Ryanair (2005): Successful Low Cost Leadership

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns strategic management in the airline industry in Europe. Secondary issues examined include international marketing, operations management and business ethics. The case has a difficulty level of four or five, and the case is designed to be taught in one 90-minute class session. It is expected that students will need to devote three to four hours of outside preparation for the class discussion.

CASE SYNOPSIS

Ryanair is a 20-year-old international air carrier based in Dublin, Ireland. It is now the largest low cost airline in Great Britain and Europe and has modeled its operations (since 1991) on the very successful Southwest Airlines Low Cost Leadership model. Ryanair's CEO, Michael O'Leary, is an accountant by training but a combative entrepreneur by inclination. He has angered trade unions, government officials and competitors with his "bare knuckle " tactics but has achieved dramatic growth and profitability in the very competitive airline industry.

As of the end of the year 2004, Ryanair was flying 25 million passengers annually with a staff of less than 2,500 personnel. Ryanair flies only Boeing 737s and is rapidly transitioning to the newest 737 models - the 737-800. Challenges to the airline at the end of 2004 included escalating fuel costs, intensity of competition and the sometimes less than favorable attitude of the regulatory bodies in Great Britain, Ireland and the EU.

INSTRUCTORS' NOTES

Learning Objectives

This case is intended to reinforce strategic management concepts at the senior-level or first year MBA level. The following common tools can be employed in a discussion of the case.

1. Porter's Generic Strategies

2. SWOT analysis

3. Porter's Five Force Analysis of Industry Competition

4. Pricing strategies

5. Market expansion

It is assumed that most of the above topics will have been discussed in class prior to the case analysis. If not, then this case provides a real opportunity for the "blackboard panel approach" recommended by Harvard Business School.

Teaching the Case

We suggest that a common starting point for this should be a classroom discussion of SWOT analysis and generic strategies. This case is an interesting example of the differences between firms well-known for employing a particular generic strategy, in this case Low Cost Leadership. Despite the fact that Ryanair emulated Southwest Airlines' approach to business, there are substantive differences between the two firms. Ryanair' s O 'Leary and Southwest' s Kelleher are vastly different in their approach to customers and employees. It should be explained (particularly to undergraduate students) that a Low Cost Leadership strategy doesn't necessarily mean a low selling price for products and services.

When assigning this case for an in-depth classroom discussion, we have found it helpful to require students to jot down answers to the discussion questions prior to class. This facilitates the discussion and also helps to eliminate the "free rider" attitude of some students who don't prepare by reading the case.

In addition to the following discussion questions, one could easily include other topics and, perhaps, stretch this to a two-day discussion. Other topics might include:

1. The differences and importance of remote industry environmental factors like fuel cost, regulation and the potential impact of terrorism.

2. A discussion of Kelleher (Southwest Airlines) and O'Leary (Ryanair) and their substantial differences regarding what the Quality Management people call "The Voice of the Customer."

DISCUSSION QUESTIONS

1. Do a SWOT analysis for Ryanair at the end of 2004.

Strengths for Ryanair include continuing profitability and revenue growth despite intense competition. Additionally, their business model - very similar to Southwest Airlines - is also an apparent strength. …