The Comparison of Ryanair and British Airways Business Models - Case Study Example

THE COMPARISON OF RYINAIR AND BRITISH AIRWAYS BUSINESS MODELS by Abstract Rayaneyr and British Airways largest known carriers. Each of them has a peculiar strategy to meet the needs of potential customers. We will look at what advantages and disadvantages there are in each of them in the face of fierce competition with each other. Also, we analyze how to compromise uses each company to stay on the leading position among the airlines. Business model of Ryanair Ryanair is an Irish airline, the largest low cost airline in Europe. The location of headquarters is at Swords and at County Dublin. The Ryanair fleet consists of Boeing 737-800: 303 operated and 2 storage, the average age is about 5 years. In September 2013 the average age of aircraft in service companies was 5.1 years. The company provides customers with short set of services. Airports used by Ryanair, as a rule, are located at a considerable distance from the cities they serve (such as Frankfurt-Hahn Airport is distant from Frankfurt to 140 km). All this allows you to maintain ticket prices at a minimum. Business Model of British Airways Airline British Airways is the largest airline in the UK and the second-largest in Europe. It consists in the airline alliance Oneworld, which allows to work with the best airlines in the world (Cs.mcgill.ca, 2008). British Airways fleet consists of 236 modern vessels. British Airways has the most popular aircraft: Airbus 320-200, Boeing 747-400, Boeing 767-300ER, Boeing 777-200ER. The company is constantly expanding its fleet with new aircraft models. So in 2012, will operate the new Boeing 787-8. British Airways Flights are sold in almost all countries of the world. Every year the airline carries more than 30 million passengers (Britishairways.com, 2009). The huge popularity among the passengers British Airways has received thanks to its reliability. British Airways has the license type A, that is, has the right to carry passengers, cargo and mail on aircraft with 20 or more passenger seats. So, for example, the average age of the fleet is rarely more than 10 years, which by the standards of aircraft quite a bit. British Airways offer three variants of passenger service on long-haul routes: World Traveller (economy class), World Traveller Plus (premium economy class) and Club World (Business Class) (www.flightmemory.com, 2015). Key Differences Between Ryinair and British Airways From a Strategic Operations The advertising slogan of British Airways is insists that British Airways is the most popular airline in the world (World`s favourite airline). It seems that it is not quite true. According to data for July 2005, passenger traffic of Ryanair for the first time caught up with British Airways passenger traffic, amounting to 3.1 million people. The volume of shipments of Ryanair continue to grow rapidly: the increase in passenger traffic in July this year compared to last July was 29.4%. The traditional largest airlines like British Airways, Lufthansa, Air France-KLM, SAS, Iberia, Alitalia have passenger traffic at best be increased by a few percent per year. This means that low-budget airlines like Ryanair, which are within the EU has been working for more than a hundred, gradually withdrawn from the business of traditional, more expensive carriers. And events such as a three-day strike at British Airways at Heathrow Airport, which occurred in mid-August at the top of the holiday season, only plays into the hands of low-cost airlines whose employees are not unionized. As a result of the strike British Airways lost about $ 70 million. And tens of thousands of passengers used the services of many low-budget airlines which offered them the cheapest rates (Milmo, 2009). Fares Low prices Ryanair is its main difference from the British Airways and other airlines. Ryanair average tariffs are lower than those of any of its competitors in Europe. Of course, many competitors also operate long-haul routes, so any short-haul specialist such as Ryanair is obliged to have lower average tariffs. However, to be clear, the average tariffs Ryanair are lower than the average short-haul fares of any other European airline. Moreover, after adding the extra services and accessories (such as on-board purchases, insurance, bag charges and reservations of seats), the Ryanair average price, wich could be payed is lower than any of its rivals. Plane tickets Ryanair have a price of one of the lowest in the world and the lowest price among European airlines. No matter how long was the flight, passengers pay the least amount of current