Analysis of The Low-Cost Business Model of Ryanair Airlines and the Possible Options on How to Improve It

Established in the mid-1980s, Ryanair Airlines entered the industry following the introduction of the low-cost airline business model. The company’s history and experience following this model have resulted in unprecedented success, ultimately leading the company to be recognized as Europe’s largest airline holding a significant footprint in the region. Throughout this paper, you will gain insight into the company’s history, current state, and the outlook for the future. However, a significant problem has emerged with a pilot shortage and what Ryanair Airlines hopes for with their future expansion efforts. Current Ryanair pilots seek greater opportunities throughout the world with higher salaries and benefits, but Ryanair Airlines are failing to succumb to their requests and demands. The company is failing to retain qualified pilots and continues to lose them to more robust airlines within Europe, causing the organization to fail at expanding within the region In addition, I will examine a wide variety of topics to include the airline’s aircraft fleet and route structure, employee demographics, governing agencies, employee certification requirements, economic aspects, and accident history. I will also examine the company’s proposal to expand operations and analyze whether this is feasible due to pilot shortages throughout Europe coupled with the company’s recent labor disputes.

Ryanair

Ryanair Airlines began operations in 1986 with a regularly scheduled service between Dublin Ireland and London England that offered low-cost pricing while still offering a premium service experience for all flights that included meals, free beverages, and other perks that were not offered by competing airlines (Thomas, Ryanair: success before love, 2015). Soon after Ryanair’s inception, a price war ensued between the fledgling airline and its primary competitors. Two years later the company lost £2 million, and within five years of initial launch, they were incurring losses of £5 million annually (Thomas, Ryanair: success before love, 2015) The early struggles of trying to maintain a strategy of low-cost premium service along with the price war embattlement resulted in the airline being within mere hours of bankruptcy by January of 1991 (Thomas, Ryanair: success before love, 2015). Recognizing that this strategy was doomed to fail Chief Financial Officer, Michael O’Leary revamped the company’s vision by prioritizing expenditures, not public opinion, adopted the highly successful business strategy laid out by Southwest Airlines of a low-cost no-frills business model (Thomas, Ryanair: success before love, 2015). The change resulted in a low public opinion of the airline by its customers; however profits are high and the company has become one of the most profitable airlines in the industry as well as being the largest European airline by passenger numbers (Thomas, Ryanair: success before love, 2015).

Ryanair’s Fleet, Route Structure, and Number of Employees

Currently, Ryanair operates a fleet of more than 450 aircraft comprising of Boeing 737-800 series aircraft with planned orders of 210 new Boeing models to increase the aircraft inventory to 585 by the year 2024 allowing the company to expand from 142 million customers served to 200 million annually (Ryanair, Fleet, 2019). The average aircraft in the Ryanair fleet is only 6.5 years old and that will continue to lower as newer airframes are introduced in the coming years (Ryanair, Fleet, 2019). The airlines primarily operate out of 215 airports serving 37 countries throughout Europe and Africa (Ryanair, Fact and Figures, 2019). With over 1,800 routes supporting 2,000 flights daily, Ryanair boasts its number one international airline rating with 130 million passengers served annually (Ryanair, Fact and Figures, 2019). The company currently employees over 16,000 individuals that work in a variety of fields that includes pilots, engineers, cabin crew, and the head office (Ryanair, Careers, 2019).

Corporate Structure

Ryanair Airlines is organized as a private corporation having shareholders who actively buy and sell shares of the company. Current ownership of the company is categorized into four major shareholding categories. As of March 2018, the 77.67% of holdings were held in intuitional ownership accounts, 4.77% of holding was held by insider traders, 17.56% held by the general public, and the final 00.0079% shareholding maintained by private company ownership (Simply Wall Street, 2018).

Regulatory Guidance

The Irish Department of Transport, Tourism and Sport develops and implements guidance for aviation practices and procedures and ensures that home nation policies conform to international standards (Department of Transport, 2019). Due to Ryanair’s footprint being heavily dispersed throughout Europe. Ryanair also must comply with European Union and International Civil Aviation Organization laws and regulations. The International Civil Aviation Organization established in 1944 and strives to reach international consensus on flight safety and international aviation standards for 192 member states (ICAO, 2019).

Certification Requirements

Ryanair has five categories available for pilots to gain employment with the company; Direct Entry Captain, Direct Entry First Officer, Non-Rated Captain, Learjet Captains and First Officers, and Sponsored Cade Program. The standard minimum requirements for each category are to have a valid European Union Passport with unrestricted rights to live and work in the European Union, under the age of 65, hold a valid EU (Part-MED) issued Class 1 medical certificate, and have a level four operational English Language Proficiency (Ryanair, 2019). Direct Entry Captains are required to minimum of 3,500 (800 as Pilot in Command) hours flying and 2,000 hours of experience on a Multi-crew, Multi-engine aircraft weighing in excess of 30,000 kilograms, hold a B737 300-900 type rating with 500 logged hours, and operated as commander within the last 36 months (Ryanair, Ryanair Pilot Requirements, 2019). Minimum of 800 hours Pilot in Command (PIC) on a Multi-crew, Multi-engine jet aircraft weighing in excess of 30,000kg (Ryanair, Ryanair Pilot Requirements, 2019).

