Advanced applications which were developed and configured by the IT personnel, after consultation with the
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marketing department, allowed Ryanair to price tickets dynamically. The general rule is that the sooner you book, the less you will have to pay because the system will adjust the price according to the demand. This technology enables Ryanair to maximize each flight profit, adding value to the company. As a general rule, when target profit is reached and there are still free seats available, the system cuts the price for the remaining spots. This is possible thanks to the application of fixed and variable costs incurred by the company. It is usually better to sell the remaining seats for less than leaving them empty. Empty seats = lost revenue. From the customers point of view, the Internet booking system has added a significant value by offering the opportunity to book cheaper flights in advance. Since the majority of passengers know the dates of their journey months prior to the cruise, booking the flight earlier allows them to save, in some cases, large sums of money. Although almost all competitors use the Internet booking system and it cannot be regarded as a competitive advantage, the fact is that it creates an extra value when compared to the traditional processes.

The service itself is another activity in Ryanairs value chain. Here, the speed of service, along with comfort of flights and security are the main areas. 1. Speed of service is especially important from the companys point of view as it aims to increase revenue by maximizing the aircraft utilization. The faster all passengers board and leave the plane, the sooner it is able to be used again. Ryanair mastered the process to perfection with the turnaround time for the 2010 fiscal year of approximately 25 minutes. 2. Comfort of flights was the area that suffers the most as a result of taking a low cost approach. No meals, no assigned seats and very limited leg space make the travel a terrible experience for passengers. The number of seats in the aircraft was increased in
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order to accommodate higher volumes of passengers per flight. Ryanair took advantage of the research carried out by American and United Airlines which showed that more spacious seating does not pay off. The premium charge for this facility is exceeded by the revenue loss from removed seats. This, however, has an obvious effect on the passengers satisfaction. 3. Providing a secure flight is of paramount importance both to the company and the passengers. The technology strongly aids the security maintenance by using applications for fuel control, ticket validation and is supported by the airport security services in terms of luggage monitoring, explosive materials and drugs detection. Making sure that the flight is secure is extremely important activity for the airline industry as any problem that leaks to the public may have negative effect on companys reputation and cause a huge revenue loss, coming from the customers losing trust in the airline. As regards security, Ryanair announced that recently they have intended to remove the second pilots and, as Michael OLeary proposed, replace them with a trained crew member who would be able to land the plane in case of emergency. Although this move could improve a value chain in terms of savings in pilots salaries, it is arguable that it would be beneficial to the passengers in any respect. The announcement may be as well another marketing tactic of Ryanairs CEO, in order to create a cheap publicity in media.

Internet strategy
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Internet sales allowed Ryanair to eliminate travel agent commissions by introducing a very effective direct sales model. In January 2000, Ryanair converted its host reservation system from the BABS (British Airways Booking System) to a new system called Flightspeed, which operates under the 10 years hosting agreement with Accenture Open Skies. The new booking facility, which allows customers to make a real time reservation, is called Skylight system. Through the Ryanairs Ryanair.com website, customers may book and pay for the flights. The heavy promotion of the new website resulted in the Internet booking growth to 96% of all reservations in 2004 and currently it accounts for more than 99% of all the bookings. By embracing Internet sales, Ryanair could completely eradicate travel agents commission around 2006. The costly telephone selling practice was also abandoned. As the prior reservation system had been approaching its capacity, in 2008 Ryanair upgraded it to a more scalable version that is more flexible and will be more useful in accommodating the planned growth of the Company. Under the agreement with systemprovider - Navitaire, the system serves as the Ryanairs core seating inventory and booking system. Ryanair pays transaction fees that are generally based on the number of passenger seats and journeys, booked through the system.

How technology supports Ryanairs low cost strategy.

