Ryanair - Low Fares Airline

Ryanair - Low Fares Airline

This paper seeks to explore the marketing techniques utilised by the low cost airline, Ryanair.

Specific analysis of its target market will identify that whilst its cost leadership strategy is hugely successful in its appeal to the mass market, closer analysis of the increasing ‘budget business traveller' segment reveal opportunities for further industry growth poignantly amidst the current economic climate.

Analysis of Ryanair's market position as ‘Europe's largest airline carrier' shows that the airline is currently market leader and cost leader. This is in sync with the business operation of the ‘no frills' concept extrapolating a low cost, high volume market yield.

A specific insight into Ryanair's marketing mix shows that its business is defined through a price orientated business construct aimed at meeting consumer needs through the promotion of low cost travel.

In conjunction, there is reference to Ryanairs current marketing tactics regarding the stimulation of a stagnant market through further cost reduction and the implications of this strategy for the businesses future success.

Introduction

The Changing face of Commercial Aviation

Since its conception the Global commercial Airline industry had been dominated by national flag- carrier airlines such as British Airways, Lufthansa, American Airlines and Air France.

This oligopoly market, consisting of few companies advocated the utilisation of restrictive trade practices (such as collusion and market sharing) to raise prices and restrict the emergence of new competition (Button et al., 1998). However, in 1978, the Airline Deregulation Act passed in America conceptualised the economic liberalisation of air travel amid growing realisation that a politically controlled economy served no continuing public interest (Smith & Cox, 2002). This was soon followed by a greater global inclination to liberalise respective airline industries.

In Europe particularly, the ‘open skies' legislation of the late 1980's aimed at challenging the cartel of flag-carrying national airlines such as British Airways, Air France and Lufthansa which controlled 40% of the available passenger-kilometres on scheduled intra-European flights through bilateral agreements (Ghoshal et al., 1988).

Resultantly, the once formidable barriers of market entry were removed allowing the competition, namely Southwest Airlines and ‘ copycat' companies such as Ryanair, to realise the entrepreneurial opportunity for the introduction of a pricing strategy targeted at shattering the then existing pricing stronghold on the market.

The Southwest Airlines model

Aligned with the theories of Porter (1985), the ‘adopted' Ryanair model or ‘the Southwest model' advocated the implementation of a cost leadership strategy. Porter stated that there are three generic strategies aimed at obtaining a competitive advantage;

• Cost-leadership

• Differentiation

• Focus

The cost leadership strategy is designed to produce goods or services at a lower cost than competitors by stressing efficient scale of operation (Wook Yoo, Lemak & Choi, 2006). Characteristics of successful implementation of this strategy include the sale of a comparable product more efficiently than the competitor whilst applying an industry wide market scope (Parnell, 2000; Brooks, 1993).

Firms often drive their cost lower through investments in efficient-scale facilities, tight cost and overhead control, and cost minimizations in such areas as service, selling and advertising (Porter, 1980). They often sell no-frills, standardized products to the most typical customers in the industry. Thus, the primary thing for a firm seeking competitively valuable way of reducing cost is to concentrate on maintaining efficiency through all activities in order to effectively control every expense and find new sources of potential cost reduction (Dess and Davis, 1984).

The Southwest model aimed at matching this criterion by offering the consumer the possibility of low cost regional air travel through its ‘no frills' business concept. This model focused on supreme price differentiation through reducing overheads and operational inefficiencies, in particular;

• Flying one type of plane to cut engineering costs

• High frequency flights

• Quick airline turn- round