Direct Entry First Officers have less stringent requirements than Direct Entry Captains, however, are still required to hold minimum standards. These include having a minimum of 1,200 hours of total flying time, with a minimum of that time being of 1,000 hours on a CS25 type aircraft, and 800 hours of experience flying the B737-300 to 900 series aircraft (Ryanair, Ryanair Pilot Requirements, 2019). Non-rated Captains are required to have a minimum of 3,500 of total flying time with 2,000 of that being on Multi-crew, Multi-engine jet aircraft weighing in excess of 30,000 kilograms with an established airline, cargo operator, private operator or military transport (Ryanair, Ryanair Pilot Requirements, 2019).

In addition to this, the pilot must a minimum of 800 hours of Pilot in Command experience on a Multi-crew, Multi-engine jet aircraft of the same weight listed above (Ryanair, Ryanair Pilot Requirements, 2019). Finally, Learjet Captains and First Officers have significantly fewer requirements only needing 3,000 hours and 500 hours respectively of total hours flown, and 500 and 50 hours of Pilot in Command experience on Learjet aircraft (Ryanair, Ryanair Pilot Requirements, 2019). Regulatory Guidance for Airline Routes, Rates, and Economics Within Ireland, air carriers who primarily operate within the confines of the country are subject to the regulations established by the Commission for Aviation Regulation (Department of Transport, 2019). The commission regulates airport charges at Dublin Airport and maintains responsibility for airport schedule and slot allocations within all of Ireland (Regulation, 2019). Ryanair’s international flight’s fares and routes are regulated by the European Union Internal Market.

The significance of the creation of this open market was the removal of all restrictions on all European Union licensed air carriers for routes served, number of flights, and fares charged to passengers (Department of Transport, 2019). Since its introduction, Europe has seen a significant increase in available route and number of flights available. Between 1992 and 2016 available destinations have risen from 2,700 to 7,400; flights have more than doubled from 10,000 to 23,000 (The Blue Swan Daily, 2017). Additionally, the creation of the European Union Internal Market opened a competition between European Airlines allowing for cheaper travel (The Blue Swan Daily, 2017). Ryanair Chief Executive Officer, Michael O’Leary has openly stated that establishment of the internal market is “the stand-out achievement of the EU” over the last 25 years and has “lowered airfares and enabled citizens to travel freely all over Europe” (The Blue Swan Daily, 2017). This has undoubtedly facilitated the overall success of Ryanair Airlines since its humble beginning to where it is today as one of the world’s leading airlines.

Fleet Ownership

As of 31 March 2018 Ryanair, Airlines operated 431 aircraft with 31 of those being leased representing an overall number of 92.81 percent of aircraft being owned versus 7.19 percent being leased by the company (Ryanair, Ryanair FY 2018 Annual Report, 2018).

Between 2003 and 2014 the Ryanair leased 75 aircraft with 7-year sale-and-leaseback agreements with several international companies and has since returned 45 of those aircraft to the lessor resulting the 31 currently held as of the 2018 date (Ryanair, Ryanair FY 2018 Annual Report, 2018). Ryanair is under obligation to purchase the remaining leased aircraft but does maintain the option to extend the lease on 15 of the 31 and has exercised that right on 10 thus far (Ryanair, Ryanair FY 2018 Annual Report, 2018).

Ryanair Accidents/Incidents

Following an uncontained engine failure that resulted in the loss of one life on Southwest Airlines Flight 1380 on 17 April 2017, Ryanair Airlines became the world’s safest airline that has flown over one billion passengers without a single fatality (Farrell, 2018). Minus a few minor maintenance issues and near misses in the air, Ryanair has been fortunate not to have any major accidents. The only documented incident occurred on Ryanair Flight 4102 on 10 November 2008 that was carrying 166 passengers and 6 crewmembers (Accidents, 2019). While approaching short final for arrival into Rome Ciampino Airport, the flight struck a flock of birds (Accidents, 2019). The aircrew initiated a go-around maneuver, however, having lost power due to the bird strike there was insufficient power from the two engines and the aircraft violently contacted the ground resulting in significant damage to the left main landing gear (Accidents, 2019). Contributing factors to the accident were ineffective bird countermeasures in place on and around the airport by the airport manager (Accidents, 2019). Additionally, the pilot’s decision to attempt a go-around maneuver only 7-seconds from touchdown due to a lack of indicators that a bird strike had occurred, and lack of specific aircrew training about “surprise and startle” effects in critical phases of flight resulted in the safety of all passengers aboard (Accidents, 2019). Following the accident, the crew and passengers disembarked the plane without any further incident.