Since October 1, 2009, the Internet has become the only way to make a flight reservation with Ryanair. By shifting all the operations online, it was possible for the Company to eliminate major costs related mainly to call centers and telephone sales. Customers must become familiar with
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technology and rely on their own skills in order to purchase the ticket and, since October 2009, to make a mandatory check-in online. The new operational model is highly compliant with Ryanairs low cost strategy, making the airline even more competitive in the market, providing better value for money. The introduction of the Internet check-in in 2006 was also the part of a measures package intended to improve a service. Reduction in airfares and check-in lines contributed to improvement of the service for customers through reducing travel costs and increasing its speed. It also brought huge benefits for the Company as it could decrease the cost of some check-in staff and make savings of renting the check-in desks. Ryanair also introduced a checked-bag fee which is payable on the Internet and is aimed at decreasing the number of bags carried by the passengers, in order to reduce handling costs. Switching to the online facilities entailed new risks. In order to provide the maximum safety for its business, Ryanair developed the system, according to which the website is hosted in three different locations. The booking engine is located at the single center that allows for making reservations, and it can be accessed from all three locations. Established contingency program includes the back-up booking engine available to support the existing platform in the event of a failure of the main facility. Ryanair uses a switchover process, which requires a human intervention and therefore is more time-consuming, unlike failover, which can switch over automatically to the back-up engine. Moreover, the possession of a back-up server relying on the switchover process may be very expensive, should a breakdown occur. Ryanair accommodates a number of customers on its website and even a shortterm break in providing the service which requires a switch-over, may result in significant losses for the company. Taking into consideration the current trends towards switching to online operations, Internet traffic congestions and increasing security risk,
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related to the Internet connection, Ryanair should take proper measures to secure its online facilities and ensure that the downtime periods are reduced to the minimum.

Internet marketing strategy

In February 2009, Ryanair introduced Google Adsense to the search results pages in order to monetize the traffic levels generated by those pages. In March 2009, Ryanair expanded further into the area of thirdparty Internet advertising with the introduction of third-party advertisement display on the homepages in the UK and Ireland.[11]

Ryanair and social media

Social media is a huge threat to those businesses that ignore it, but also a massive opportunity... [14] Nick Oram, Director at Total Media According to Social Travel Report, published by Total Media, a quarter of British travellers admitted that online reviews by strangers help to determine their travel plans. It demonstrates how hugely important the Internet recommendations have become, influencing the decision making process. From that point of view, social media constitutes a threat rather than opportunity for Ryanair. The airline likes to regard itself as the Worlds most favorite airline, but in fact, this opinion is based on the number of passengers it serves, not on the level of their satisfaction. Analyzing customer relationship history of Ryanair, a number of incidents

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and negative comments on the poor customer service should be mentioned. The website called I Hate Ryanair, set up by Robert Tyler in February 2007 and closed after the court order, has reemerged recently under the same name on the .org domain. Ryanair Sucks and Ryanair Campaign are other examples of Internet blogging sites, targeted at Ryanair and its unacceptable customer service. The existence of such websites leads to a negative PR and can affect the customers choice. [16] Recently Ryanair announced its plans to embrace social approach to some extent. The Company is developing online travel community, purpose of which is to engage with travellers on the social grounds. The new system will allow the users to post comments recommending local attractions in Ryanairs destinations. Twitter. The opportunities coming from the aforementioned social sites are enormous, but considering Ryanairs reputation (the online reputation index claimed Ryanair was the worst performing UK operator with a score of -62%), the treats could be even bigger. [2] This is a difficult decision for the Company to make. The future is in the hands of the Internet and the brands openly engaged with customers will gain a big advantage over those who hide behind the streams of corporate news. Not only does the Internet facilitate the dialogue with the customers, but also it allows for responding quickly to their needs and is considered to be an important means of promotion. As a company, Ryanair is not ready to open up and be more transparent. First, it has to patch the relationships with angry customers, who, in the era of Internet, are in power to affect the company negatively. A major part of the Internet marketing is Search Engine Optimization (SEO), which basically makes the website appear on the top of the results after typing in particular keystroke in a search engine. Ryanair uses the
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However, the statement also indicated that

Ryanair will not be setting up official comment channels via Facebook or

SEO techniques, but not to the extent that is sufficient to beat its competitors. Typing the most popular words and phrases related to cheap flying will not display the Ryanairs website on top of the search results. This area is to be exploited and improved as the most popular search engines such as Google, Bing, Yahoo, are used more frequently to research the best offer.

