The Ryanair Strategy

The Ryanair Strategy

Below is an interesting article by the Independent newspaper about the criticism by the Office of Fair Trading calling the airline "puerile and childish" over its charging policy.

What I find interesting about this whole calamity presently facing the "budget" airline industry are the reasons why Ryanair seems to be continually losing the battle for positive public perceptions, when rivals such as Easyjet or BMI do not seem to suffer to the same extent.

I remember days past when our breakfast cereals were regularly accompanied by a steady diet of the words and images of Ryanair Chief Executive Michael O'Leary regularly telling us how well his company was performing and the reasons why low-cost customers in such large numbers were making it their choice.

Mr O'Leary hasn't been around much lately and Ryanair continues to be plagued by bad press, from stories about charging passengers to go to the toilet whilst on board and even rumours, probably com0pletely untrue, about getting rid of seats altogether.

The difficulty is a complex one. It seems to me that the initial basis for Ryanair's strategy stems from the pursuit of a cost leadership strategy. I've written about this on a number of previous occasions. What is often forgotten is that such a strategy, whilst clear, has different options for effective application and certain minimum requirements.

Yip and Johnson (2007) in their article Transforming Strategy highlight that low cost only works if the firm is lowest cost. This implies that being lower than many others simply isn't sufficient for truly great competitive performance.

There are also different ways in which to practice the overall cost leadership advantage. Firms can be "no frills", "low price" and hybrid in their approaches. It needs to be realised that low costs bear much less relationship to the prices charged to the customer than is often assumed. Easyjet offers a good, basic service without the added, unnecessary and costly extras, providing a "no-frills" position. A low-price strategy offers low prices in relation to the competition. There's a huge suggestion pervading the media that people feel that the headline prices offered by Ryanair resemble little of what the customer finally ends up paying. Tesco competes using a hybrid strategy which keeps its costs down but allows differentiation in areas its customers value. All these strategies depend on cutting out waste, yet maintaining the critical success factors necessary for a company's survival in a particular market. This might be the problem for Ryanair; it is simply trying to charge for service components that customers take for granted and expect as a minimum requirement for use.

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