Workers and Unions

Ryanair Airlines operates in 14 countries across Europe and does not officially recognize any worker labor unions held within the borders of those countries (Harper, 2003). Further complicating the formation of unions is the fear by employees that any attempt organize could result in termination of employment without sufficient cause (Harper, 2003). Member states of the European Union have advocated that Ryanair executives should recognize all organizations and trade unions in all locations that it employs personnel (Harper, 2003). In line with the airline's no-frills business model the company has chosen to negotiate workers' rights differently in an attempt to continue keeping operating costs low. The approach is a mix of staff and contract workers at each of its 60 operating bases across Europe (Coyle, 2017). The company contends that approach results in higher salaries for its employees, as well as, allowing the airline to continue offering low fares to its customers (Coyle, 2017). This business model’s design is to maneuver around unions and collective bargaining agreements (Coyle, 2017).

Prior to Christmas in 2017, Ryanair executives began to lessen its decades-old stance of not recognizing unions to avert a pilot strike that would have crippled passenger travel during the holidays (The Guardian, 2019). In September of 2018, Ryanair again faced the possibility of a pilot strike in Germany, Italy, Portugal, Belgium, Spain, and the Netherlands (Coffey, 2018). Circumstances behind the proposed strike involved pay, however, the main factor for the strike was the opposition of unions 'lobbying most strongly for a transition from workers being employed on Irish contracts and subject to Irish legislation to their own countries' labor laws” (Coffey, 2018). Following the September 2018 strike that affected 250 flights and 40,000 passengers, Ryanair “signed an agreement with the German pilot union of over wages and benefits (Independent, 2018). This seemed to signal the end of strikes for the airline, however, in January of 2019, the company once again found itself on the doorstep of another work stoppage in Spain.

Once again, Ryanair averted a strike with the last-minute signing of a labor agreement between union and airline representatives (Adams, 2019). Future incidents such as these will continue until the airline and labor unions reach agreements in each respective country that they work in. Without these agreements in place, customers of the airline will be at risk for canceled flights and potential loss of money for unpaid refunds.

Problem

Ryanair has had its shares of ups and downs throughout the course of its lifespan. They have always seemed to bounce back, however, a more significant problem is occurring with a global pilot shortage in their midst. Projected shortages and increased demands for the future will require the company to think outside the box to keep the pilots they have and recruit new ones. The current Ryanair pilots are venturing out for better opportunities that include higher salaries and better benefits. “There is a buoyant market for pilots, as airlines such as Norwegian and Jet2 are expanding. We know 140 Ryanair pilots have gone to Norwegian this year” (Westcott, 2017). This is causing an issue for the company and could lead to severe consequences. Ryanair is attempting to stop the shortage and retain their pilots within their organization. “The company is offering a £12,000 bonus to captains who stay” (Westcott, 2017). However, this incentive requires a hefty obligation from the pilots. Ryanair is asking the pilots to fly over 800 hours every year and restricting their sick leave; a small price to pay for the bonus they are acquiring. Additionally, the corporation is allowing young pilots to promote quickly to captain. This can be a blessing and a curse, promotion, and motivation of younger pilots can create a sense of accomplishment within their careers. However, there is the risk of the newly promoted captains to transfer to other airlines sooner. This corporation has an obligation to correct their shortage in order to keep their customers happy and on time to their next destination.

Options that the company can consider offering additional benefits along with the signing bonuses. Several airline companies across the globe offer additional benefits such as cost living benefits that could help retention or lure additional recruits (Garcia, 2018). Another area that the company could consider is to aggressively recruit more women to the flight deck, however, this will take time to due to training requirements since you can’t just pluck them off the street and place them on the flight deck (Garcia, 2018). One of the factors that compound the issue is that Ryan almost exclusively operates B737 type aircraft. If the company were to consider opting to add different types of airframes to its fleet it would expand the available pilot pool available to them (Garcia, 2018). Ryanair planned expansion to add an additional 210 airframes by the year 2024 only exacerbates the problem even more (Ryanair, Fleet, 2019). Having trouble retaining qualified pilots now, will only be compounded in the future once these new airframes are added to the fleet.

Conclusion

From its ambitious beginnings to provide a luxury flight experience at a low cost to the no-frills business model of today that has propelled the company to be one of the most successful airlines in the industry. Ryanair continues its ambition for domination in the European Union with fleet expansion and the addition of more routes available to its customers. In order to succeed the Ryanair will need to solve its labor issues and improve on customer relations moving forward. Top executives for the company have fought through tough times in the past and will continue to steer the ship in the right direction.