Porters competitive forces

Michael Porter identified five competitive forces that affect the company. The Internet has changed the nature of competition, opening many door for companies and threatening the ones that are behind the embracing technology. [10] Ryanair is savvy about technology and understands the importance in creating the advantage over competitors. The use of technology also perfectly fits into the Ryanairs low cost business model.

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1. Competing firms. Ryanair faces direct competition from other low cost airlines, such as easyJet -the biggest one. This company sells directly to the customer and its website was set up in the late 1990s, before the Ryanair. The website is very functional and clear; it attracts a large number of potential passengers, being at the same time the communication point with the customers and the company. Ryanair must be very vigilant and monitor the moves of the competitors to keep pace with technology use, in order to maintain leading position on the market. Big commercial airlines are also aware of the trend towards cheap flying and begin to be more competetive at the price level. Ryanair also faces some indirect competition from railways, ferries and bus services. The open access to the Internet allowed those competitors to establish their own websites and use them the as the channels of distribution and marketing media. [6]

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2. Bargaining power of the customers. Although current Ryanairs prices cannot be beaten by any European carrier, the Internet increased the bargaining power of the customers. It has changed the travel industry, Using the enabling price deep research and recommendation reviews. comparison websites,

customers are able to quote the best price, without leaving their houses. If Ryanair manages to keep its prices low, or at least at the level, lower than the competitors, it should not be threatened by customers bargaining power. However, if the competitors manage to decrease their fares to a comparable level, even budget-conscious customers will eventually pay more attention to the service level and customer service quality. If that is the case, Ryanair may face big problems in terms of satisfying customers needs. The best option is to change the approach to customer service and use technology tools to create twoway communication to understand customers. The words of Ryanairs CEO Michael OLeary like: What part of no refund dont you understand? You are not getting any refund so fuck off directed at customers are communicated quickly over web. When you compare the offers and the price differs insignificantly, the customers review is what you look at.

3. Threat of new entrances. As regards the airline industry, the main entrance barrier is the startup cost. Legal barriers and state protectionism, which were mentioned in the introduction, are no longer applied. Technology managed to reduce the startup costs and therefore the threat of new airline, possibly supported by already established one or being the result of market extension, entering the market, has increased. With the growth of cloud computing services, new companies do not have to worry about the servers that support their website and a huge database centers to store the data. Thanks to cloud computing providers like Amazon.com, Microsoft, Salesforce.com and many others emerging every day, hosting the website
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and database can be outsourced. There is no startup capital and, depending on the agreement with the provider, per user, per data downloaded or fixed fees may apply. Cloud computing suppliers will provide storage capacity, ERP software and other applications as well as the maintenance work. Despite there being certain risks involved (security, data safety etc.), the cloud computing trends provide an opportunity to bring the startup costs down. Since the number of people with the ability to use technology to their advantage is on the increase, there is a threat that the newly established airlines may hire specialists, for instance, in social media marketing, in order to create successful, social-based campaign that would appeal to the customers and convince them to use the new airline, luring the customers away from Ryanair. It is conceivable that soon enough airlines will start to take advantage of these new trends, which may be a surefire recipe for success.