exists at the prices for the same flight (Centreforaviation.com, 2015). British Airways from each passenger received $ 321, while Ryanair did only $ 58. But at the same time costs for companies are not comparable: in British Airways per passenger they were $ 308, compared to $ 46 at Ryanair. Result: the profitability of British Airways is only 4.1% against 20% for Ryanair. Ryanair policy of minimize costs leads to the fact that tickets are sold at the lowest market prices. For example, Ryanairs sales lead to the fact that sometimes Europeans can fly at prices around 10 euros in any country in the EU. Flexible tariff system The ticket price divided by the base price and the additional options. The base price also varies depending on whether the ticket is purchased in advance. Flexible Schedule of Flights Flexibility is one of the main competitive advantages of Ryanair. The frequency of Ryanair flights on a particular direction can be changed depending on the observed hype. It can change centuries depending on the season, up to the complete abolition of some areas. In this case, the conjuncture of the market comes to the fore. Connecting Flights The airline British Airways from point A to point C, you can fly with a transfer at an intermediate point B. In this case your luggage you will meet in the final the airport of destination B. In case of problems with a connection through the fault of the airline, it takes all the costs themselves: land on the next flight; if necessary, provide food and place in a hotel. But all of these existing and potential costs are laid in the ticket price. But Ryanair passengers themselves bear full responsibility for the link-up between flights. Fleet The company Ryanair operates only one type of aircraft Boeing 737-800 with more than 300 the number of aircraft of the same type operation allows savings on spare parts and provide full interchangeability of personnel and crews. All the planes are aircrafts of one class - medium-range airliners. British Airways fleet consists of aircraft of various models. The most popular are the aircrafts: Airbus 320-200, Boeing 747-400, Boeing 767-300ER, Boeing 777-200ER. The company is constantly expanding its fleet with new models. Average age of aircrafts The average age of British Airways fleet is 13 years against 5 years of Ryanair aircrafts. New airplanes are cheaper to maintain, more economical and less frequently fail because of small damage. These circumstances reduce the likelihood of idle aircraft. Punctuality and careful handling of luggage Ryanair is very proud of their punctuality and careful handling of luggage. Over the past 12 months 90% of Ryanair aircraft flying and landed on schedule. The comparable figure in British Airways (one of the best among the traditional airlines in Europe) was significantly worse - only 74%. If Ryanair loses only 0.5% of baggage, British Airways does 15.6%. How Differences in Ryanair and British Airways May Influence Their Operations Strategies Official statements speak highly of the traditional carriers of their low-budget rivals more dismissive, but in fact, they are forced to adapt. Ryanair and others compete with traditional carriers in the EU market, because outside the EU airlines do not fly, with few exceptions (a few flights of German carriers in Russia, Turkey, Bulgaria). When Ryanair only entered the market in the sector of short (less than four hours) flights, all financial performance of traditional airlines collapsed. For example, in 1997 the flights to Europe did not bring British Airways neither profit nor loss, whereas in 2000 losses amounted to $ 540 million. Then the president of British Airways Rod Eddington turned intra-European transport into low-budget: the prices were sharply reduced by reducing the range of services, but on short flights within Europe BA continues to offer food and drinks (the cheapest wine and sandwiches), and now the company is spending on food for a passenger not more than two dollars. It is clear that it is impossible to adjust the new conditions without competent marketing. During recent years, the marketing budget British Airways has grown by 5% a year, reaching $ 108 million. The main means of promotion is going to European destinations where competition is most acute. Thus, just advertising of companys website consumes 14% of the marketing budget. On this site you can pre-book and buy relatively cheap tickets. Another 6% is spent on the promotion of cheaper services companies: in the London subway constantly emerging posters advertising flights to Paris or Milan, "from a convenient airport" at prices not exceeding Ryanair. As for