4. Threat of substitute products. Many enterprises face the the problem of substitute products which affects every sector of industry. Here technology really makes the difference. First of all, it is important to find out what the substitute products for travel are, and which the primary airline service is. The next step would be to categorize the customers into the two main groups: business and personal customers. a. Business customers The main reason for which business customers travel is meeting other people from different locations, participating in conferences, training courses etc. These can be replaced with technology. What is the point in spending money and time on travelling from Dublin to Madrid, if technology like Cisco Videoconference allows us to meet other people without leaving the companys office? All we need is a single investment
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in a device for video-conferencing. And is it really necessary to travel to San Francisco to see the Web 2.0 conference if Youtube, blogs and tweets will provide a full report from what was happening there? Finally, is it worth time and money, travelling every weekend from Cork to Dublin to accomplish a course that would increase our qualifications if we can do it at home, using the Internet distance learning system? b. Personal customers Technology developments like Skype, instant messages and smartphones made communication easier than ever. Some people, especially in the current, difficult economic situation, may decide to talk to their friends or relatives through the Internet, instead of flying over. Similarly, technology achievements, like Google Earth, Google Street View, Second Life, and fully multimedia websites allow us to go on a virtual trip anywhere we want. While it will definitely not replace the travel needs, it may matter when making final decisions about trips. To sum up, technology impacts on the airline industry by reducing the necessity for travelling, and by facilitating the communication that substitutes it.

5. The power of suppliers Ryanair is heavily dependent on its suppliers. Without fuel providers, aircraft manufacturers and airport facilities, it would not be able to provide the service to the customers.

Business process modeling

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E-business analysis is concerned with understanding the business and user requirements for the new system. A number of tools can be used to capture the business processes, one of which is UML (Unified Modeling Language), which provides the guidelines for drawing a variety of diagrams. It is of the utmost importance to involve users in the new system developement. The business analysts, with a strong business and technology background, should communicate with the customers in order to find out what their requirements are, in relation to the system to be implemented. To fully understand this business process, collaboration with other business departments must also be maintained. The IT department should not be solely responsible for designing the system as many processes can be misunderstood or even ommited during the design phase.[11] UML language, however, is not the best tool to communicate with business people as it usually requires some technical knowlege that is not in their possesion. Here, the importance of both business and IT acumen plays a crucial role. With the grasp of both areas of the company, they can be a connection point between pure IT specialists and business personnel. The cross-functional operations, including all departments is vital for remaining competitive and providing the best service to the customers. Information technology ensured a better collaboration with the customers as well as involving them in the process. The Ryanairs website model is a point of collaboration, whereby customers co-create the service. Moreover, the experience of flight itself is highly dependent on other customers participating in it. Other customers may both positively or negatively affect the ones travel; this is the part of process which is beyond the control of the company. Although flight attendance is in liberty to calm down excessively loud passengers, they certainly can exert no control over a crying baby or the weather conditions. Collaboration with other businesses is as important as collaboration within the company and the customers. As mentioned earlier, working close with other companies can provide mutual benefits to firms and customers.
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Ryanair was able to take advantage of that fact successfully by enabling its customers to access other services directly from the website and has given them the opportunity to avail of the benefits in the form of better and cheaper service. Below I included my attempts to capture Ryanairs business processes, using the use case diagrams. Out of all available ones, I found the use cases that are the most understandable and clear to explain. The use case diagram is a drawing part of the use case model which includes a detailed documentation of the diagram, explains the process step by step and contains a description of each possible scenario. For the purpose of this project, I included only the diagrams as their documenting would require a profound research supported by interviews of Ryanairs management and staff. The ERD diagram for Ryanairs processes is also attached below.[10]

Use case diagram

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Entity Relationship Diagram

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Bibliography

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Aviation Market. Germany: Druck and Binung; 2005

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9. Flouris TG, Oswald SL, Designing and Executing Strategy in Aviation Management. England: Ashgate Publishing Limited; 2006.

10. Chaffey D, E-business and e-commerce management. England: Pearson Education Limited;2009.

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11. Chaffey D, Wood S, Business information management. England: Pearson Education Limited; 2005.

12.

Ryanair Annual Report; 2010.

13. United States Securities and Exchange Commission ,Form 20F; 2010.

14.

Total Media, Social travel report; 2010.

15. http://www.guardian.co.uk/business/2010/sep/12/ryanair-move-

away-from-low-fares

16. http://www.guardian.co.uk/business/2010/oct/12/i-hate-ryanair-

website-closed

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