Ryanair their strategy is successful and creates significant competition for such large companies as British Airways at the moment. So, British Airways forced to adapt their business model to Ryanair likeness (Trend, 2015). An Analysis of Trade-off The results of British Airways adaptation and compromises Decrease of prices, reduction in costs and an active advertising campaign allow British Airways to bring its European direction to break even. But all the profits of the company provide a transcontinental flight in Asia, North and South America. In Europe, British Airways can not earn. At the same time low-cost Ryanair, wich flying from inconvenient airports at an inconvenient time, manage to earn quite well. In the last fiscal year, Ryanair reported a profit of $ 354.6 million. However, despite the higher profitability of competitors, British Airways is not going to change the style. So, on all flights, even on the shortest, the airline offers a free meal and a place in the business-class. Although this is reflected in costs, British Airways believe that the service will attract business passengers, especially those who are transplanted with transcontinental flights to short European ones. To attract this category of passengers British Airways has hired advertising agency M & C Saatchi and Zenith Optimedia, which should clearly demonstrate the benefits of flying of European flights company. "That, as British Airways was forced to forget about pride and change its European direction, in order to successfully compete with the low-budget companies have already entered the textbooks on business", - said to "Expert" analyst at the investment bank JP Morgan, Chris Avery. In particular, in 2001 year it was made a decision to sell its own low-cost airline Go, which was many criticized (Milligan, 2001). That decision was the best, cause it made the change very British Airways. Otherwise, the company simply did not have enough resources for the implementation of a price war with rapidly increased competition and intra-market traffic would be lost to British Airways. Ultra Low-Cost Ryanair Trade-offs and Disadvanteges As a result of low-cost Ryanair carriers, tickets are very cheap indeed, but to make the minimum price the Ryanair made lots of compromises. 1. Passengers had to pay extra for a lot of options: baggage, meals on board, priority boarding, check, etc. 2. Passenger seats in Ryanair airplanes are assembled nearly the maximum permissible norms of technical safety. Inside, rows of seats are placed as close to each other. In order to carry the maximum number of passengers per flight. Since the feet of passengers seated behind not allow recline seat back, the seat installed without tilting back option. 3. Life jackets are not located under the seat, but they are on the shelves for luggage. Such interior design allows quickly carrying out the cleaning of interior and safety checks. 4. In order to reduce the landing of passengers on board places in the sale are not allocated. So, when people boarding each of them takes that seat, which he have time to take. In practice, this fact leads to the situation that the landing turns into a sprint race of passengers laden with hand luggage. 5. The lack of connecting flights. 6. As so as Ryanair is forsed to savings even advertising itself, Ryanair prefer to marketing and advertising on their own. "Our marketing strategy is very simple - to maintain low prices convey information about us to the client, and to ensure an adequate level of service. In the long-term outlook the lowest price wins, so do not worry about anything, "- said, the Head of Marketing Ryanair Sinead Finn. It is not difficult to see all the compromises Ryanair cause a lot of inconvenience passengers. But people continue to opt Ryanair, cause of the opportunity to go just in time on a broad of the new plane, wich has no technical problems. In addition, the price offered by Ryanair for their services often crosses out all the disadvantages of this company. Conclusion Whatever it was, the battle for the skies of Europe is far from over. The trend - competition between traditional and low-budget air carriers from the United Kingdom, where there were the first low-budget companies, gradually spreading to the neighboring markets. However, the growth potential is far from exhausted. For comparison: in the US low-budget airlines have a fleet of 850 aircraft, the European Union, where the population is almost twice the US, this park much less – it consists just of 380 aircraft. If Ryanair, British Airways and other European flights company would take advantage of this potential, then in five years or ten they could easily become traditional leaders in terms of profit. Addition In addition to our review we summarize the most essential points of Ryanair and British Airways business models. In Table 1 we indicate which of the performance objectives can be translated into customer requirements, such as price, frequency of flights, convenience, customer service, on-time flights, flexibility to change flights or make connections. Table 1 Low cost – Ryanair Traditional – British Airways Qualifiers Winners Qualifiers Winners Quality vs Cost Cost Quality vs Cost Quality Flexibility vs Dependability Flexibility Flexibility vs Dependability Dependability Frequency of Flights vs Customer Service Frequency of Flights Frequency of Flights vs Customer Service Customer Service Flexibility to Change Flights vs Make Connections Flexibility to Change Flights Flexibility to Change Flights vs Make Connections Make Connections In Table 2 we investigate, compare and contrast the main product and operations features offered by the two companies. Table 2 Ryanair British Airways Product Features Single class of seat (yes or no?) Yes No Seating (high or low seat density?, Seat prellocation possible? High Low Load factors (high or low occupancy?) High High Catering (no, little or always?) Little Always Network (point to point or hub and spoke?) Point To Point Hub And Spoke Frequency of flights (high or low?) High Low In-flight entertainment (yes or none?) None Yes E-ticketing (essential or not necessary?) Essential Not Necessary Frequent flyer schemes (yes or none?) None Yes Operational Features Single aircraft type in fleet (Does the company operate with both large and small aircrafts or only one type?) One Type – small aircrafts Both large and small aircrafts Airport choice (main or secondary?) Main Main Aircraft utilisation (Does the aircraft spend much time on ground or is it highly utilised?) Aircraft is highly utilised Aircraft spend much time on ground Fast turn around (yes or no?) Yes Yes Flight distance operated (long and short hauls or only short?) Only short distances Long and short hauls Cargo (do they carry cargo besides passengers?) No Yes Reference List British Airways 2008/09 Annual Report and Accounts In-text: (Britishairways.com, 2009) Bibliography: Britishairways.com, (2009). British Airways 2008/09 Annual Report and Accounts. [online] Available at: http://www.britishairways.com/cms/global/microsites/ba_reports0809/financial/opfin_stats.html [Accessed 30 Jun. 2015]. Centreforaviation.com Ryanair SWOT: low costs remain the key strength, even as customer service enhancements take root | CAPA - Centre for Aviation In-text: (Centreforaviation.com, 2015) Bibliography: Centreforaviation.com, (2015). Ryanair SWOT: low costs remain the key strength, even as customer service enhancements take root | CAPA - Centre for Aviation. [online] Available at: http://centreforaviation.com/analysis/ryanair-swot-low-costs-remain-the-key-strength-even-as-customer-service-enhancements-take-root-186145 [Accessed 30 Jun. 2015]. Cs.mcgill.ca British Airways In-text: (Cs.mcgill.ca, 2008) Bibliography: Cs.mcgill.ca, (2008). British Airways. [online] Available at: http://www.cs.mcgill.ca/~rwest/link-suggestion/wpcd_2008-09_augmented/wp/b/British_Airways.htm [Accessed 30 Jun. 2015]. Milligan, B. BBC News | BUSINESS | BA sells Go for �100m In-text: (Milligan, 2001) Bibliography: Milligan, B. (2001). BBC News | BUSINESS | BA sells Go for �100m. [online] News.bbc.co.uk. Available at: http://news.bbc.co.uk/2/hi/business/1388980.stm [Accessed 30 Jun. 2015]. Milmo, D. BA strike: conflict that was always on airlines flight path In-text: (Milmo, 2009) Bibliography: Milmo, D. (2009). BA strike: conflict that was always on airlines flight path. [online] the Guardian. Available at: http://www.theguardian.com/business/2009/dec/15/british-airways-strike-background [Accessed 30 Jun. 2015]. Trend, N. How Ryanair and British Airways are trying to be like easyJet In-text: (Trend, 2015) Bibliography: Trend, N. (2015). How Ryanair and British Airways are trying to be like easyJet. [online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/travel/columnists/nicktrend/11454649/How-Ryanair-and-British-Airways-are-trying-to-be-like-easyJet.html [Accessed 30 Jun. 2015]. www.flightmemory.com, H. British Airways (UK) | FlightMemory - Encyclopedia In-text: (www.flightmemory.com, 2015) Bibliography: www.flightmemory.com, H. (2015). British Airways (UK) | FlightMemory - Encyclopedia. [online] Flightmemory.com. Available at: http://www.flightmemory.com/encyclopedia/British_Airways.html#cite_ref-CCSA_72-0 [Accessed 30 Jun. 2015]. Read More